Featured Indicator: Venture Capital Investment

VC investments provide equity investments for the purposes of new growth, transforming innovation into economic growth.

Here at Camoin, we have found ourselves increasingly incorporating venture capital (VC) investment data into our projects, particularly when we are working to quantify the innovation that is occurring within a geography or industry. VC investments transform innovation into economic growth by providing funding to grow companies, and therefore grow the economy. By providing equity investments for the purpose of new growth VC has become an increasingly important economic development factor.

Venture capital data is valuable; as a result it is often offered by service providers to subscribers who pay a premium for access to this information. For those who don’t have access to a subscription based data set, PWC’s MoneyTree provides a wealth of aggregate VC information, including historical trends and sector insights. This collaboration with data provider CB Insights provides quarterly reports and data updates related to the VC and high-growth startup ecosystem, including data aggregations by sector, state, region, or stage of development.

What's the data telling us?

Unsurprisingly, the data shows that the San Francisco and Silicon Valley areas lead the way in VC investment amounts. These are followed by the New York Metro area, and New England.

The top investment sectors include Internet, Healthcare, and Mobile & Telecommunications.

In addition to these top level overviews, data can be downloaded for analysis or further sliced and diced on the MoneyTree platform. This tool for example, allows users to quickly drill down to the internet sector in the San Francisco metro area, and sort by stage of funding. The predominance of later stage VC funding could reflect an increased level of risk adversity by investors - by investing in later stage companies, VC investors take on less risk, as the chance of business failure is lower, presumably.

Why is this important?

VC financing continues to drive growth in the U.S. economy, with some of the largest companies such as Apple, Google, Amazon, Starbucks, and Costco receiving early external financing from VC. VC enables company founders to transfer the financial risk of business failure to the VC firm, providing an injection of capital that promotes entrepreneurship and supports innovation which might not otherwise occur within an economy. VC in the U.S is largely driven by private sectors and is supported by a well-developed market. This has allowed for VC to be a driving force or technological innovations, economic growth, and employment.

 

[1] Strebulaev, I.A. and Gornall, W. “How Much Does Venture Capital Drive the U.S. Economy?” Stanford Business, 21 Oct. 2015. https://www.gsb.stanford.edu/insights/how-much-does-venture-capital-drive-us-economy

[2] Breuer, W. & Pinkwart, A. J Bus Econ (2018) 88: 319. https://doi.org/10.1007/s11573-018-0892-x

[3] Ning, Y. “Venture Capital Drives Economic Innovation. Victoria Advocate, 26 May 2019. https://www.victoriaadvocate.com/news/business/venture-capital-drives-economic-innovation/article_05cc3594-7d97-11e9-81dc-87b2dfa79d11.html

 

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