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Regional Patterns of Venture Capital Financing in the US Georg Erber, DIW Berlin

Regional Patterns of Venture Capital Financing in the US Georg Erber, DIW Berlin. Venture capital(VC) is a key enabler for innovative companies when they try to successfully enter the market place Key research question: What lessons can be learned from the US venture capital industry?

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Regional Patterns of Venture Capital Financing in the US Georg Erber, DIW Berlin

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  1. Regional Patterns of Venture Capital Financing in the USGeorg Erber, DIW Berlin

  2. Venture capital(VC) is a key enabler for innovative companies when they try to successfully enter the market place • Key research question: What lessons can be learned from the US venture capital industry? • There is a high volatility in VC financing over business cycles Intangible assets & regional economic growth Intangible assets & regional economic growth IAREG2

  3. Intangible assets & regional economic growth Intangible assets & regional economic growth IAREG3

  4. double even triple digit growth and decline in VC financing is common, total amount in 2008 (until 3rd Quarter) 22.6 bill. US $. number of VC deals increased since 1995 from 1,840 to 2,930 in 2008 with an interim peak in 2000 with 7,903 average amount per deal increased from 4.3 mill. in 1995 to 7.7 mill. US $ in 2008.

  5. Intangible assets & regional economic growth Intangible assets & regional economic growth Are there specific dynamics of regional patterns and resource allocation trends? by stages of start-up development by industry by regions IAREG5

  6. Key findings: steady share shift from start-up/seed and early stage financing towards higher shares in expansion and later stage financing Increasing risk averseness of VC investors The new economy bubble has had such lasting impacts on VC financing (long-memory effect)

  7. Key findings There is a significant shift away from ICT-VC financing like computers, peripherals, software or media entertainment towards new technology areas like biotechnology, industrial energy and medical devices Market driven reallocation of VC resources to new needs of society related to health, aging, energy efficiency and environment protection

  8. Key findings Steady regional concentration of VC resources in fewer regions Winners are Silicon Valley, New England together increased their share from 32.7% in 1995 to 50.3% in 2008 Losers smaller regions by smaller amount of VC capital financing in 1995. VCs Wallstreet is Silicon Valley even after shift in technology areas away from ICTs

  9. Does the stock market like NASDAQ is explaning the dynamics of overall VC financing? Key finding: no econometric evidence Dynamics more self-contained by autoregressive properties and a general financial market bubble modelled by peak dummies, lack of a direct link to stock markets like NASDAQ

  10. Policy conclusions EU should develop similar regional database for the EU member countries at NUTS2 level Benefits gives more up-to-date and comparable information accross EU-member states and the US

  11. High volatility in VC financing puts especially start-up companies during recessions and financial market crisis at risk Policy should use anti-cyclical financial support for VC especially during these periods to compensate for the short-comings of the macroeconomic environment (EU common market for VC financing)

  12. Thank your for your attention

  13. Innovation policy could learn from the flexibility of reallocation of financial ressources by the more market-driven private VC towards new research areas Europe should encourage a higher concentration of VC financing in a few major centers accross national boudaries to become more internationally competitive

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