Venture Capital Growth in Southern

California

Presented by: Bree NguyenFaculty Mentor: Dr. Tayyeb Shabbir

Becoming Silicon Valley

Importance of Venture Capital• Venture Capital Fuels:

New businesses, especially high impact ones

New industries

Job creation

Technological advancement

International competitiveness

Innovative Activity

Importance of Venture Capital

“The single, most important

component of long-term

economic

growth.”

Rosenberg, Nathan (Stanford University). 2004. Innovation and Economic Growth. In Innovation and Growth in Tourism. OECD Publishing.

Innovative Activity

Venture Capital Growth by Region

Region 2011

Silicon Valley $11,629,888,100 40.9%

Boston/New England

$3,204,345,800 11.3%

Southern California

$2,805,076,900 9.9%

Total $28,425,075,400

Source:

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 $-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

0

50

100

150

200

250

300

350

400

Total Dollars Amt (M) Acquistions Total Deals

Southern California Venture

Capital

Source:

Acquisitions & IPO’s (Exits)

2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

50

100

150

200

250

300

350

400

Southern California

Source:

Acquisitions & IPO’s (Exits)

2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

50

100

150

200

250

300

350

400

Southern California Silicon Valley

Source:

Nurture and Promote

Southern California Venture

Capital

What are the unique qualities

Southern California possesses

that support venture capital

activity?

Determinants of Growth• Supply-side

o # of Venture Firms

o Venture Flows ($)

o Labor/Engineers

• Demand-side

o University R&D

o Corporate R&D

o Entrepreneurs

o Policy

o IPOs/Acquisitions

Mason, Colin (University of Strathclyde, Scotland). “Venture Capital: A Geographical Perspective.” Handbook of Research on Venture Capital. 2009.

Horvath, Michael (Dartmouth University). “Imitating Silicon Valley: Regional Comparisons of Innovation Activity Based on Venture Capital Flows.” Building High-Tech Clusters. 2004.

The Data• Source: CB Insights Investment Database

• Includes:o Investments across all stages of funding

o Superior tracking and categorization

o Detailed industry and sector data

o Acquisition, IPO and failure data

• Source: Bureau of Labor Statistics

Determinants of Growth

• Journal of Urban Economicso Edward L. Glaeser, William R. Kerr, Giacomo

A.M. Ponzetto (Harvard Business School)

o “Clusters of Entrepreneurship”

• Introduced:

“city-industry”

determinants of growth

Engineering Labor

Region # Of Engineers

Southern California 163,350

Source:

Engineering Labor

Region # Of Engineers

Southern California 163,350

Silicon Valley 164,200

Source:

Internet Industry Growth

2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Internet

Source: Source:

Internet Industry Growth

2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Internet % of Engineers in Internet

Source: Source:

Engineering Labor

RegionEngineers in

Internet Industry

Avg. Growth Time

Southern California 29,730 12.95 months

Source: Source:

Engineering Labor

RegionEngineers in

Internet Industry

Avg. Growth Time

Southern California 29,730 12.95 months

Silicon Valley 27,542 13.47 months

Source: Source:

Conclusions• IPO/Exit activity as strong in Southern California as

Silicon Valley

• Preliminary results show some correlation between

growth of engineering labor and industry growth

• Possible correlations between firm growth and

available labor

• These are Southern California qualities worth

promoting to potential investors and entrepreneurs

Continued research• In-depth analysis of each determinant

o Confirm correlations

o I.e. Test if Labor/Firm Growth holds over time and why

o Test with additional variables

• Explore other “city-industry” determinants

• Build a complete model of “city-industry”

determinants to understand the region as a whole

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Thank You