Startup companies have long been the lifeblood of the high-tech industry. After the Internet bubble burst in 2001, startups had a tough time finding financing and gaining enough traction to develop new products and hire workers. But it looks as if the climate is changing.
Venture investment and startup data compiled for the first quarter of 2011 indicates both investors and young companies are becoming more comfortable with the business environment. A Silicon Valley Bank survey of 375 US-based, private, venture capital-backed software, hardware, life science, and cleantech companies revealed that startups are optimistic about current business opportunities.
Respondents say business conditions have improved and are improving further, and that they will continue to hire to support their growth. Nationwide, 83 percent plan to hire this year, up significantly from the already high percentage (73 percent) of startups that reported plans to hire in last year's report.
Greg Becker, CEO of SVB Financial Group and Silicon Valley Bank, was quoted in a press release:
Because we work with amazing companies everyday that are creating new services and even industries, we have always known intuitively that the innovation sector will lead the U.S. in economic recovery. This new data, however, clearly shows that technology companies met or beat their 2010 revenue targets, are still experiencing improved business conditions and are creating U.S. jobs. There is no question that the innovation sector is making a tangible impact on the U.S. economy and our ability to compete globally.
While Silicon Valley has long been the center of high-tech innovation, the Boston area showed the biggest uptick in investment during the first quarter of 2011, according to The Wall Street Journal.
Overall, the US venture industry saw its most active first quarter since 2008. Investors deployed $6.44 billion in 661 deals in the first three months, a 35 percent dollar hike from the year-ago period, according to data from industry tracker VentureSource. The year-to-year increase was nearly across the board, with the IT, healthcare, cleantech, and consumer services sectors all rising.
There are still significant impediments to further growth, however: Respondents to the SVB report by and large identify limited access to equity capital and the regulatory and political environment as their largest impediments to growth. According to the report:
Across startups, the regulatory issues of greatest concern were uncertainty about new regulations, the impact the overall regulatory environment has on risk taking, and health care reform. Life science companies are particularly concerned about the impact the regulatory environment is having on their ability to thrive: 64 percent of these companies say the regulatory environment is a challenge and 83 percent say the government could help them grow by improving the FDA approval process.
While the first-quarter data is promising, it will be awhile before market-watchers know for sure the climate is changing. Companies will need to demonstrate sustainable revenue growth before they can raise subsequent levels of funding or float an initial public offering. In 1999, US venture funding hit its highest level ever; by 2001 those funds had nearly disappeared. A longer cycle this time would indicate investors are being more careful with their money, and startups are targeting business models with long-term viability.