Tag: NFIB

Do Colorado Companies Receive Their Fair Share of VC Funding?

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Colorado policy makers and business leaders take great pride in the state’s innovation and cowboy entrepreneurial spirit, but do Colorado’s innovators receive the funding or venture capital necessary to take their companies and ideas to the next level?

Most business leaders and policy makers answer the question with a resounding “No!” It is their belief that the local entrepreneurial community would be stronger if Colorado innovators had greater access to local capital.

On the other hand, the National Federation of Independent Business (NFIB) research resoundingly states that most businesses are adequately funded and that their greatest need is to have more customers. Admittedly, the NFIB customer base includes small businesses other than those who seek VC funding, so their results may not be totally representative of the VC community.

Some venture capitalists claim that Colorado lacks the critical mass of companies in any one cluster to warrant the attention that companies and policy makers feel they deserve. It is their belief that quality innovation will attract sufficient funding, no matter the location.

Price Waterhouse Coopers (PWC) Moneytree conducts research regarding the number of VC deals and investments for the U.S. and the states. Since 1995:
• Colorado companies have received 1.6 to 4.2% of total U.S. investment.
• Colorado companies have received 2.2 to 3.4% of total U.S. deals.
• The average size of an investment per deal is similar for Colorado and the U.S.
• Colorado has approximately 2.0% of total U.S. private sector firms.

Based on the number of companies in Colorado, the state typically receives more than its share of VC funding. The question is, “Do Colorado companies receive their fair share of VC funding?”.

For additional slides about Colorado’s VC funding  go to the PWC website.

©Copyright 2011 by CBER.

Lack of Small Business Growth Holding Back Recovery

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The National Federation of Independent Business  survey results for February 2011 provide mixed signs about the economic recovery. Although the NFIB Index of Small Business Optimism posted a slight gain in January, the magnitude of this increase was not significant.

On a positive note, the 4th quarter GDP recorded growth of 3.2% and consumer spending was up 4.4%. While the upward movement of these indicators is good news, it does not reflect the considerable challenges facing many small business owners.

Key findings from the February survey were:
• Sales were improved.
• The outlook for sales is more optimistic.
• Inventories are higher, a sign of better things to come.
• Firms have become more confident about raising prices.
• Price increases must be dealt with delicately in the near-term.
• Fears of deflation have eased.
• The outlook for profits is brighter; however, small businesses are not enjoying the same growth as large businesses.
• Many small businesses are not in a strong enough position to support moderate hiring and capital spending.
• Almost all firms felt their credit needs were met or that they were not interested in borrowing.

Finally, survey respondents identified their single most important problem (see table below). As has been the case throughout the recession, the lack of sales, i.e. weak consumer activity, continues to be at the top of the list. Taxes and government red tape follow in the second and third position.

The lack of growth of our country’s small businesses is one reason why this recovery has been so slow and painful. Looking ahead, significant growth of the country’s small businesses is necessary for the U.S. to reach pre-recession employment levels.

To download the full report go to http://www.nfib.com/research-foundation .

©Copyright 2011 by CBER.

Small Business Start-Ups on the Decline?

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During a typical recession, the number of new or start-up businesses increases as some individuals start their own firms when they lose their jobs. As these start-ups become successful, job creation occurs, thus shortening the recovery periods. Unfortunately, the Lost Decade is not your typical recession.

On December 8, Aaron Smith of Moody Analytics reported that an analysis of BLS  data shows that the number of self-employed people fell from a peak of 15.5 million in December of 2006 to 13.7 million in October of this year, or a decline of 1.8 million. He went on to say that over the past decade, the self-employed have comprised 9.5% to 10.5% of the U.S. workforce, and today that percentage is closer to 9.5%.

Both Smith and others agree that small business sentiment is improving. For example, Vectra Bank’s Colorado Small Business Index has posted miniscule, but steady gains for the period of July through October. Despite increased optimism, small businesses do not appear to be thinking about expansion of capital expenditures, hiring, and increased inventory.

Assuming there is not a major revision in the data, this analysis raises a series of questions:
• Is this problem driven by a lack of demand or availability to credit? While both have been a problem, NFIB  research suggests that lack of demand has been more problematic.
• Is this reduction in startups tied to cutbacks in manufacturing and high tech jobs or might it be a function of increased dependence on imports?
• Has there been a structural change in our economic infrastructure that has diminished demand for start-ups?
• Is this a sign that the U.S. has lost its edge in competitiveness or innovation?
• Does this downward trend in firm creation exist in small-business-friendly states such as Colorado?

Hopefully this downturn in small business activity is just a brief hiccup, and that there will be a resurgence in start-ups in the near-term.

©Copyright 2011 by CBER.