Good news for Innovators: Venture Capital is Back!
Policy-makers, economists, investors, economic developers and I have lamented for the past few years the fact that private sector capital had not yet gotten back into the game.
The good news for innovators is that in 2010, the venture capital (VC) sector came roaring back, putting $26.2 billion into 2,799 venture deals, a spike of 11 percent from 2009 and a major sign that formerly wary VCs have begun to come off the sidelines, according to a study by Dow Jones VentureSource.
The promising data also showed that 2,636 deals took in $23.6 billion, with the fourth quarter alone raising $7.6 billion through 735 deals — a 6 percent increase in capital invested from the same quarter a year prior.
Private capital is an essential ingredient in the recipe of American innovation and job creation. The willingness of private investors to take the risks in funding disruptive technologies and new business models is responsible for creating entire new industries that today employ millions in high paying jobs in the very industries now sought after by our graduates.
Venture Capital Impact
In 2008, venture capital-backed companies employed more than 12 million people and generated nearly $3 trillion in revenue. Respectively, these figures accounted for 11 percent of private sector employment and represented the equivalent of 21 percent of U.S. GDP during that same year. These findings extend trends regarding venture capital’s outsized impact – or “ripple effect” – on the U.S. economy that stretch back to 2001.
Moreover, other countries have developed financing and investing tools such as sovereign wealth funds, which are government investment funds, funded by foreign currency reserves but managed separately from official currency reserves. Basically, they are pools of money governments invest for profit. Often this money is used to invest in foreign companies, i.e., American companies.
The U.S. does not fund private sector investment through sovereign wealth funds. The closest we’ve come is the hundreds of billions of dollars in a taxpayer-funded bailout, where the U.S. has held and still holds investor positions in private companies. These investments were clearly triggered by the financial crisis and few believe they are long-term positions for our government.
As America relies on private capital to fuel innovation and entrepreneurship, which results in increased national competitiveness, it is good to see it back in the game – in a big way.
I know it’s early, but 2011 is trending positively for innovators.
- Johnathan M. Holifield, Trim Tabber