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Connect’s Innovation Report Highlights Higher Federal Spending

Xconomy San Diego — 

A comprehensive snapshot of San Diego’s innovation economy shows a slowdown in new company formation, with 78 technology startups created during the three months that ended in September. But federal grants for basic research jumped to new highs, with funding awarded by the National Institutes of Health (NIH) up 44 percent and funding from the National Science Foundation (NSF) doubling over the previous quarter.

The total of 78 technology companies started during the third quarter is down about 24 percent from the 102 startups launched in the previous quarter, and is down about the same amount from the 103 companies created during the third quarter of 2008, according to the report released yesterday by Connect, a San Diego nonprofit group that promotes technology innovation and entrepreneurship.

Among other things, Connect’s innovation report compares innovation-related business activity in San Diego with the rest of California. So, for example, of the 78 companies launched in the San Diego area during the third quarter, 29 were life sciences companies and accounted for 21 percent of the 138 life sciences startups statewide—the most for any county in the state. Connect also counted 26 new software companies during the quarter (13.5 percent of 192 statewide), a modest uptick from the 22 launched in San Diego during the second quarter, and nine communications startups (8.7 percent of 103 statewide), compared with 14 in the previous quarter.

If nothing else, the report suggests that increased federal funding has helped to mitigate the pullback of private capital over the past year. The total venture capital invested in San Diego during the first nine months this year, $580 million in 75 deals, is well behind the pace of 2008, when $1.2 billion was invested in 126 deals here over the year. NIH grants to San Diego biomedical researchers climbed to $383 million during the third quarter, a 44 percent gain over the $265 million awarded in the second quarter. Funding from the NSF also increased to $114.5 million during the quarter, from $56.3 million in the previous quarter.

Venture capital funding in the region, as we reported here, increased 18 percent from the third quarter of 2008, with 32 local companies receiving $236 million, according to data from PricewaterhouseCoopers and the National Venture Capital Association. Funding for early stage ventures accounted for almost 70 percent of San Diego’s total.

The Connect list of top 10 investment deals, based on MoneyTree’s 3Q data:

Roka Bioscience $37.2 million

Zogenix   $36.0 million

Intellikine   $25.5 million

DriveCam  $19.0 million

Liquid Environmental Solutions $15 million

BeneChill  $10.0 million

Rayspan Corp.  $12.5 million

Achates Power  $12.1 million

Medsphere Systems  $12 million

Altain Therapeutics   $11 million

Some other data points from the Connect report:

—Mergers and acquisitions were up to 32 deals in San Diego during the third quarter, compared with 24 deals during the previous quarter.

—In San Diego, 791 patents were granted during the third quarter, a 14 percent increase compared to the previous quarter, when 691 patents were granted. San Diego accounted for 17 percent of the patents filed statewide during the quarter.

—Both average weekly wages and employment fell slightly in the third quarter, with the total number of employees at San Diego private research institutes amounting to about 30,000 people. Average weekly wage for these employees dropped to roughly $1,764.

Connect’s innovation report, which it developed in partnership with the National University Institute for Policy Research, UC San Diego Extension, PricewaterhouseCoopers, the Procopio, Cory, Hargreaves & Savitch law firm, and the San Diego Business Journal, is intended to serve as economic indicator of the health of San Diego’s innovation economy in San Diego.