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@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
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3
Most Startups Are Not High-Growth Tech-Based
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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
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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
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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
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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
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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
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-
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
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-
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
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$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
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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
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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
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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