According to a recent study published by the National Venture Capital Association (NVCA), venture-backed companies outperformed their non-venture backed counterparts between 2003 and 2005, with a 4.1 percent compound annual growth rate in jobs and an 11.3 percent compound annual growth rate in sales. These numbers were compared to non-venture backed private sector growth rates of 1.3 percent and 8.5 percent respectively. The study, entitled Venture Impact: The Economic Importance of Venture Capital Backed Companies to the U.S. Economy further revealed that venture-backed companies comprise significant percentages of the jobs and revenues in the technology and retail sectors.
The report also highlighted that venture-backed companies contribute importantly to growth in state economies. For example, in 2005, Ohio venture-backed companies employed 184,000 persons up from 173,000 in 2003, thereby leveraging the region’s venture capital investments. Nationally, Ohio moved up 14th in terms of the impact of venture capital on jobs created by venture-funded companies. California, Texas, Pennsylvania, Massachusetts and Georgia ranked among the top five states with the highest number of jobs created by venture-backed companies.
“These findings from the NVCA reaffirm our belief that venture capital investments in Ohio are having a positive and growing impact on our regional economy,” said James D. Ireland III, Managing Director of Early Stage Partners LP and Chair of NorTech’s Venture Capital Advisory Task Force.
The NVCA analysis comes on the heels of the release of a Greater Cleveland Venture Capital Report, commissioned by NorTech’s Venture Capital Advisory Task Force, a team created to monitor Northeast Ohio venture capital activity. The task force report revealed that more than $500 million in venture capital and private equity was invested in 97 companies in the region between 2004-2006, 60% of which was invested by firms from outside the State of Ohio.
“We are encouraged by the amount of deal flow venture capital firms are experiencing in Northeast Ohio. We are particularly pleased by the heightened level of outside investment and feel it’s a good indication of the amount of high quality venture opportunities that exist in the region,” said Baiju Shah, President of BioEnterprise and member of the NorTech Venture Capital Advisory Task Force. Ohio’s increased venture investment activity and number of venture-backed companies have been supported by the success of three state based initiatives: the Ohio Capital Fund, a fund of funds established to help increase venture investment in Ohio companies in the seed and early stages of business development; the Ohio-Midwest Fund, a targeted asset allocation by the Ohio Public Employee Retirements System to foster the creation and growth of young and maturing companies and encourage the development and growth of a vibrant Ohio-based private equity community, and the Third Frontier Program which has awarded grants to pre-seed, seed, and early stage investment firms, research institutions, start-up companies, and business accelerators throughout the region.
The investment stimulation from the State of Ohio, partnered with efforts by regional financial institutions, foundations, and endowments, has led to the blossoming of an increasingly vibrant Northeast Ohio venture capital environment. Since 2001, a number of new seed and early-stage venture firms have been established in Northeast Ohio with a focus on investing in regional technology and technology-enabled ventures. In addition, Northeast Ohio now boasts a network of professionally staffed development organizations, like JumpStart Inc.; an early stage venture development organization that has committed more than $7.5M in twenty early stage companies since its inception in 2004. JumpStart portfolio companies have further raised an additional $17M in follow-on funding. Additionally, BioEnterprise, a health care accelerator, have helped companies raise more than $400 million since 2002.
The combination of an increasingly vibrant regional venture environment and a professional and comprehensive innovation network has attracted the attention of venture firms across the U.S. to not only spend time in, but also to invest capital in Northeast Ohio. Over the last 3 years, more than 45 nationally-based investment firms have participated in Northeast Ohio investments. In addition, three national venture firms from Pittsburgh, Louisville, and St. Louis--have responded to the increased Ohio venture activity by establishing satellite offices in the region.
Importantly, such venture activity is also expected to increase significantly in future years, according to the Greater Cleveland Venture Capital Report. Building on the $500 million of venture capital invested during 2004-2006, the Report indicates that over the next five years, Northeast Ohio will need to generate and attract an estimated $1.2 billion in additional venture equity funding, of which $375 million is estimated to be seed and early stage capital provided largely by regional investors and over $800 million is estimated to be later stage venture capital, provided largely by national investors. “These growth trends in venture funding evidence the strong degree to which we are successfully transforming our regional economy,” noted Dorothy Baunach, President and CEO of NorTech. “However, continuing growth in the volume of national venture funding will be strongly dependent on the region continuing to step up the pace of its seed and early stage investing in order to create a growing transactional deal pipeline for national investment,” she added.
To learn more about the National Venture Capital Association report, visit: http://www.nvca.org/pdf/NVCA_VentureCapital07.pdf
To learn more about the Greater Cleveland Venture Capital report, visit:
http://www.nortech.org/Docs/2006%20Venture%20Capital%20Report.pdf
About NorTech:
NorTech is the catalyst for making Northeast Ohio a global leader in technology and innovation by creating, expanding and retaining global business opportunities. We connect the technology leadership of Northeast Ohio, secure the necessary funds and resources for pilot projects and successfully launch them as independent entities while fostering a dynamic and sustainable, innovation infrastructure in the region. Our shared vision for the region is to become one of the top ten places in the world to live, learn, work and invest by 2020. www.nortech.org