Venture capital significantly impacts US GDP

A new study by the economic and financial information provider Global Insight shows how venture capital-backed companies have positively affected employment rates and revenue generation across industries in the US.

Venture capital-backed companies make a significant impact on the US gross domestic product, according to a study conducted by economic and financial information provider Global Insight and issued by the National Venture Capital Association. The study, called “Venture Impact: The Economic Importance of Venture Capital Backed Companies to the US Economy”, examines the impact the companies have on employment and revenues.

US companies that received venture capital between 1970 and 2005 generated about 10 million jobs and more than $2 trillion (€1.5 trillion) in revenues in 2005, the study said. Those figures represent about 9 percent of the US private sector work force and nearly 17 percent of the total US GDP.

“Venture capital is an integral and critical component of US economic growth and becoming more so every year,” Mark Heesen, the president of the National Venture Capital Association, said in a statement. “Consider the fact that venture investment itself represents just 0.2 percent of US GDP but venture-backed companies account for nearly 17 percent of GDP. It is critical that key components of the venture capital ecosystem—support for our capital markets, funding for basic research and development, increases in H-1B visas, and more math and science graduates—remain conducive for fostering this kind of vibrancy.”

Venture capital backing particularly impacted jobs and revenues at companies in the technology and retail sectors, the study said. Such companies include shipping services provider FedEx; semiconductor producer Intel; Internet networking equipment and management provider Cisco; specialty coffee retailer Starbucks; biotechnology research company Genentech; Internet search engine Google; online auction site eBay; computer developer Apple; and home improvement retailer Home Depot.

In analyzing the venture capital-backed companies by industry, the study found that the companies outgrew non-venture-backed companies by employment rates and revenue growth rates between 2003 and 2005. The industries examined include biotechnology, computers, software, media and entertainment and retail. Venture capital-backed biotechnology companies, for example, saw an increase of more than nine percent annual growth between 2003 and 2005 while the total industry gained only about three percent during the same period. “This translates to nearly 425,000 high-skilled, high-waged jobs contributed by venture-backed companies to the biotechnology and medical devices sectors in 2005,” the statement said. Revenues of venture capital-backed biotechnology companies accounted for about 92 percent of industry-wide revenues in 2005.

The venture capital-backed media, entertainment and retail industries—accounted for as one division in the study—showed the greatest generation of jobs. The sectors employed more than two million people in 2005, which is more than half of the entire industry’s employment, the statement said. The sector’s venture capital-backed companies also contributed about $300 billion in sales in 2005.

The venture capital-backed companies also contribute to state economies, the study said, particularly noting the contributions seen in California, Texas, Pennsylvania, Massachusetts and Georgia. Pennsylvania saw the highest growth in employment, increasing nearly 15 percent between 2003 and 2005. California experienced the highest rate of revenue growth, increasing by nearly 13 percent between 2003 and 2005 to generate nearly $507 billion  in 2005.