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November 15, 2023
March 11, 2016
November 15, 2023
March 11, 2016

Stanford GSB finds VC-backed companies have outsized impact on US economy

Ilya Strebulaev and Will Gornall, two scholars at the Stanford Graduate School of Business, recently published an analysis of the VC industry that details some interesting data points on venture-backed companies contributions to the US economy:

Of the currently public U.S. companies we have founding dates for, approximately 1,330 were founded between 1979 and 2013. Of those, 574, or 43%, are VC-backed. These companies comprise 57% of the market capitalization and 38% of the employees of all such “new” public companies. Moreover, their R&D expenditure constitutes an overwhelming 82% of the total R&D of new public companies.[emphasis added]

Those R&D figures are especially important as the federal government has reduced R&D expenditures substantially due to budget cuts, Bloomberg reported in July 2015:

After peaking 50 years ago during the Apollo-era space race, federal R&D spending has fallen as a share of GDP from almost 2 percent in the mid-1960s to 0.8 percent in the first quarter of this year, the lowest level since World War II.

Fortunately, ventured-backed companies have been able to pick up some of the slack.

The authors’ work also highlights how venture investing has made an out-sized impact on the broader economy despite having raised substantially less capital than the private equity community:

Our results also suggest that the VC industry has leveraged a small amount of capital—when compared to the private equity industry—into investments that resulted in a large number of important companies.
Over the past 50 years, the U.S. VC industry has raised $0.6 trillion and made its investments from that pool. Over that same period, the private equity industry raised four times as much, at $2.4 trillion—four times as much. In 2014, the private equity industry raised $218 billion, almost 10 times the $31 billion raised by the VC industry. In fact, VC funds invest in only 0.19% of new U.S. businesses.
VC-backed companies include some of the most innovative companies in the world. To get an idea of the importance of these companies, it is instructive to look at research and development. In 2013, VC-backed U.S. public companies spent $115 billion on research and development; up from essentially zero in 1979.

Other interesting stats:

The Economic Impact of Venture Capital

VC-backed companies as a percentage of public U.S. companies founded since 1979:

  • Total Number: 43%
  • Total Market Capitalization: 57%
  • Total Employees: 38%
  • Research & Development: 82%

Percentage of Public Companies with VC Backing Each Year:

Since 1979, the percentage of public companies rose steadily until the year 2000, when the percent by number spiked to 25%, and the percent by market capitalization leveled out at around 17%. After a sharp drop in percent by number in the early 2000’s, that measurement has corrected and regained momentum. The percentage of market capitalization has remained steady.

The relative number of employees working for VC-backed vs non VC-backed public companies has increased steadily since 1979.

Some of the largest U.S. VC-backed companies of all time include 3Com, Tesla, Genentech, Bed, Bath & Beyond, Whole Foods, Apple, Starbucks and Costco.