“In God We Trust, All Others Bring Data,” a quote attributed to mathemetician W. Edwards Deming, is NASA’s unofficial motto.
For the first time, we have data to back up what many already knew — venture capital-backed companies are a major catalyst for growth and dynamism in our economy.
Venture capital (VC) has long been known for backing iconic American companies, from Moderna and Genentech to Zoom, Alphabet and FedEx. Our organizations — the Kenan Institute for Private Enterprise, the National Venture Capital Association and Venture Forward — just released a new study that provides compelling insights into how venture-backed companies are America’s resilient job engines.
Here is what the data tell us: Employment at VC-backed companies grew nearly 1000 percent from 1990 to 2020. That’s a pace eight times that of employment at non-VC-backed companies, demonstrating the incredible employment growth of companies supported by venture capital.
Much has been written about the degree to which VC is deployed in states like California, Massachusetts and New York. While these states account for roughly 75 percent of VC dollars annually, the employment base of venture-backed companies tells a different story. Our report finds that 62.5 percent of employment at VC-backed companies is located outside of California, Massachusetts and New York. This is an incredible finding that shows venture is creating jobs across our great country. This is a trend that policymakers should encourage by focusing on building and supporting emerging ecosystems.
Resilience is another striking attribute of venture-backed jobs we found in our report. During the Great Recession, annual private sector job growth decreased by more than 4 percent while job growth at VC-backed companies increased 4 percent during the same period. The economy goes through cycles, and it is important to have companies that continue to grow employment even in difficult times.
The big takeaway from these findings is that venture capital plays an incredible role in fueling robust job growth that has been vital to the U.S. economy. But we cannot rest on our laurels, because we need more of this activity. Our world faces many challenges, such as eradicating diseases, addressing the ongoing pandemic, cybersecurity and climate change. Venture capital is addressing these and other areas of need, and our country needs more entrepreneurs working to address these issues.
There is a critical role for policymakers in ramping up venture-backed entrepreneurial activity. Too often Washington is focused on the companies of today instead of asking itself how to lay the foundation for the companies and technologies of tomorrow. Policy changes in a few key areas can make a big difference.
First, the U.S. should act like top sports teams and recruit the best players. That means making it easier for foreign-born entrepreneurs to launch new, high-growth companies in the U.S. by creating a startup visa. This concept has earned bipartisan support over the years and is the ultimate “free lunch.” Our country is currently fighting with one hand tied behind its back because we make it unnecessarily difficult for immigrant entrepreneurs to create new American companies. Meanwhile, other countries have created startup visa programs that welcome entrepreneurs with open arms. Congress can fix this problem by passing Rep. Zoe Lofgren
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Third, innovative startups and their investors face mounting headwinds via SEC regulation of private companies and funds, and new beneficial ownership rules from the Treasury Department that only apply to small companies. Policymakers should be sensitive to how these regulatory burdens impact emerging startup ecosystems. All too often, regulators and lawmakers write rules of the road when thinking of larger players while failing to acknowledge that smaller players must live by the same rulebook.
The new findings from our report are convincing evidence of the key role venture capital plays in our economy. The question policymakers must ask themselves is how we can ignite more of this activity as our country addresses the problems of today and tomorrow?
Venture-backed companies are America’s resilient and dynamic job engines, and we need to keep these engines humming.
Bobby Franklin is the president & CEO of the National Venture Capital Association (NVCA). Gregory Brown is a distinguished professor of finance at the University of North Carolina and executive director of the Frank Hawkins Kenan Institute of Private Enterprise. He also is the founder and research director of the Institute for Private Capital.
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