Innovation Report Details Ups and Downs of San Diego Startups

Xconomy San Diego — 

San Diego’s innovation economy continues to move mostly sideways, with venture capital investments plunging and employment improving slightly among high technology and life sciences startups, according to a report today from Connect, the nonprofit group for technology and entrepreneurship. The mixed signals also showed San Diego’s merger and acquisition activity soared and federal grants to researchers strengthened during the last quarter of 2010.

A .pdf file for the full report can be downloaded here. My breakdown of the highlights and leading indicators for San Diego’s innovation economy follows:

—Eighty-four high tech and life sciences startups were formed in the region during the fourth quarter of 2010, a 13 percent increase from the same quarter of 2009, when 74 new companies were started. For the year, the report counted 277 new startup companies, which was a 13 percent decline from the 319 startups founded in 2009.

—Mergers and acquisitions jumped substantially across California in 2010 compared to the previous year. The value of reported San Diego M&A deals that closed during the fourth quarter was almost $1.7 billion. The nearly $4 billion in M&A deals reported here in 2010 was more than double the value of deals reported 2009. In Southern California, the M&A market in 2010 totaled more than $40 billion—almost seven times more than what was reported in 2009.

—Combined funding from the National Institutes of Health and the National Science Foundation for scientists in the San Diego area increased in 2010 to $42.5 million per 100,000 residents from $34.4 million per 100,000 in 2009. The report says that makes San Diego one of the state’s top innovation economies, based on federal grants received per capita. Total NIH financing for this region was almost $1.2 billion in 2010, a 28 percent gain from 2009, while NSF support amounted to almost $126 million, a slight increase from 2009.

—In the fourth quarter, San Diego got $278 million in NIH backing, and more than $31 million from the NSF.

— San Diego innovation companies received almost $32 million in Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) program grants in 2010, according to new data from the Department of Defense.

As we reported in January, venture capital investors put $193 million into 26 startups in the San Diego region during the fourth quarter of 2010, according to the most recent MoneyTree report from PricewaterhouseCoopers, the National Venture Capital Association, and Thomson/Reuters. That was a 43 percent drop in dollars invested and a 25 percent decline in the number of deals compared with the fourth quarter of 2009.

— When using a moving average of three quarters’ data (which smooths quarter-to-quarter fluctuations for a clearer trend analysis), San Diego’s fourth quarter VC investment moving average was down more than 50 percent from the fourth quarter of 2007—a substantially larger decrease than seen in other key innovation economies, such as Silicon Valley and Boston.

—Overall tech employment has decreased about 2 percent in San Diego over the past three years, with a slight uptick noted in the fourth quarter of 2010. Recent employment data shows San Diego added about 2,000 jobs of all types in February, but overall unemployment remains high at 10.1 percent.

—San Diego’s new tech companies created almost 200 jobs in the fourth quarter of 2010, and more than 930 for the full year 2010. Overall startup employment was down 13 percent from 2009, however. For the entire year, the life sciences sector created the most jobs (303), followed by software (243), computer and electronics (150), communications (120), environmental technologies (64), and other (50).

— Communications equipment manufacturing was again the largest employment sector in San Diego with almost 28,000 jobs. The life sciences sector and software each represented 27,400 jobs. These tech sectors represent only 6 percent of employers and just over 11 percent of all jobs in San Diego County. But the report notes that tech employment accounts for more than 25 percent of all wages and pays almost 95 percent more than the average industry wage in San Diego.

—San Diego continues to lead Southern California in terms of the patents published and granted per 100,000 residents over the past three years. San Diego also shows higher year-to-year growth in the number of patents published and granted between 2008 and 2010 compared to other California regions and the Boston innovation hub. Over the past three years, the number of patents published increased by more than 12 percent, and the number of patent grants jumped by more than 45 percent in San Diego.

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One response to “Innovation Report Details Ups and Downs of San Diego Startups”

  1. Gary P. says:

    The real issue is that high tech from the software side has been leaving the San Diego area.
    We have never been able to get VC funding in SD and for colleagues of mine that have they had a requirement to move.
    SD is so focused on the bio pharma world that they forget there are many other “facebook” types out there.