The NVCA released a study and press release last week that covered the topic of the economic impact of venture capital in the U.S. I was intrigued to read the report as I have seen numbers of the impact that our portfolio companies have had on the Utah environment, but had yet to look into national numbers.
I was also intrigued because here in Utah there are banks known as Industrial Loan Corporations (ILC’s) that have Community Re-investment Act (CRA) credits to fulfill, which can be done through the investment in a venture capital firm that in turn invests in startups, creating new jobs. (Note it is all a little more technical than this, but that description is the simplified version). So within VC firms (or at least the two that I have experience with) there is quite a bit of talk of showing these ILC’s the economic impact in order to receive additional Limited Partner investments.
The report was a succinct 23 pages, covering the basics of VC and covering the economic impacts in highlighted regions and across the country. The national facts that I found of interest included:
- In 2005, due to VC investment 10m jobs (or 9% of U.S. private sector employment) were created and $2.1 trillion revenue (or 16.6 % of the national GDP) was earned.
- In 2005, $23b was invested by venture capitalist. This amount represents 0.2% of the U.S. GDP, but created revenue that equaled 16.6% of the GDP.
- VC backed companies included: Intel, Microsoft, Medtronic, Apple, Genentech, Google, Home Depot, Starbucks, Staples, Whole Foods, PetSmart and eBay
As I was reading the report, I did some research on ILC’s as well. A Wikipedia entry stated that there are seven states that permit the ILC’s with Utah having the largest ILC presence. A separate article, that actually addresses the current local issue of Walmart wanting to form an ILC, states that as of “December 31, 2004 there were twenty-nine charted ILCs in Utah with $120b in total assets.”
I found this all to be quite intriguing, but it also posed the thought that I do not know why Utah has allowed the ILC’s to form (not that this is a negative or a positive)? Rather I am just wondering why they are conducive to our market? Why have only seven states allowed the ILCs to form? Why was Utah willing to openly accept them? I truly don’t know… any comments and knowledge from you readers would be appreciated.