Company Formation, Venture Capital Remain Concerns in Data for San Diego’s Innovation Economy

Xconomy San Diego — 

The economic indicators in San Diego’s innovation economy are flashing mixed signals for the first quarter of 2010, based on data released by Connect, the nonprofit group for technology and entrepreneurship. The Connect Innovation Report can be found online here, and my roundup of the latest data follows:

Flashing Red: New company formation fell by 21 percent during the first three months of 2010, with just 51 startups established, compared with 66 startups that formed during the same period in 2009, according to the Connect report on San Diego’s innovation economy. New company formation also declined about 31 percent from the fourth quarter of 2009, when 74 companies started in the San Diego area. “This is most likely a seasonal variation due in part to potentially higher tax liabilities incurred in establishing a new business in the first quarter,” says Economist Kelly Cunningham, a senior fellow at the National University System Institute for Policy Research, in the Connect report. One ominous note: The formation of technology startups throughout California was down by 37 percent.

Flashing Green: There were 46 M&A deals in the San Diego area that totaled over $845 million during the first quarter, a 9 percent increase over the same quarter in 2009 and a nearly 59 percent gain over the fourth quarter of 2009. Over 30 percent of all M&A deals that closed during the quarter in Southern California involved San Diego companies.

Flashing Yellow: Venture Capital investments in San Diego companies declined by 27 percent, to $222 million in 29 deals from $305 million in 31 deals during the previous quarter (Fourth quarter of 2009), according to data from the MoneyTree Report prepared by PricewaterhouseCoopers and the National Venture Capital Association. That’s less than half the $576 million that VCs invested during the first quarter of 2007, but still represents a 242 percent increase from the same quarter in 2009, when a paltry $92 million was invested in just 16 companies in the San Diego area. As we previously reported, about 64 percent of the first-quarter VC funding was invested in … Next Page »

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