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We all know that capital is the lifeblood of business.
Cut the flow of capital and you will see a corresponding
drop in business (or worse). A recent report by the
National Venture Capital Association puts this in more
perspective as far as how it affects both the companies
that attract capital and the economy as a whole.
The report, released in July, showed that companies that
received venture funding grew during the economic
downturn of 2000-2003, while the overall business
climate foundered. In fact, national job growth overall
was –2.3% during that period, while at VC-backed
companies the growth was +6.5%. Revenue generation was
impacted as well, as VC-backed companies showed revenue
growth of 11.6% versus 6.5% for the nation as a whole.
(Figures provided by Global Insight.)
There is another interesting correlation between
obtaining venture capital and productivity. The study
found that states that received higher amounts of
venture capital per worker also experienced higher
growth in productivity per worker.
Venture capital also fuels new business ideas. The
capital provides more opportunities for smaller
companies to conduct R&D, generating both significant
developments for the companies themselves as well as
producing new ideas and concepts to larger companies
higher up the food chain. According to the National
Science Foundation, small business R&D expenditures in
2003 were nine times higher than they were in 1984 – a
figure of $40.1 billion versus $4.4 billion.
The conclusion of the report was that venture capital
helps small businesses to both grow and withstand the
shocks of economic downturns. While there are naturally
many small businesses that fail – even with an infusion
of venture capital – those that succeed can become
market leaders, changing the way we live our lives.
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