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San Diego’s Innovation Economy Strong, With Some Emerging Concerns

Xconomy San Diego — 

San Diego’s innovation economy showed relatively strong economic growth during the first three months of 2012, according to an in-depth study released by Connect, a San Diego nonprofit group that supports technology entrepreneurship.

But the Connect study also highlights some potential concerns, including a sharp drop in the number of software companies that were started in San Diego in the first quarter, and a significant decrease in federal research grant awards for basic biomedical research.

The backdrop for Connect’s latest quarterly report is an encouraging forecast that San Diego’s overall economy will grow by 2.2 percent in 2012, according to the National University System Institute for Policy Research. If that prediction holds true, San Diego’s gross domestic product would rise to $184.5 billion in 2012 (from $177.5 billion in 2011)—the strongest growth the region has seen in six years.

Nevertheless, San Diego’s general economic recovery remains sluggish. After adding 36,000 jobs in 2010 and 2011—and if another 21,000 jobs materialize in 2012 as predicted—the total number of jobs added would still be just over half of those lost in the recession of 2007-09.

The Connect Innovation Report tracks economic signals affecting San Diego’s biggest technology clusters—in life sciences, software, communications, and other sectors—during the first quarter of 2012.

Venture capital firms invested a total of $356 million in 22 companies in San Diego during the first quarter, the highest amount since the third quarter of 2009. (As we reported at the time, however, one deal accounted for $144 million of that.) More than two-thirds of the total capital was invested in early stage companies, and the new ventures created 171 new jobs in the region (a decrease from 2011 when startups created an average of 296 jobs per quarter.)

San Diego also hit a patent record during the first quarter, according to the report, with 1,284 being granted to San Diego inventors.

The report shows that entrepreneurs founded a total of 58 tech companies here during the three months that ended March 31. That was the lowest total for this region since the first quarter of 2010, when 35 startups were founded. It marked a 29 percent decrease from the fourth quarter of 2011, when 75 startups were founded, and a 17 percent decline from the year-ago quarter, when entrepreneurs founded 70 startups here.

So what happened? There were many fewer software startups during the quarter—just 15, in contrast to 2011, when the quarterly average of software startups was 27.

The report also shows biomedical research for San Diego universities and institutes amounted to $115.6 million during the first quarter. That was down 21 percent from the previous quarter ($148.1 million) and off more than 55 percent from the year-ago quarter ($257.8 million)

The report says the drop is the result of the National Institutes of Health operating under a continuing budget resolution. Further reductions are expected, as the government’s efforts at deficit reduction are projected to bite deeply into research grant awards.