Report Shows San Diego’s Innovation Economy Gaining Strength Through June

Xconomy San Diego — 

A comprehensive snapshot of San Diego’s innovation economy shows that 76 technology startups were formed during the three months that ended June 30, a nearly 20 percent increase over the 64 startups established during the same quarter last year.

Counting the 70 new tech companies formed during the first quarter, a total of 146 startups sprouted here during the first half of 2011, according to the latest Connect Innovation Report, which covers innovation activity in the San Diego area during the second quarter of 2011. The full report is available here.

Connect’s innovation report also highlights rising tech employment, a three-fold increase in the total value of M&A deals involving tech companies, and a historic high for patent applications. The report was prepared by Connect, the nonprofit group supporting San Diego innovation and entrepreneurship.

Taken as a whole, the indicators suggest that economic activity was improving for thousands of local life sciences, technology, and defense companies during the first half of 2011. For example, the 146 new companies founded during the first six months of 2011 marked a nearly 48 percent jump over the 99 new companies formed during the first half of 2010.

But the encouraging vital signs measured in the report were taken before this summer, when U.S. markets were unsettled by a variety of political and economic setbacks, both foreign and domestic.

Those broader economic concerns could have been a factor in a nationwide survey of CEO confidence conducted during the third quarter by Vistage International. The survey, which Connect included in its full report, found that small-business CEOs anticipate a slowdown in the pace of economic growth amid record-high economic uncertainty. Generally speaking, that means small companies are more cautious about making investments and slower to hire new workers. The September survey of 1,710 small business CEOs resulted in a CEO confidence index of 83.5, marking a 20 percent decline from 105.2 confidence level seen in the first quarter—and the index’s lowest level in two years.

Connect’s report typically lags by a full quarter because of the time required to gather and assemble economic data from a variety of sources. Here are some other highlights:

—Almost 6,150 companies comprise San Diego’s tech sector, which accounted for an estimated 139,400 jobs during the second quarter and more than $3.5 billion in total payroll. Tech startups created 160 new jobs.

—Life sciences, which includes biotech, pharma, biomedical devices, and health IT companies, had the largest workforce during the second quarter, with an estimated 28,600 jobs. San Diego’s communications equipment manufacturing sector ranked second, with 28,400 jobs. Software placed third with about 27,100 jobs.

—Federal research grants to more than 80 research institutes and companies in the San Diego area totaled $348 million during the second quarter, down 9 percent from $383 million in the same quarter last year and down about 2 percent from $356 million in the preceding quarter.

—Researchers counted 62 corporate merger and acquisition deals targeting San Diego companies during the quarter, accounting for total value of $1.1 billion. That was more than triple the total value of $317 million from 40 M&A deals in the same quarter last year. But it wasn’t even half of the $2.3 billion generated by 47 deals during the first quarter of 2011.

—Innovators in the San Diego area filed 1,725 patent applications, an historic high, and a 12 percent rise from the 1,541 patents filed during the first quarter, according to the patent group at the Procopio, Cory law firm. The U.S. Patent and Trademark Office granted 1,037 patents to San Diego innovators, down 7 percent from the 1,115 granted in the previous quarter.

—As we’ve reported previously, the MoneyTree Report shows that venture capitalists invested $198 million in 29 deals in the San Diego region during the second quarter of 2011, a 25 percent increase compared to the previous quarter, but a decline from the $216 million VCs invested in 30 local companies during the same quarter last year. The noteworthy aspect with the venture capital report is that San Diego’s ranking among the U.S.  regions (based on the amount of total venture capital invested) slipped from eighth to eleventh during the second quarter. It wasn’t that long ago that San Diego regularly placed third—behind Silicon Valley and Boston.