Tag Archives: IPO

U.S. Falling Behind in Innovation–Part I

It was bad enough that the U.S. traded its manufacturing might for quick profits by outsourcing outside the country, but now it looks like our knowledge-based economy is faltering under global competition as well.

A report just released by the nonprofit, nonpartisan, public think tank, Information Technology and Innovation Foundation (ITIF) indicates that innovation in the U.S. is rapidly falling behind the rest of the world. The study currently places the U.S. in sixth place in the world, and running at a pace that will place it even lower over the next decade.

There have been many studies made over time, as well as more recently, that place the U.S. as the world leader in innovation. However, those studies have been based on opinions, interviews, and surveys. This report by the ITIF is the first to approach innovation from a scientific perspective, using 16 indicators to study innovation and competitiveness. These indicators fall into six broad categories:

  • Human capital
  • Innovation capacity
  • Entrepreneurship
  • IT infrastructure
  • Economic policy
  • Economic performance

Not only did the ITIF study place the U.S. in sixth place in the world for innovation and competitiveness, but the study also determined that all of the other 39 nations/regions studied have made faster progress toward the new knowledge-based innovation economy in recent years than did the U.S. The study shows that the U.S. has made the least progress of the 40 nations/regions in improvement in international competitiveness and innovation over the last decade. The U.S. is dead last in this category.

This should come as no surprise, since the National Academies published their landmark study, “Rising Above the Gathering Storm,” back in 2005. It warned then that America’s lead in science and technology was “…eroding at a time when many other nations are gathering strength.” It appears their warning has come to pass.

What is happening to the greatest industrial nation in the world? Have we allowed greed and avarice to cloud our minds, so we can’t see beyond the next payday? Are IPO’s more important than innovation? Is shareholder value more important than spending profits and dividends on R&D and innovation? Are our industrial leaders so intent on filling their pockets, they have lost their way? Has our government (under the guise of public interest) regulated the heart out of those companies that could best put the U.S. back in the role of world leader?

The ITIF study presents six things that need to be done by the U.S. (or any nation/region) to improve their innovation and competitiveness. I will present these six things as part II in my next post. Watch for it.

Venture Capital – I

Venture capitalists rely primarily on an Initial Public Offering (IPO) for their big payday, but now, because of the recession, that window has been slammed shut. Does that mean venture capitalists are temporarily out of business?

Absolutely not, according to a recent report by PricewaterhouseCoopers. Venture capitalists have simply modified their strategy to accommodate the current economic conditions. As a result, U.S. venture capital investing has remained within historical norms through the third quarter of 2008. In fact, venture capitalists entered into more deals in the first three quarters of 2008, than in the same three quarters of all years since 2001. The trend for venture capital investments is up…and so should be the spirits of any company looking for venture investments.

In addition, the major changes the venture firms are making are likely to work better for most new companies, such as:

  • The life cycle of the average investment is now longer (due to lack of IPO exits). Earlier venture investments were planned to end in four or five years—now they are looking at eight or nine years. This means that venture firms may invest additional capital, over a longer period, to assure continued growth of your company until “payday.”
  • On the front end of the life cycle, the venture firms are typically investing sooner in the seed and early stage start-up phase. This means they may initially invest smaller amounts than they might have in prior years. This is good news for many ready-to-start companies.

Of course, the requirements for acquiring venture capital is about the same as they always have been—that is, a great idea, and an outstanding management team. Oh yes, you also must have a willingness to work harder than you ever thought you possibly could. Venture capital is not for everyone, and it is very difficult to obtain, but for those companies that need a sound investor to help grow their business, venture capital is necessary—and available.

The time has never been better for new company start-ups, and in future posts I will be giving some guidelines on how to prepare to seek venture capital.