Performance of Venture-backed Companies During Economic Downturn 2000-2004

Emily Mendell and John Taylor, NVCA and Channa Luma, The Weiser Group


Reprinted with permission, National Venture Capital Association All rights reserved

Companies that Received Venture Funding During their Growth Phases Accounted for 10 million jobs and $1.8 trillion in Revenue for the U.S. in 2003

States with Strongest Venture Funding Enjoy Highest Growth Rates

Jobs and revenues at U.S. companies backed by venture capitalists grew during the 2000 - 2003 economic downturn, according to a new study conducted by Global Insight, sponsored by the National Venture Capital Association (NVCA).

Companies that received venture financing between 1970 and 2003 accounted for 10.1 million jobs and $1.8 trillion in revenue in 2003, representing approximately 9.4% of total U.S. jobs and revenues. These companies registered 6.5% and 11.6% gains in jobs and revenues respectively between 2000 and 2003 while national employment fell 2.3% and U.S. company revenues rose 6.5%.

"The performance of venture-backed companies during these challenging years demonstrates what venture capital creates - market leading companies that contribute significantly to the U.S. economy and better withstand difficult business conditions," said Andrew Hodge, managing director, North American macroeconomics at Global Insight. "Venture-backed companies may begin very small but those that succeed go on to define new industry sectors, changing the way we live and work."

Prominent U.S. companies that received venture financing during their growth phases include: Microsoft, Federal Express, AOL, Apple, Office Depot, Intel, Home Depot, Cisco, Compaq, Genentech, Amgen, and Starbucks. More recent beneficiaries of venture funding include: e-Bay, JetBlue, Seagate, and Google.

"This study is particularly relevant when put in context with the technology bubble of 2001," said Mark Heesen, president of NVCA. "In venture capital, failures occur very early on but successes last a very long time. As we can see, these are the companies that drive economic growth, innovation, and progress. Without venture capital, they may never have gotten off the ground."

The study, entitled "Venture Impact 2004: Venture Capital Benefits to the U.S. Economy," was commissioned by the NVCA and conducted by leading economic analysis and forecasting firm Global Insight, Inc (formerly known as DRI-WEFA). Global Insight constructed a database of more than 20,000 U.S. companies that received venture capital investment at some point between 1970 and 2003. From this database, Global Insight was able to measure the number of jobs and revenues these companies contributed to the U.S. economy in the years 2000 and 2003. The analysis was further broken down by states and industry sectors.

Venture-Backed Companies Outperform in Job and Revenue Generation in 10 Industry Sectors

The Global Insight study shows that VC-backed companies fared better in job creation and revenue growth than their U.S. private company peers in 10 separate industries. Even in sectors that suffered net job losses, such as computer hardware and semiconductors, venture-backed companies were less affected. Not only did ventured companies grow faster than their national industry counterparts, but the sectors with higher concentrations of VC financing experienced higher employment growth differentials. The best example is the computer software industry, where venture-backed firms employed 88 percent of all computer software workers. Also, venture-backed software companies saw their revenues grow by 31 percent, compared with an overall 5 percent growth rate for the industry as a whole.

National vs. VC Employment and Sales Growth, 2000-2003

Sector Jobs Revenue
National Cos. VC-backed Cos. National Cos. VC-backed Cos.
Biotechnology 5% 23% 22% 28%
Business/Financial -1% 4% 11% 11%
Communications -18% 5% -7% 2%
Computer Hardware & Services -14% -1% -2% 12%
Computer Software -8% 17% 5% 31%
Healthcare Products -2% 16% 6% 9%
Healthcare Services 9% 10% 25% 26%
Industrial / Energy -9% 1% .2% 6%
Retailing & Media -1% 12% 9% 20%
Semiconductors & Electronics -26% -10% -21% -16%
TOTAL -2.3% 6.5% 6.5% 11.6%

Source: Global Insight 2004

Venture Capital Impacts Companies in All 50 U.S. States

From 1970 - 2003 venture capitalists invested $338.5 billion dollars into more than 21,600 U.S. companies. States where venture capital investment has been the strongest in the last three decades such as California, Texas, and Massachusetts have produced the most jobs and revenues for the country. Several states that are not necessarily known for the highest levels of venture investing, but where a venture-backed market leader resides, have made significant contributions to the national economy as well. Examples include: Washington (headquarters to Microsoft and Costco); Tennessee (headquarters to Federal Express); and Georgia (headquarters to Home Depot).

National Jobs at Originally Venture-Backed Companies in 2003 Top 15 States

Rank State Jobs 2003 Cumulative VC Investment* (billions)
1 California 2,470,942 $ 140.1
2 Texas 899,173 20.5
3 Massachusetts 712,329 35.5
4 Pennsylvania 604,045 9.5
5 Georgia 551,439 7.2
6 Tennessee 543,018 2.3

New York

470,527 18.4


399,863 9.6


333,199 8.6

New Jersey

310,925 10.1


309,717 8.2
12 Minnesota 287,984 4.3
13 Illinois 235,941 7.4
14 Ohio 195,180 3.2
15 Connecticut 189,692 5.5

Source: Global Insight and PwC, TVE, NVCA MoneyTree Survey 2004
* Total VC Investment 1970 - 2003

National Revenues at Venture-Backed Companies in 2003 Top 15 States

Rank State Revenues 2003 (billions) Cumulative VC Investment* (billions)
1 California $ 437.8 $ 140.1
2 Texas 188.1 20.5
3 Massachusetts 107.4 35.5
4 Washington 101.5 9.6
5 Pennsylvania 94.4 9.5
6 Georgia 91.5 7.2
7 New York 80.2 18.4
8 Virginia 63.9 8.6
9 Florida 60.6 8.2
10 Tennessee 60.3 2.3
11 Minnesota 56.9 4.3
12 New Jersey 49.6 10.1
13 Connecticut 48.9 5.5
14 Illinois 34.4 7.4
15 North Carolina 26.9 5.8

Source: Global Insight and PwC, TVE, NVCA MoneyTree Survey2004
*Total VC Investment 1970 - 2003

While certain states have historically been greenhouses for VC investment, venture capital investment is a national asset class and spans all 50 states. For example, states such as Missouri, New Hampshire, Utah, and Oregon realized job and revenue growth at venture backed companies headquartered in their domiciles during the 2000-2003 time period.

Job and Revenue Growth of Venture Backed Companies Headquartered in Selected States 2000 - 2003

State Job Growth Revenue Growth
Missouri 4% 7%
New Hampshire 3% 8%
Oregon 4% 13%
Utah 9% 14%

The study also found a correlation between VC funding and productivity growth. Global Insight found that the higher the level of venture capital funding per worker in a given state, the more likely that state was to experience growth in output per worker. The study found that states in which companies receive the highest levels of venture funding in turn have the highest wages.

VC-backed Companies Top Contributors to R&D

In addition to jobs and revenues, venture-supported companies, often in conjunction with academic institutions, are performing a greater share of total U.S. research and development (R&D). Small companies backed by venture capital were particularly active. According to data from the National Science Foundation, the dollar value of small company R&D rose from $4.4 billion in 1984 to an estimated $40.1 billion in 2003, a nine-fold increase. The share of U.S. R&D done by companies with fewer than 500 employees rose from 5.9% in 1984 to 20.7% in 2003. Not only do these small companies fuel innovation on their own, but they also "feed" larger R&D firms with a steady stream of idea generation, according to the study. Of the top 50 firms in U.S. R&D, 41 were either originally venture-backed or were major acquirers of VC-created companies.

U.S. Venture Capital Dominates Globally

A dominant share of the entire world's total VC dollars, an estimated 72%, is invested in U.S. companies. That is second only to Israel when adjusted for the relative size of the economies of the two countries. In spite of its wealth, the U.S. has been able to maintain a high rate of economic growth due to the recurrence of new high-tech investment opportunities. The U.S. venture capital industry supports more than 40% of the companies entering the public market via IPOs.

"As a worldwide leader in venture capital investments, the United States is setting the pace for innovation, research and development, and entrepreneurship," said Jim Breyer, chairman of the NVCA and managing partner of Accel Partners in Palo Alto, CA. "We are one of very few countries that have a continuum of VC investors which helps diversify risk and ensure a steady flow of quality deals, providing excellent opportunities to grow the American economy," Breyer added.

A .pdf copy of the study highlights can be obtained by clicking here

About Global Insight

Global Insight, Inc. ( is a privately held company formed to bring together the two most respected economic analysis, forecasting and financial information companies in the world, DRI and WEFA. Global Insight provides the most comprehensive economic coverage of countries, regions and industries available, using a unique combination of expertise, models, data and software within a common analytical framework to support planning and decision-making. Global Insight collects and delivers economic and financial information to clients and also provides a broad range of consulting capabilities. With its April 2003 acquisition of World Markets Research Centre, Global Insight also provides the world's first same-day analysis and risk assessment service covering 196 countries and 4 industries, providing insightful analysis of market conditions and key events around the world. The company has over 3,300 clients in industry, finance and government with revenues in excess of $70 million, over 600 employees and 23 offices in 12 countries covering North and South America, Europe, Africa, the Middle East and Asia.

About NVCA

The National Venture Capital Association (NVCA) represents approximately 450 venture capital and private equity firms. NVCA's mission is to foster greater understanding of the importance of venture capital to the U.S. economy, and support entrepreneurial activity and innovation. The NVCA represents the public policy interests of the venture capital community, strives to maintain high professional standards, provide reliable industry data, sponsor professional development, and facilitate interaction among its members. For more information about the NVCA, please visit