@ITIFdc

How Technology-Based-Startups Support U.S. Economic Growth

November 28th, 2017

Join the Conversation: #ITIFtechstartups

About ITIF

▪ Independent, nonpartisan research and education institute focusing on intersection of technological innovation and public policy, including:

– Innovation and competitiveness

– IT and data

– Telecommunications

– Trade and globalization

– Life sciences, agricultural biotech, and energy

▪ Mission to formulate and promote policy solutions that accelerate innovation and boost productivity

▪ Ranked by University of Pennsylvania as top science and technology think tank in United States and number two in world

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Contents

Why Tech-Based-Startups?

Methodology

Overall Findings

State and Congressional District Findings

Policy Recommendations

1

2

4

5

3

3

Most Startups Are Not High-Growth Tech-Based

4

How Do We Explain…?

5

“There’s too much entrepreneurship:

Disruption running wild! There's too

little entrepreneurship: Economy

stalling out!” — Marc Andreesen

Tech-Based Industries’ Outsized Economic Contributions

6

3.6%

3.8%

6.2%

8.1%

27.2%

58.7%

70.1%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Share of Jobs

Share of Firms

Share of Gross Output

Share of Wages

Share of Exports

Share of R&D Jobs

Share of Business R&D Investment

Why Tech-Startups Matter

7

Firm Characteristics Technology-Based Startup A Typical Startup

Examples of Businesses Biotech, IT products or services Restaurants, Laundromats

Growth PathLarge potential for significant employment and revenue growth

Addition of a few jobs for this first few years, and then bankruptcy

Job CreationTend to employ more high-skilled/semi-skilled workers

Tend to employ more semi-skilled/low-skilled workers

WagesPays more than twice the national median wage

Pays less than the national median wage

Job MultipliersCreates up to five indirect jobs in other industries

Creates little to no net new jobs

R&D Investments Invests heavily in R&D Little to no R&D investment

TradeFocused on trade with international markets

Sells predominately in local markets

Contents

Why Tech-Based-Startups?

Methodology

Overall Findings

State and Congressional District Findings

Policy Recommendations

1

2

4

5

8

3

Methodology

▪ Identified tech-industries according to:

– R&D intensity

– Tech-based classifications from U.S. BLS, OECD, and Eurostat

▪ Firm level data from Business Dynamics Research Consortium

▪ Industry level data from Census Longitudinal Employer-Household Dynamics

▪ Venture Capital data from Pitchbook

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Ten Tech-Based Industries

Manufacturing Services

1. Aerospace Parts & Products 7. Computer Systems and Design

2. Computer and Electronics 8. Data Processing

3. Pharmaceuticals and Medicine 9. Software Publishing

4. Medical Devices 10. Scientific R&D

5. Semiconductor Components

6. Semiconductor Machinery

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Contents

Why Tech-Based-Startups?

Methodology

Overall Findings

State and Congressional District Findings

Policy Recommendations

1

2

4

5

11

3

Industry Breakdown, Tech-Startups, 2016

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43.7%

17.8%

24.1%

3.4%

9.0%

0.9%

0.6%

0.4%

0.0%

0.9%

Firm Count

29.0%13.8%

19.9%

4.1% 27.9%

2.3%

2.3%

0.6%0.1%

2.9%

Employment

Tech-Startups Are Up

13

-

50,000

100,000

150,000

200,000

250,000

300,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

All Firms Start-Ups Old Firms

47% ↑

40% ↑

Employment in Tech-Startups Has Grown

14

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

All Firms Start-Ups Old Firms

7% ↑

20% ↑

Tech-Startup Wages Are High and Growing

15

$39,100 $37,502 $46,366 $47,915

$85,383

$102,531

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

2007 2016

Start-Ups All Firms Tech-Based Start-Ups

Early-Stage Startups Are Down

16

0%

2%

4%

6%

8%

10%

12%

14%

16%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Pharma and Semiconductors Have More Early-Stage Startups

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5%

46%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Data Processing Services

Computer Systems Design Services

Semiconductor Components Manufacturing

Software Publishing Services

Computers and Electronics Manufacturing

Medical Devices Manufacturing

Aerospace Manufacturing

Semiconductor Machinery Manufacturing

Pharmaceuticals and Medicines Manufacturing

2016 2007

Venture-Capital Backed Startups in 2016

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Total AerospaceBiotech & Pharma

Medical Devices

Information Technology

VC-Backed Startups

19,573 154 1,303 1,935 16,181

Tech-Based Startups

175,247 1,732 12,078 6,254 127,126

VC Share of Startups

11% 9% 11% 31% 13%

Contents

Why Tech-Based-Startups?

Methodology

Overall Findings

State and Congressional District Findings

Policy Recommendations

1

2

4

5

19

3

Tech-Startups State-Findings

▪ In the median state

– 1,800 tech-startups out of 76,000 firms

– 17,000 jobs in tech-startups out of 1.6 million workers

▪ Tech-startups in the median state represents:

– 2.4 % of all businesses

– 0.9 % of all jobs

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Tech-Startups, 2016

Top 5 States

1. New Hampshire

2. Massachusetts

3. California

4. Virginia

5. Maryland

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Tech-Startup Firm Share, by State, 2016

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1.4%

2.4%

2.9%

4.7%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%SD N

DW

Y IA MS

AR

MT

NE

WV RI

KY

OK

ME

LAM

O HI

WI

KS

SC ID NY

VT IN PA AL

Med

ian

MI

TN OH DE

MN IL UT

NM

Ave

rage FL NC

GA NJ

CT

NV

AK TX OR

WA

CO AZ

MD

VA

CA

MA

NH

Most states have similar levels of tech-startup activity

Tech-Startup Employment Share, by State, 2016

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0.5%

0.9%

1.2%

2.4%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

MS

SD KY

WY HI

ND IA SC AR

WV LA MT

WI

RI

OH

OK

MI

NV

ME IN DE

MO NE IL ID

Med

ian

PA

MN TX KS

NY

TN FLN

M VT

GA AZ

AK

OR

Ave

rage C

TU

TW

AN

C NJ

AL

VA

MD

NH

CO CA

MA

Most states have similar levels of employment in tech-startups

Why Some States Attract More Tech-Startups

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▪ Correlation of 0.75 between a state’s level of technology-based startup activity and ITIF’s 2017 State New Economy Index (SNEI) overall score.

Tech-Startups Congressional District Findings

▪ In the median Congressional district

– 300 tech-startups out of 13,000 firms

– 2,300 jobs in tech-startups out of 250,000 workers

▪ Tech-startups in the median district represents:

– 2.3 % of businesses

– 0.9 % of jobs

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California-17 (Part of Silicon Valley)

Source: Wikipedia

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▪ 2,700 tech-startups that employ 35,000 workers

– 16.1 % of businesses

– 6.4 % of workers

Virginia-10 (Just Outside DC)

Source: Wikipedia

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▪ 1,900 tech-startups that employ 18,000 workers

– 11.6% of businesses

– 5.8% of workers

Texas-2 (In-and-Around Houston)

Source: Wikipedia

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▪ 1,300 tech-startups that employ 9,700 workers

▪ This represents

– 8.9% of businesses

– 2.7% of workers

Washington-1 (Just Outside Seattle)

Source: Ballotpedia

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▪ 1,300 tech-startups that employ 9,200 workers

▪ This represents

– 8.3% of businesses

– 3.5% of workers

Virginia-8 (Alexandria and Arlington)

Source: Wikipedia

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▪ 1,300 tech-startups that employ 12,000 workers

▪ This represents

– 8.3% of businesses

– 3.4% of workers

Contents

Why Tech-Based-Startups?

Methodology

Overall Findings

State and Congressional District Findings

Policy Recommendations

1

2

4

5

31

3

Policy Recommendations: Tax

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▪ Expand the rate of the Alternative Simplified Credit to at least 25 percent from 14 percent.

▪ Amend Section 469 of the tax code to permit passive investors to take advantage of the net operating losses and research tax credits of companies in which they invest.

▪ Amend Section 382 of the tax code to make it easier for small companies to carry net operating losses forward even as they continue to attract new investors.

Policy Recommendations: Regulation

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▪ Create a new Office of Innovation Policy within the Office of Management and Budget.▪ The office would specifically review the impact major regulations would

have on future innovation and would be empowered to force agencies to consider policies that would more effectively promote innovation.

▪ Charge the Office of Advocacy in the Small Business Administration with focusing solely on advocating for and reviewing federal regulations that affect new firms in technology-based industries.

Policy Recommendations: Stem Skills

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▪Establish NSF program to award prizes to universities that dramatically increase the rate at which freshmen STEM students graduate with STEM degrees.

▪Establish NSF-industry Ph.D. fellows program.

▪Expand STEM immigration

Policy Recommendations: Technology Transfer

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▪ Establish SBIR-like set-aside program that to support technology-commercialization activities.

▪ Develop a “Phase Zero” SBIR award program.▪ Develop metrics for universities to report entrepreneurship and

commercialization information annually.

Thank You!

@ITIFdc