Last month, I published an analysis in the Harvard Business Review on the gig economy and employment in San Francisco. Yesterday, the folks at HBR were kind enough to post an interactive piece of the analysis.
A cure for health care inefficiency? The value and geography of venture capital in the digital health sector
Relative to other affluent countries, the United States devotes disproportionate resources to health care with disappointing results. Recognizing these problems, entrepreneurs are increasingly applying information technology to health care equipment, monitoring, treatment, and service delivery, creating a sector known as digital health. These technologies, once embedded and distributed around the country, hold the potential to substantially alter the efficiency and quality of health care through the better generation, processing, and use of information; the reduction of overhead costs; and the empowerment of patients. This analysis finds that digital health venture capital investment is a substantial and growing share of total venture capital, creating, even in its infancy, valuable returns for owners. Venture investments in digital health are more dispersed geographically than total venture capital, yet digital health entrepreneurship has no geographic relationship to the traditional health care sector. Rather, the presence of workers in advanced service industries strongly predicts digital health investment at the metropolitan scale.
Brad Feld on Accelerators
The Gig Economy Is Real If You Know Where to Look
A number of reports in recent weeks have stressed that employment effects of the so-called gig economy—contract workers on software platforms such as Uber and AirBnB—have been overstated. At minimum, these reports indicate, any increase in gig economy employment hasn’t shown up in the aggregate statistics—at least not yet anyway.
But my analysis tells a different story, showing that the impacts can in fact be seen if you look more deeply at the data and in the right places.
The Farm Goes Digital
Digitization is transforming products, processes, and industries across the economy, and could be the key to sorely needed productivity growth across a wide range of sectors in the coming years, from manufacturing to mining, and from healthcare to home automation. One area of the economy that stands to benefit greatly from the coming wave of digital disruption is the oft-forgotten agricultural sector. Not only are the digital applications compelling, but agricultural innovation is an imperative—with no end in sight for global population growth, environmental degradation, and growing ecological constraints, increased productivity in the farming sector is a must. However, agricultural productivity growth has been steadily declining the last few decades, making a sustainable and inclusive global food source all but guaranteed. Technological innovation can—and indeed must—play a big role. Though in the early stages, emerging “AgTech” innovations have begun to show promise.
The Rich (Late-Stage Bay Area Startups) Are Getting Richer
Last month, venture capitalist Fred Wilson of Union Square Ventures posted a blog entry titled: The Rich Get Richer. In it, he notes that alarmists of a venture capital fuelled startup bubble are missing the point—it’s not an entire sector run amok, but rather, a small number companies that are driving headlines, consuming capital at a high clip, and reaching ever-higher valuations along the way:
As this brief analysis shows, Fred is right: a small number of later stage companies are skewing the overall numbers. However, there is one other point that Fred did not mention: this trend appears to be geographically concentrated in the Bay Area.
Start-Up Capital Is Spreading Across the U.S.
Startups have seemingly never been more popular, particularly in the U.S. Investors like Steve Case and Brad Feld are betting on companies outside Silicon Valley, predicting that “the rise of the rest” will geographically level the entrepreneurial playing field and make startup communities more prevalent throughout the country.
But what do the numbers say? Are startup hubs really forming all over the U.S.? To begin to answer this question, I analyzed data on a small subset of early-stage entrepreneurial ventures that are focused on high-growth — those receiving venture capital funding. I aggregated venture capital deals for each U.S. metropolitan area — 381 in this case — annually between 2009 and 2014, looking only at “first fundings,” or initial rounds of professional venture investment (those most closely associated with starting-up).
This analysis demonstrates that while a handful of well-known cities continue to dominate the landscape of early-stage venture-backed entrepreneurship, a non-trivial amount of catch-up by other cities has occurred.
Life Sciences Startups: Mixed News
This article originally appeared on the MassBio blog
(with Robert Litan)
We have authored two papers recently for the Brookings Institution documenting the 30-year decline in the “startup rate,” or the percentage of firms aged less than one year as a share of all firms. Our data show this decline in the U.S. economy as a whole, in all 50 states, in all major industries, and in all but one of the country’s 366 largest metropolitan areas. We are as surprised and disappointed as many of our readers have been, as well as puzzled. How can a country that has prided itself on its entrepreneurial activities, especially over the period we have analyzed, suffered such a steady erosion in the share of its firms that are truly entrepreneurial? We don’t yet have all the answers, though we hope to begin contributing a few in several weeks.
In the meantime, we’ve been digging into the data for one of the sectors of the U.S. economy – the life sciences industry – to see if there are any more encouraging patterns. We focused on this sector, and in particular its startups, because it historically has been a driver of innovation in human health care and has played an outsized role in new job creation economy-wide.
Although we didn’t have data for life sciences going all the way back to 1980, the start date for our earlier studies, we were able to examine the industry for the two decade period, 1990-2011. The evidence, it turns out, is mixed, and can be found in our detailed study published earlier this month at Brookings. Here are some of the highlights.
First, the bad news. Overall, the life sciences industry experienced a relative 23 percent decline in startups and subsequent job creation over this period, significantly higher than the 15 percent decline across the economy as a whole.
Some more bad news. There has been significant variation across three key life sciences industries, although all were hit hard in the Great Recession. The medical devices and equipment sector saw a steady and persistent decline in entrepreneurship and net job creation, with firm formations down more than 50 percent over the period we studied. Moreover, those firms that were born created fewer jobs over time. The medical devices segment represented about one out of every two new life sciences firms in 1990, but fell to one in three two decades later – a remarkable decline that was both steep and fell from was a large base, dragging down entrepreneurship rates in the life sciences sector overall.
Here’s the good news, however. The drugs and pharmaceuticals sector has been particularly dynamic, with over 50 percent growth in new firm formation levels by 2011. Further, while the other groups (devices and labs) saw new firm formation rates fall during the 21-year period, drugs and pharmaceuticals increased by one-tenth of a percentage point. This increase admittedly is small, but against the huge drop nationwide among all types of firms, and the especially larger drop among medical device firms, we view this increase as welcome.
Finally, while the level of new research, labs, and medical testing firms grew 38 percent between 1990 and 2007, these activities were hit hard by the Great Recession. Growth contracted after 2008, and by 2011 growth was just 4 percent higher than in 1990.
The impact of this decline in number of new firms holds implications for the economy as a whole. The decline in the net job creation rate of life sciences startups overall appears to be about the same as for the rest of the economy, but despite the overall decline, the life sciences sector demonstrated a higher net job creation rate among startups relative to the rest of the private sector. In fact, life sciences startups were key drivers of job creation in the sector during the period of 1990 to 2011, whereas the effect of job creation and destruction among medium and mature firms mostly canceled each other out. The same is not the case for the private sector as a whole, where medium and mature aged firms are large net job destroyers.
The decline in new firm formations in new medical device and equipment firms in particular appears to stretch beyond the cyclical effects of the Great Recession. We haven’t figured all the reasons why, but for starters, we believe that new insurance reimbursement models, regulatory restrictions, greater competition, and venture funding scarcity have all contributed to the decline in entrepreneurship in medical devices. Policy makers and citizens pay heed.