Connect Charts Signs of Expansion in San Diego’s Innovation Economy

Xconomy San Diego — 

A record 446 technology and life sciences startups were founded in San Diego in 2014, according to the latest innovation report released by Connect, the nonprofit group that supports regional innovation and entrepreneurship.

The number was slightly higher than the 426 companies that Connect counted in 2013, and represents a new high in the number of new San Diego startups since Connect began tracking the formation of new companies 10 years ago. It is one of many signs of a continuing expansion in San Diego’s innovation sector, Connect CEO Greg McKee said during a press briefing yesterday.

Greg McKee

Greg McKee

The Connect Innovation Report is intended to provide a comprehensive overview of San Diego’s innovation economy by assembling data from a variety of sources, including local patent filings, employment figures, and federal research funding. It takes months to prepare, and while some data were previously reported (such as 2014 venture funding), Connect is the only local organization tracking startup creation, according to Steve Hoey, who oversees Connect’s work on the report.

One surprise in the 2014 report is that the startup total included 248 software companies—or nearly 56 percent of the 446 innovative companies founded in the region. That’s unexpected because the life sciences sector drives most of the innovation deals in San Diego. For example:

—Biotech companies got 62 percent of the $805 million that venture firms invested in the San Diego region in 2014 (or almost $500 million). The second-biggest category for VC investments in San Diego was software, which got 13 percent, or close to $105 million in venture investments. Medical devices and equipment ranked third, with 6 percent, or slightly more than $48 million.

—Seven San Diego biotech companies raised a total of $416 million through initial public offerings. They accounted for all of the San Diego IPOs in 2014, according to the report.

—Of the 10 biggest M&A deals in 2014 (in which either the buyer or acquired company was based in San Diego), seven were life sciences deals and accounted for 75 percent ($19.2 billion) of the $25.4 billion in total deal valuation. The total valuation of all San Diego M&A deals in 2014 amounted to $27 billion—a 40 percent increase from 2013.

Even so, Connect’s McKee said San Diego is seeing more startup activity outside the life sciences industry. “In terms of a big whack at what we’re doing, we’re known for our life science sector in San Diego, but there are a huge number of non-life science companies here,” McKee said.

In his overview of San Diego’s ecosystem, McKee said the Connect report counted 7,000 innovation companies in 2014—with software companies representing about 32 percent of the total. Technical consulting services ranked as the second-largest sector, with 31 percent, and communications equipment manufacturing was third, with 12 percent. Pharmaceutical, biotech, and medical device companies accounted for 10 percent of the total.

San Diego’s innovation ecosystem added about 4,500 jobs in 2014, bringing total employment in the local innovation economy to 147,900. The average annual salary in the innovation sector was $115,010 last year, or more than 2.4 times the average San Diego salary of $48,650.

Of the 147,900 innovation jobs in San Diego last year, nearly 34,000 (almost 23 percent) were in the pharmaceutical, biotech, and biomedical sectors. More than 29,000 (nearly 20 percent) were in software, about 28,000 (19 percent) were in communications equipment manufacturing, and almost 24,000 (16 percent) were in defense and transportation.