Startup Outlook Report 2013

20
Public Policy
Issues
Key Findings
4
Understanding
Startups
10
Hiring Talent
1612
Business
Environment
32
U.S. Versus
U.K. Startups
Startup Outlook
2013 Report

Executive Summary
Key Findings
2013 Survey Respondents
Understanding Startups
Business Environment
Hiring Talent
The Impact of Public Policies on Startups
Intellectual Property Protection
Tax Reform
U.S. Manufacturing
Medical Device Tax
U.S. Versus U.K. Startups
Part 1: Overview
Part 2: Detailed Findings
1
4
7
10
12
16
20
20
24
25
28
32
Startup Outlook Report 2013

1
Part 1: Overview
“The Federal Government needs to be as flexible and
lean as a small startup. Learn to pivot and learn to endorse
new technology that will stay here in the US.”
President/CEO, Healthcare Startup
Executive Summary
When you look at world of high-growth technology startups,
there’s a lot to be happy about.
Entrepreneurs continue to form companies at a truly remarkable pace. Disruptive
transformation is spreading into areas ripe for change: mobility, financial services
and education, to name just three. Nine in 10 startups are hiring. Most entrepreneurs
continue to believe we’re on an upward trajectory, that 2012 was better than 2011 and
that 2013 will be better than 2012. Innovation is at the top of corporate America’s
agenda, as evidenced by the broad, deep array of “traditional” corporations that have
established venture investing arms or innovation centers. Technology remains the
most trusted sector on the planet, according to the 2013 Edelman Trust Barometer.

“Excess federal regulation and fiscal uncertainty has a
chilling effect on the business environment.”
CFO, Medical Device Startup
“Help find more ways to allow creative minds to explore and
finance new ideas beyond the current VC networks.”
President/ CEO, Hardware Startup
“Please find ways to financially support innovation within smaller
companies and startups. We are the engine of the economy and need
a bit of help to get going and keep going.”
COO, Software Startup
“We are bullish on our company’s growth, however feel the government
policies will not help us at all. Further regulations and tax increases will
stifle all business, and hurt our customers, who may look for ways to
eliminate or reduce our product content.”
CFO, Cleantech Startup
2Startup Outlook Report 2013

Executive Summary (con’t.)
Yet for all of our optimism about the technology sector,
this year’s Startup Outlook again shows that we’re
not doing what we need to do to help this important
part of our economy thrive. Nine in 10 startups plan
to hire new employees, but an equal number say it is
challenging to find workers with the skills they need.
Sixty percent of software executives think business
conditions in 2012 were better than 2011, but the number
who think business conditions were worse doubled
year-over-year, from six percent to 13 percent. And
the critically important healthcare sector remains
challenged, with a majority of healthcare executives
believing business conditions in 2012 were the same or
worse as 2011 and one in 10 seeing them as much worse.
Startups don’t want or need a lot of help. Entrepreneurs
are remarkably versatile and solutions-oriented. But
they do need a few things from government — like
an education system that teaches students about
science, technology, engineering and math (the
so-called “STEM” skills); an immigration system that
welcomes people who bring talent and energy to
our economy; an intellectual property system that
rewards invention, not litigation; and a tax system that
provides certainty, predictability, and an incentive to
invest in real companies, doing real things. And they
need government to avoid misguided policies — like the
new 2.3 percent tax on the topline revenues of medical
device companies, including device startups that aren’t
yet profitable.
We publish the Startup Outlook survey annually to help
give startups a voice. We hope that if people see firsthand
the opportunities and challenges entrepreneurs face, they
will recognize the immense potential startups offer to our
country. We hope they’ll also see how short-sighted or
seemingly benign policies can hurt the companies we need
to drive our economy in the coming decade.
In the end, we think good business decisions and good
public policy both come down to a few things. We need
to base decisions on facts. We need to embrace the right
kinds of risks. We need to invest in the underpinnings
of a strong economy, such as infrastructure and basic
research and development. And we need to focus on
creating a better future, not entrenching the status quo.
We hope this year’s Startup Outlook promotes this kind
of forward-looking, fact-based discussion and provides
new insights to policymakers and business leaders. We
look forward to participating in those discussions and
doing what we can to help innovative companies thrive.

Key Findings
Understanding Startups: A Few Facts
▶▶ Most startups don’t earn a profit. That’s true even
when they earn significant topline revenues,
and even in capital-efficient sectors (like software)
where the cost to start a company have declined
meaningfully in recent years.
▶▶ Twenty-two percent of startups have one or more
women on their founding team.
▶▶ Forty-six percent of startups have one or more
foreign born persons on their founding team.
Tech Economy Continues to Perform as the
Economy Stabilizes
▶▶ Startups have performed well in 2012 with 58
percent of executives saying that they either met or
or exceeded revenue targets.
▶▶ This isn’t dampening entrepreneurs’ enthusiasm.
Executives are as likely as in previous years to say
that current business conditions compared to last
year are “better” and that conditions in the coming
year will continue to improve.
▶▶ Software executives are more likely than other
executives to say business conditions are better
than a year ago. But that optimism isn’t universally
shared, even within the software sector: year over
year, the number of software executives who say
business conditions are somewhat worse more
than doubled.
▶▶ Healthcare executives are the most downbeat —
less likely to say business conditions are better,
and more likely to say they are worse.
Startups Remain a Job-Creation Engine … But
Can They Find the People They Need?
▶▶ Respondents are even more likely than in past
years to say they’re hiring, with nearly nine in 10
executives say they will hire new employees in 2013.
▶▶ Most executives are looking for workers with STEM
(Science, Technology, Engineering, and Math)
skills. Hardware executives are the most focused
on workers with STEM skills.
▶▶ But finding the right workers will be a real
challenge. Nine in 10 executives say it is hard to
find workers with the skills needed to grow their
businesses. Software and hardware executives face
the greatest challenges.
The Impact of Public Policies on Startups
In this year’s survey, we dig deeper into a handful
of issues that are front and center on the policy
landscape: intellectual property protection, federal tax
and fiscal policies, U.S. manufacturing, and the new
2.3 percent excise tax on medical device companies’
topline revenues.
▶▶ About half of the surveyed executives see
IP as a “key strategic asset,” but litigation
is a real issue for startups. Nearly one in
four respondents faces lawsuits. Healthcare
startups are hardest hit, but software
companies are the most likely to be sued
by non-practicing entities, patent assertion
entities, or “patent trolls.”

5
▶▶ Overall, about half of all executives say they
think IP is an important asset and worth the
cost, but views vary dramatically by sector.
Two in three hardware, healthcare and
cleantech executives share this view, while
software executives are much more likely
to focus on non-legal means to create their
competitive advantage.
Tax Reform
▶▶ When asked which federal tax change would
best promote their company’s near-term
success, startups focus first on using the tax
code to provide incentives to invest in startups
(23 percent agree with this).
▶▶ Helping startups preserve scarce dollars
to invest in their growth (remember, most
startups aren’t profitable) comes in second,
with one in five (19 percent) believing a tax
credit to offset employment and other taxes
would be most beneficial.
▶▶ Fifteen percent of executives ask Congress to
“just get it done so we have certainty.”
▶▶ Healthcare, hardware and cleantech
executives highlight the importance of
R&D, through R&D tax credits and direct
government investments in R&D.
U.S. Manufacturing
▶▶ Just over one in three startups (35 percent)
either currently manufacture or plan to start
manufacturing in the next 18 months. And
a great deal of this activity will occur in the
United States. Eighty percent of respondents
say they will do at least some manufacturing
in the U.S. When deciding where to locate
manufacturing facilities, the number one
factor for startups is the availability of workers
with the necessary skills.
▶▶ Manufacturing has the potential to create
middle class jobs. Approximately two in three
of these jobs require some combination of high
school education, experience, and training,
but not a college diploma.
Medical Device Tax
▶▶ Eight in 10 executives at medical device
startups (82 percent) believe the 2.3 percent
revenue tax that went into effect at the
beginning of 2013 will affect their company’s
long-term growth.
▶▶ Device startups — the vast majority of which
are not yet profitable — have a variety of ways
they plan to cope with the tax. One in three
will try to pass most or all of the increased
cost to customers. Nearly as many (28
percent) will focus on expanding overseas
instead of in the U.S., while others will cut
hiring, R&D, and/or growth.

U.S. Versus U.K. Startups:
Similarities and Differences
▶▶ For the first time, we included U.K. entrepreneurs
in this year’s Startup Outlook survey.
▶▶ Like their U.S. counterparts, U.K. entrepreneurs
are performing strongly and are optimistic
about future conditions and growth. In fact, U.K.
entrepreneurs express greater confidence than
their U.S. peers.
▶▶ Two-thirds of U.K. startups reported revenues in
2012 – roughly the same as in the U.S. with 64
percent of revenue-generating startups.
▶▶ However, U.K. revenue generating startups were
much more likely to be profitable in 2012 — 46
percent, compared to 27 percent of U.S. startups.
▶▶ Like their U.S. counterparts, nine in 10 U.K.
startups are hiring and are primarily looking
for workers with STEM (Science, Technology,
Engineering, and Math) skills.
▶▶ As in the United States, finding the right workers
will be difficult.
▶▶ Directionally, U.K. executives’ views on intellectual
property mirror their U.S. peers, although they
are less likely to classify IP as a “key strategic
asset,” and more likely to describe it as primarily a
defensive tool. U.K. entrepreneurs are less likely to
face IP disputes and more likely to focus on non-
legal means rather than on IP rights to create a
competitive advantage.
▶▶ Nine in 10 (90 percent) of entrepreneurs in this
study say the U.K. fundraising environment is
challenging. Over half say government initiatives
that would help the startup sector are greater
access to government grants and funds designed
specifically for startups and tax reform.
▶▶ Twenty-six percent of startups in the U.K. survey
have women on founding team, similar to the
22 percent for startups in the U.S. survey.
▶▶ Thirty-seven percent of startups in the U.K.
survey have foreign born members on founding
team, compared to 46 percent for startups in the
U.S. survey.

7
2013 Survey Respondents
Startup Outlook 2013 is Silicon Valley Bank’s fourth
annual survey of the views of executives at startup
companies across the United States. We’ve defined
“startups” as high-growth technology and healthcare
companies with less than $100 million in revenues
and fewer than 500 employees.
We retained an independent, third-party market research
firm, Koski Research, to conduct an online survey on our
behalf as in prior years The survey was conducted from
December 4 through December 20, 2012.
We received responses from 758 executives of U.S.
based, high growth technology and healthcare
startups — approximately three times as many
responses as in the 2012 survey. Eighty-seven
percent were C-level executives, with 81 percent
either CEOs or CFOs. The responses by sector were
as follows:
▶▶ Software: 433 responses
▶▶ Healthcare: 220 responses
▶▶ Hardware: 50 responses
▶▶ Cleantech: 63 response
As in previous years, we received the largest number of
responses from software company executives. In order
to provide more meaningful insights into this segment,
in this year’s survey we distinguished between two
types of software companies: consumer internet
companies and enterprise software companies. Of
the 433 software executives who responded to the
survey, 158 (36 percent) were from consumer internet
companies and 274 (64 percent) were from enterprise
software companies. Due to the small sample size for
hardware and cleantech companies, survey responses
from these executives are directional and are not
compared statistically to other groups.
Survey Respondents by Industry Segment
Software Life Science Hardware Cleantech
2010
2011
2012
2013
44%
32%
14%
6%
55%
22%
17%
7%
49%
27%
12%
7%
57%
29%
7%
8%
0
0.1
0.2
0.3
0.4
0.5
0.6
“WecannotproducemorethanChinabutwecan
innovatemorethantherestoftheworld.”
President/CEO, Software Startup

2013 Survey Respondents (con’t.)
In terms of geography, we received responses from
executives in 37 states across the country plus the
District of Columbia. Northern California remains the
most active region for startups and accounted for 39
percent of all responses, followed by Massachusetts with
11 percent. Southern California, New York, Washington,
Texas, Georgia, Colorado, New Jersey, Utah, Florida,
Oregon, Pennsylvania, Arizona, Minnesota, Illinois,
Delaware, North Carolina, Nevada, Maryland, Missouri,
the District of Columbia, Louisiana, Connecticut,
Indiana, Maine, Michigan and Virginia all accounted for
two or more percent.
As in prior years, our focus is on high growth startups,
measured both in terms of revenues and number of
employees. We saw a notable increase this year in the
number of respondents with fewer than 10 employees.
This was driven by consumer internet startups, 56
percent of which had fewer than 10 employees.
On the revenue front, we saw an increase in the number
of companies that are not yet earning revenues —
from 29 percent in 2012 to 36 percent in 2013. The
year-over-year increase in the number of pre-revenue
companies was driven by software companies. Sixteen
percent of software respondents in the 2012 survey
said they were not yet earning revenues. That number
rose to 28 percent in the 2013 survey. By sector, we
saw the largest number of pre-revenue companies
in the healthcare and cleantech sectors (55 and 42
percent, respectively).
Percentage of Respondents by Region
48%
9%
7%
20%
3%
4%
4%
2%
1%
California
Southwest
Southeast
Northwest
Northeast
Mid Atlantic
Midwest
Mountain West
Outside of U.S.
750 startup executives from across the US responded to
the Silicon Valley Bank survey
States who responded States who did not respond

9
Annual Trailing Revenues
(By Industry)
Consum
er
Internet
Enterprise
Softw
are
Healthcare
Hardw
are
Cleantech
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$50M or more
$25M to less than $50M
Less than $1M
Pre-revenue
34%
55%
30%
42%
24%
32%
11%
5%
12%
4%
2% 1% 0% 2% 0%
7%
2%
12%
6%
13%
9%
14%
6%
11%
6%
8%
8%
15%
10%
12%
19%
27%
16%
22%
18%
Annual Trailing Revenues
25%
20% 19%
10%
14%
8%
5%
29%
14%
18%
13%
16%
7%
3%
36%
24%
14%
8%
11%
6%
1%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2011
2012
2013
Pre-revenueLess
than
$1M
$1M
to
<
$5M$5M
to
<$10M$10M
to
<
$25M$25M
to
<
$50M$50M
orm
ore
Number of Employees
(By Industry)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Consumer
Internet
Enterprise
Software
Healthcare Hardware Cleantech
250+
100-249
50-99
25-49
10-24
Fewer than 10
56%
17%
9%
10%
7%
1%
4%
0% 0% 2%
10%
4%
10% 8%
14%
15%
20%
17%
16%
16%
16% 24%
19%
25%
26%
13%
37%
40%
28%
37%
Number of Employees
2010
2011
2012
2013
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Fewer
than 10
10 to 24 25 to 49 50 to 99 100 to 249 250 or
more
34%
33%
20%
20%
20%
34%
42%
27%
20%
17%
17%
15%
16%16%
14%
8%
11%
7% 7%
2%2%
12%
6%
1%
“Please provide funding to small companies through the
market in small bets rather than trying to pick a few winners. The market
will choose the winners better than the government ever could.”
President/CEO, Cleantech Startup

Understanding Startups
High-growth startups have an outsized long-term
impact on the U.S. economy, generating revenues equal
to an estimated 21 percent of U.S. GDP and creating
roughly 11 percent of all U.S. private sector jobs.
(Venture Impact: The Economic Importance of Venture
Capital-Backed Companies to the U.S. Economy, 6th Ed.
(2011)).
In order to reach this size and scale, however, these
companies need to make significant investments for
an extended period of time. To better understand the
relationship between size and profitability, we asked
revenue-generating respondents in this year’s survey
whether they expected to be profitable in 2012. As the
following charts illustrate, whether one looks by sector
or revenue level, most startups don’t earn a profit —
even when they earn significant to topline revenues,
and even in capital-efficient sectors (like software)
where the cost to start a company has declined
meaningfully in recent years.
This year we added two survey questions to determine
who is creating startups. The data indicate that women
remain under-represented among startup founders
(with only about one in four startups having one or
more women on their founding team), while people
born outside the United States are an important overall
part of the startup ecosystem (with about half of all
startups having one or more foreign-born person on
their founding team).
Part 2: Detailed Findings
“Immediate reforms to visa policy for skilled workers are necessary to ward off a
brain drain AND to help stimulate the economy through …
startups that are driven by … tax-paying people that may have
been born elsewhere in the world.”
President/CEO, Cleantech Startup

Founding Team Composition
(By Place of Birth per Industry)
Consum
er
InternetEnterprise
Softw
are
Hardw
are
Cleantech
Healthcare
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Both Represented on
Founding Team
Only Persons Born
Outside U.S. on Founding
Team
Only Persons Born in U.S.
on Founding Team
60%
19%
21%
28% 30% 31%
41%
21% 14%
23% 10%
51%
56%
46%
49%
Founding Team Composition
(By Gender per Industry)
Consum
er
InternetEnterprise
Softw
are
Hardw
are
Cleantech
Healthcare
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Both Men and Women on
Founding Team
Only Women on Founding
Team
Only Men on Founding
Team
75%
3%
23% 17% 23%
15% 13%
2%
2% 2%
6%
81%
72%
83% 85%
Startups’ Profitability
(By Revenue Level)
22%
32% 35%
78%
68% 65%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
< $5M Revenues $5.0 - $24.9M
Revenues
$25.0 - $99.9M
Revenues
No
Yes
Startups’ Profitablity
(By Industry)
28% 32%
17%
29%
17%
72% 69%
83%
71%
83%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Consumer
Internet
Enterprise
Software
Healthcare Hardware Cleantech
No
Yes

Business Environment: Tech Economy
Continues To Perform as the
Economy Stabilizes
Highlights:
▶▶ Nearly six in 10 companies (58 percent) met or
exceeded revenue targets, down somewhat from
the past two years but meaningfully better than in
the depth of the recession.
▶▶ About as many executives expect to miss
2012 targets as hit them (41 and 43 percent,
respectively).
▶▶ Executives in this year’s survey are
substantially less likely to predict they’d
exceed targeted revenues than in previous
surveys.
▶▶ Companies with revenues over $25 million are
far more likely to outperform their targets, and
somewhat less likely to underperform their
targets.
▶▶ Hardware companies are the most likely to
miss targets.
▶▶ Startup executives remain optimistic, believing
2012 was better than 2011, and 2013 will be better
than 2012.
▶▶ Software executives are more likely than
other executives to say business conditions
are better than a year ago. But that optimism
isn’t universally shared: year-over-year,
the number of software executives who say
business conditions are somewhat worse more
than doubled.
▶▶ Healthcare executives are the most downbeat
— less likely to say business conditions are
better, and more likely to say they are worse.
▶▶ Looking toward 2013, hardware and software
companies are the most upbeat, and
healthcare companies are the most downbeat.
By and large, startups continued to meet their
revenue targets in 2012. Interestingly, executives were
substantially less likely to say their company would
exceed their target (only 15 percent, down from 23
percent a year earlier). Hardware companies were the
most likely to miss targets; healthcare companies were
the most likely to meet or beat targets. Companies
with revenues over $25 million were far more likely to
outperform their targets, and somewhat less likely to
underperform their targets.

13
Performance Against Revenue Targets
(By Number of Employees)
34%
47% 43%
55%
39%
35%
12% 14%
21%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Above Target
Revenues about on
Target
Below Target
Under 10
Employees
10 - 49
Employees
50 - 499
Employees
(By Company Size in Revenue)
Pre-Revenue
<
$5M
Revenues
$5
-$24.9M
Revenues
$25
-$99.9M
Revenues
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Above Target
Revenue About on
Target
Below Target
28%
44%
53%
33%
65% 39%
34%
33%
7%
16% 13%
34%
(By Industry)
Consum
er
InternetEnterprise
Softw
are
Healthcare
Hardw
are
Cleantech
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Above Target
Revenue about on
Target
Below Target43% 42%
34%
56%
49%
45%
40% 50%
30% 45%
10% 18% 15% 14%
6%
(By Year)
50%
38% 35%
42%
34%
39% 42%
43%
15% 24% 22%
15%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Above Target
Revenues About on
Target
Below Targets
2010 2011 2012 2013
“My company is on target to grow at a 36x rate with all the capital
invested from the track record of this past year. Exciting times.”
President/CEO, Consumer Internet/Digital Media Startup
“Great time for innovation in high tech.”
COO, Hardware Startup

Highlights (con’t):
Roughly six in 10 executives continue to believe
that conditions in 2012 are better than a year earlier,
though we saw an uptick in the number who believe
things are somewhat worse than they’d been.
Interestingly, software executives are more likely
than executives in other sectors to say that business
conditions are better than a year ago (65 percent for
software versus 60 percent overall). But the number
Business Conditions Compared to Last Year
(By Company Size in Employees)
16% 18% 16%
25% 22% 24%
61% 59% 60%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Better
Same
Worse
Under 10
Employees
10 - 49
Employees
50 - 499
Employees
Pre-Revenue < $5M
Revenues
$5 - $24.9M
Revenues
$25 - $99.9M
Revenues
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
17% 16% 18%
10%
31%
16%
22% 33%
52%
68%
59% 58%
Better
Same
Worse
(By Industry)
Consum
er
Internet
Enterprise
Softw
are
Healthcare
Hardw
are
Cleantech
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Better
Same
Worse
13% 13%
25%
17% 15%
21% 23%
28%
15%
33%
66% 64%
47%
68%
53%
(By Year)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2010 2011 2012 2013
Much Better
Somewhat Better
Same
Somewhat Worse
Much Worse
23%
38%
36%
35%
46%
19%
9%
4% 4%
9%
13%
8%
3% 3%
25%
27%
24%
27%
25% 26%
of software executives who say business conditions
are somewhat worse more than doubled, from five
percent to 12 percent. Healthcare executives are the
most downbeat, with only 47 percent saying business
conditions are better, 16 percent saying they are
somewhat worse, and nine percent saying they are
much worse.

15
Outlook on Business Conditions in 2013
9% 10% 6%
16% 19%
19%
75% 72% 76%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Better
Same
Worse
Under 10
Employees
10 - 49
Employees
50 - 499
Employees
10% 8% 7% 6%
21%
14% 17% 24%
Pre-Revenue < $5M
Revenues
$5 - $24.9M
Revenues
$25 - $99.9M
Revenues
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Better
Same
Worse
69%
78% 76%
71%
(By Industry)
Consum
er
Internet
Enterprise
Softw
are
Healthcare
Hardw
are
Cleantech
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Better
Same
Worse
6% 5%
15%
6% 8%
17% 17%
23%
9%
20%
76% 78%
62%
86%
72%
(By Year)
8% 5% 9% 8%
18%
17%
19% 18%
74% 78%
72% 74%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Better
Same
Worse
2010 2011 20132012
By stage, smaller, pre-revenue companies are
meaningfully less likely than their peers who’ve
started earning revenues to say things are better,
and more likely to say conditions are about the same.
Overall, the largest companies in the survey (by revenue)
are the least likely to see things as worse.
Looking forward, executives are about as likely as
those in the previous two surveys to say business
conditions for their companies will be better in the
coming year. Hardware and software companies are
the most upbeat (with 85 percent and 78 percent,
respectively, saying conditions will be better).
Healthcare executives are again the most downbeat,
with only 62 percent saying conditions will be better
and 15 percent predicting they will get worse. And, as
was true when comparing 2012 to 2011, pre-revenue
companies are more likely than companies earning
up to $5M to say conditions going forward will be the
same, while revenue-generating companies (earning
up to $5M) are more likely to believe conditions will
be much better in the coming year.

Startups Remain a Job-Creation
Engine … But Can They Find the
People They Need?
Highlights:
▶▶ Nearly nine in 10 startups (87 percent) plan to hire
new employees in 2013, up from 83 percent in last
year’s survey.
▶▶ Software, hardware, and cleantech executives
are most likely to hire.
▶▶ While healthcare companies’ expectations
are less robust than their peers, a substantial
number of healthcare executives will be
hiring.
▶▶ Eighty-two percent of executives we surveyed
are looking for workers with STEM (Science,
Technology, Engineering, and Math) skills.
▶▶ Four in 10 executives (40 percent) say it is
the most critical job skill. Only one in five (17
percent) say management, marketing, and
other non-STEM skills are most critical.
▶▶ Hardware executives are the most focused on
workers with STEM skills.
▶▶ Finding the right workers will be difficult.
▶▶ Nine in 10 executives say it is challenging to
find workers with the skills needed to grow
their businesses.
▶▶ Software and hardware executives face the
greatest challenges.
▶▶ Finding people with the right skills tops the list of
challenges, followed by competition for workers.
The cost of salaries and benefits is also a factor,
particularly for smaller companies with only a
handful of employees.
Since we launched the Startup Outlook in 2010,
we have tracked startups’ plans to hire. Every year,
startups have been a bright spot in an otherwise dismal
jobs landscape. But this year sets a new record for
hiring expectations.
Nine in 10 (87 percent) of the respondents to this
year’s survey plan to hire new employees in 2013, up
slightly from last year’s survey (83 percent). Software,
hardware, and cleantech executives are most likely
to hire, at 91 percent, 90 percent, and 90 percent,
respectively. While healthcare companies are less
likely to hire than their peers, a substantial number —
78 percent — plan to hire.
We did not see meaningful differences in hiring
expectations by company size, although directionally
the larger companies (by employees and revenues)
seemed to have somewhat higher expectations for
hiring — a good sign for the overall amount of job
creation in the high growth economy.
Yet while the jobs are there, nine in 10 (87 percent)
of the surveyed executives said that it is challenging
to find workers with the skills they need. This is
particularly true for software and hardware executives,
and for the somewhat more mature companies.

17
Across sectors, executives are looking for workers with
STEM (Science, Technology, Engineering, and Math)
skills. Four in 10 (40 percent) say it is the most critical
job skill, versus only one in five (17 percent) who say
management, marketing, and other non-STEM skills
are most critical. Four in 10, or 42 percent, report
both skill sets will be critical in 2013. STEM skills are
particularly critical to very early-stage companies and
to hardware companies.
Plans to Hire in 2013
(by Industry)
Likely to Hire
Neither Likely nor
Unlikely
Unlikely to Hire
Consum
er
InternetEnterprise
Softw
are
Healthcare
Hardw
are
Cleantech
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
3% 6%
18%
6% 7%5% 3%
5%
4% 3%
92% 91%
78%
90% 90%
Plans to Hire in 2013
(By Year)
17%
11% 11% 9%
10%
6% 6%
4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Likely to Hire
Neither Likely nor
Unlikely
Unlikely to Hire
73%
84% 83% 88%
2010 2011 2012 2013
“Provide 21st century computational thinking skills to children
in K12 space to enhance their creativity to prepare them for
Science, Technology, Engineering and Math jobs.”
“Educate our workforce and expand the visa program in the
meantime to create a supply of qualified workers.”

Highlights (con’t.):
What makes it challenging for startups to hire and
retain workers with the skills they need?
Finding people with the right skills tops the list,
particularly for enterprise software, healthcare and
cleantech companies. (Interestingly, however, this is a
less important issue in the Northern California market.)
Competition for workers comes in second. We asked
about two particular types of competition for workers:
competing against larger companies — a distinct
problem for hardware startups — and competition more
HiringCompanies’ Most Critical Skills in 2013
(By Industry)
Cleantech
Hardw
are
Healthcare
Consum
er
Internet
Enterprise
Softw
are
38% 34%
45%
67%
39%
17%
15%
23%
4%
18%
45% 51%
32% 29%
43%
0%
20%
40%
60%
80%
100%
120%
Both Equally
Critical
Management,
Marketing,
Sales, Operations
and Other
Non-STEM Skills
STEM Skills
How Challenging is it to Find Workers with the Skills
You Need? (By Revenues)
Not Very
Challenging
Somewhat
Challenging
Extremely
Challenging
Pre-Revenue < $5M in
Revenues
$5 - $24.9M
in Revenues
$25 - $99.9M
in Revenues
30% 26%
36% 35%
55% 59%
57% 58%
15% 15%
7% 8%
0%
20%
40%
60%
80%
100%
120%
You Need? (By Number of Employees)
Not Very
Challenging
Some what
Challenging
Extremely
Challenging29% 31% 29%
53% 57% 63%
17% 12% 8%
0%
20%
40%
60%
80%
100%
120%
Under 10
Employees
10 to 49
Employees
50 to 499
Employees
You Need? (By Industry)
Enterprise
Softw
are
Consum
er
Internet
Healthcare
Hardw
are
Cleantech
Not Very
Challenging
Somewhat
Challenging
Extremely
Challenging35% 39%
17%
32%
23%
54%
54%
64%
56%
58%
10% 7%
20% 12%
19%
0%
20%
40%
60%
80%
100%
120%
generally — a distinct problem for consumer internet
companies and in Northern California. The cost of
salaries and benefits is also a factor, particularly for
smaller companies with only a handful of employees.
The survey results also demonstrate that startups are
focused on access to workers with the skills they need
— not immigration — as the true issue. Immigration
reform is a necessary piece of solving the talent
problem, particularly in the near term, but technology
startups appear to see the issue as a workforce issue,
not an immigration issue.

19
Most Challenging Aspect of Finding and Retaining
Talent (By Number of Employees)
3%
3%
2%
0% 10% 20% 30% 40% 50%
Other
Immigration Regulations
Too Hard to Compete
with Larger Companies
Too Much Competition
Generally
Cost of Salaries and
Benefits
Finding People with the
Right Skills
31%
46%
44%
32%
21%
18%
16%
14%
22%
8%
11%
12%
7%
6%
5%
Under 10 Employees
10 to 49 Employees
50 to 499 Employees
Talent (By Industry)
28%
42%
46%
35%
46%
25%
18%
31%
26%
28%
30%
17%
10%
7%
13%
4%
7%
5%
9%
4%
3%
5%
1%
5%
0%
0% 10% 20% 30% 40% 50%
Consumer Internet
Enterprise Software
Healthcare
Hardware
Cleantech Other
Too Hard to Compete
Generally
Benefits
Right Skills
Hiring Companies’ Most Critical Skills in 2013
(By Company Size in Revenues)
0%
20%
40%
60%
80%
100%
120%
Both Equally
Critical
Management,
Marketing,
Sales, Operations
and Other
Non-STEM Skills
STEM Skills
Pre-Revenue < $5M in
Revenues
$25 - $99.9M
in Revenues
$5 - $24.9M
in Revenues
52%
34% 35% 29%
10%
21% 22%
25%
38%
45% 43% 46%
Hiring Companies’ Most Critical Skills in 2013
0%
20%
40%
60%
80%
100%
120%
Both Equally
Critical
Management,
Marketing,
Sales, Operations
and Other
Non-STEM Skills
STEM Skills
48%
38%
30%
12%
18%
25%
40% 43% 45%
Under 10
Employees
10 to 49
Employees
50 to 499
Employees
Talent (By Region)
60%
Other
Too Hard to Compete
Generally
Benefits
Right Skills
34%
49%
42%
26%
25%
24%
21%
7%
16%
8%
4%
12%
8%
7%
4%
3%
7%
2%
0% 20% 40%
Northern CA
Boston MA
Other Regions
Talent (By Revenues)
0% 10% 20% 30% 40% 50%
Other
Too Hard to Compete
Generally
Benefits
Right Skills40%
39%
41%
40%
27%
27%
17%
19%
13%
15%
24%
19%
8%
8%
14%
19%
8%
5%
3%
2%
4%
4%
1%
2%
Pre-Revenue
< $5M in Revenues
$5 - $24.9M in
Revenues
$25 - $99.9M in
Revenues

The Impact of Public Policies
on Startups
In past surveys, we’ve asked startups how government
policies affect their ability to succeed. This year, we
decided to shift gears and dig deeper into a handful
of policy issues. We asked about two of the issues
that have consistently topped startups’ lists in
prior surveys: intellectual property protection and
federal tax and fiscal policies. In addition, we tried
to understand better what drives startups’ decisions
about where to locate manufacturing facilities. Finally,
we asked a series of questions designed to get a clearer
picture for how medical device companies are coping
with a new, 2.3 percent excise tax on topline revenues,
which went into effect on January 1, 2013.
Highlights:
▶▶ Close to half of the respondents (46 percent) say IP
is a “key strategic asset.” Hardware, healthcare and
cleantech executives are much more likely to take
this view than software executives, who are much
more likely to see IP primarily as a defensive tool.
▶▶ One in four startups — even very early-stage
startups — faces IP lawsuits. Healthcare startups are
the hardest hit, although software startups appear
more vulnerable to suits by non-practicing entities,
patent assertion entities, and “patent trolls.” The
prevalence of suits rises with company size.
▶▶ Overall, slightly over half (54 percent) of
executives feel IP is an important asset and
worth the cost. But views differ significantly by
“Create general conditions for a successful economy [by enabling
immigration for skilled knowledge workers, simplifying and minimizing the
tax burden, and investing in education and infrastructure] and then let
entrepreneurs and the market do the rest.”

21
sector. Roughly seven in 10 healthcare, cleantech
and hardware executives take this view, while
only about four in 10 software executives do. In
contrast, six in 10 software executives say they
focus on non-legal means rather than on IP rights
to create a competitive advantage.
Intellectual property historically has topped startups’
list of policy priorities. In the 2012 Startup Outlook
survey, 62 percent said IP protection was a priority, and
only 13 percent said it was not.
Yet how best to use a system of intellectual property
protections to promote innovation is a hotly debated
issue, even within the technology community. Different
industries — and even different executives within the
same sector — can disagree sharply on a host of legal
and policy issues.
As a result, rather than asking again whether IP is
important or asking which policies people think make
the most sense, we asked a series of questions about the
role IP plays in startups’ businesses, how often they face
IP disputes, the nature of those disputes, and how well
the current system is meeting their business needs.
Across the board, startups view intellectual property
both as a strategic asset and a defensive tool. The mix,
however, varies by industry, with software executives
more likely to see it as a defensive tool than their
colleagues in the healthcare, hardware and cleantech
sectors.
We also found that nearly one in four startups —
even very early-stage startups — face IP lawsuits.
Healthcare startups are the hardest hit, with three in 10
respondents reporting that they face lawsuits.
Given the cost of litigating an IP lawsuit, this is an
important and concerning finding. Startups have a
finite amount of cash, and we should be concerned if
IP lawsuits are siphoning that cash away from more
productive uses. In this vein, it is interesting to see
the patterns in the types of lawsuits small companies
are facing. Software executives say they are nearly
four times as likely to be sued by a non-practicing
entity, a patent assertion entity, or a “patent troll” as
in a legitimate dispute with a competitor. In contrast,
healthcare companies are more likely to describe
their suits as primarily as legitimate disputes with
competitors.
Company size, not surprisingly, affects the pattern. The
number of executives who said that they face disputes
and that most of their disputes are with a non-practicing
entity, a patent assertion entity, or a “patent troll” rises
measurably as company size increases.
The 2013 survey also points to a potentially interesting
divergence by region. Northern California (primarily
Silicon Valley) companies are much more likely to report
that they face disputes, and, of those, the majority say
View of Intellectual Property
(By Industry)
40%
43%
55%
47%
46%
15%
15%
6%
6%
6%
29%
34%
36%
43%
43%
16%
7%
3%
4%
5%
0% 20% 40% 60%
Consumer Internet
Enterprise Software
Healthcare
Hardware
Cleantech
Not Involved in IP
Combination of Both
Primarily a Defensive Tool
Key Strategic Asset

Highlights (con’t.):
these disputes are primarily suits by a non-practicing
entity, a patent assertion entity, or a “patent troll.” While
other regions largely echo this experience, Boston is
a notable outlier, with executives less likely to report
IP lawsuits and no executives reporting suits by a
non-practicing entity, a patent assertion entity, or a
“patent troll.” This may be a product of the relatively
small sample size for Boston (55 respondents for this
question), but given the magnitude of the difference we
felt it merited including in this report.
Given the issues with relying on the legal system to
protect IP rights, we asked executives about their
views on how they think about IP within their broader
business objectives. (Respondents were able to select
multiple answers, so the totals exceed 100 percent.)
Only about half (54 percent) say they think IP is an
important asset and is worth the cost. Underlying this
statistic, however, are two sharply different views. Just
over one in three software executives say IP is worth
the cost, while two in three healthcare, hardware and
cleantech executives say IP is worth the cost.
Software executives are much more likely to say they
rely on non-legal means (such as moving faster than
Nature of IP Disputes
(By Region)
0%
20%
40%
60%
80%
100%
Most IP Disputes are
Legitimate Disputes with
Competitors
Most IP Disputes Brought
by NPEs, PAEs, or Trolls
Rarely or Never Face IP
Disputes
73%
85%
78%
17%
0% 15%
10% 15%
7%
Northern CA Boston MA Other Regions
(By Revenues)
0%
20%
40%
60%
80%
100%
Competitors
Disputes
$25
-$99.9M
in
Revenues
$5
-$24.9M
in
Revenuess
<
$5M
in
Revenues
Pre-Revenue
77% 83%
71%
55%
9%
11%
20%
39%
14%
6% 9% 7%
0%
20%
40%
60%
80%
100%
Competitors
Disputes
80% 77%
71%
11% 12% 22%
9% 10% 7%
Under 10
Employees
10 to 49
Employees
50 to 499
Employees
(By Industry)
Consum
er
Internet
Healthcare
Hardw
are
Cleantech
Enterprise
Softw
are
81% 81%
70% 74% 76%
16% 15%
12%
15% 10%
3% 4%
18%
10% 14%
0%
20%
40%
60%
80%
100%
Competitors
Disputes

23
their competitors), rather than on IP rights, to create
their competitive advantage. Smaller startups also
appear more concerned about the cost of IP — and the
need to divert resources from other more productive
uses — than their larger counterparts. Larger
companies, in contrast, appear to face a meaningful
Business Impact of IP
(By Region)
IP Isn't Important to Our
Company
The Cost of IP Protection
Diverts Resources from
More Productive Uses
We Sometimes Settle Suits or
License IP Because Litigation
Is Too Expensive
We Sometimes Settle
Suits or License IP
Because Litigation Is Too
Expensive
Company
0% 20% 40% 60% 80%
50%
63%
55%
49%
33%
45%
36%
24%
30%
8%
3%
8%
1%
2%
2%
Northern CA
Boston MA
Other Regions
(By Revenues)
Company
Is Too Expensive
We Sometimes Settle
Suits or License IP
Expensive
Company
60%
51%
46%
50%
36%
51%
53%
48%
32%
34%
23%
36%
7%
6%
5%
23%
1%
1%
2%
5%
0% 20% 40% 60% 80%
Pre-Revenue
< $5M in Revenues
$5 - $24.9M in
Revenues
$25 - $99.9M in
Revenues
Company
Is Too Expensive
We Sometimes Settle
Suits or License IP
Expensive
Company
51%
57%
53%
44%
46%
48%
37%
31%
22%
6%
7%
11%
2%
0%
3%
0% 20% 40% 60%
Under 10 Employees
10 to 49 Employees
50 to 499 Employees
(By Industry)
34%
42%
69%
64%
72%
59%
59%
27%
38%
36%
26%
36%
28%
33%
36%
9%
8%
7%
2%
5%
0% 20% 40% 60% 80%
Consumer Internet
Enterprise Software
Healthcare
Hardware
Cleantech
Company
Is Too Expensive
We Sometimes Settle
Suits or License IP
Expensive
Company
“As a Fast Growth company I do not worry about
government policy too much. I worry about what I can control.
Our outlook is very strong.... Cheers.”
litigation-driven problem, with nearly one in four
reporting that they sometimes settle lawsuits or license
IP they otherwise wouldn’t because it’s too expensive
to defend IP in a lawsuit. Regionally, Boston appears to
remain a more IP-centered ecosystem than other markets.

Taxes
Highlights:
▶▶ When asked which federal tax change would
best promote their company’s near-term success,
startups focus first on providing incentives
to promote capital formation for high growth
companies.
▶▶ Coming in second is helping preserve startups’
scarce capital through a tax credit for pre-
profit companies to offset other taxes (such as
employment taxes).
▶▶ Fifteen percent of executives ask Congress to “just
get it done so we have certainty.”
▶▶ Healthcare, hardware and cleantech executives
highlight the importance of R&D, through R&D tax
credits and direct government investments in R&D.
▶▶ Larger companies were more likely to focus on
the overall corporate tax rate and on capital gains
tax rates.
One of the most pressing issues on the federal agenda
is our tax system. Most people agree it’s ready for an
overhaul, for a host of reasons. But there’s a lot less
agreement about what, precisely, the solution should
look like. Since startups play a critical role in economic
growth, global competitiveness, and job creation, we
think the U.S. tax system should promote (or at least
not inhibit) startups’ success. So we asked startup
executives what they see as the single most beneficial
change Congress could make to promote their
company’s near-term success.
Promoting capital formation — specifically, providing
a tax incentive to invest in startups — topped the list.
This was particularly true for smaller companies.
Promoting capital efficiency — specifically, providing
a credit for pre-profit companies to offset other taxes
(such as employment taxes) so they can devote their
available cash to growing — came in a close second.
Promoting simplicity and certainty — specifically, “just
get it done” and “make the tax code simpler” — came
in third.
Healthcare, hardware and cleantech executives were
much more likely than their colleagues in the software
sector to highlight the importance of R&D, either
in the form of R&D tax credits or direct government
investments in R&D. Larger companies (with over
$25 million in revenues) were much more likely
to recommend keeping the capital gains tax at the
current rate (20 percent, versus six to seven percent
for smaller companies). Not surprisingly, executives’
focus on the corporate tax rate rose as their company
sizes increased.

25
Tax Policies to Promote Startups’ Growth
(Top Six, by Revenues)
32% 27%
5% 4%
16% 21%
23%
12%
14% 15%
20%
14%
8% 13%
10%
10%
16% 10%
12%
18%
4% 6%
16%
14%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Pre-Revenue<
$5M
in
Revenues
$5
-$24.9M
in
Revenues$25
-$99.9M
in
Revenues
Lower Corporate Tax Rate
R&D Credit or
Expenditure
Make the Code Simpler
Just Get It Done So We
Have Certainty
Tax Credit/Offset for Pre-
Profit Companies
Tax Incentive to Invest in
Startups
(Top Six, by Number of Employees)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
R&D Credit or
Expenditure
Have Certainty
Profit Companies
Startups
32%
21%
9%
17%
20%
19%
14%
14%
20%
10%
10%
11%
12%
15%
13%
6%
7%
12%
Under 10
Employees
10 to 49
Employees
50 to 499
Employees
(Top Six, by Industry)
26% 21% 23%
17%
27%
22%
21% 18%
15%
11%
17%
18%
12%
15%
20%
12%
11%
7%
11%
9%
7%
8%
19% 21%
26%
8%
11% 5% 2%
0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Consum
erInternet
Enterprise
Softw
are
Healthcare
Hardw
are
Cleantech
R&D Credit or
Expenditure
Have Certainty
Profit Companies
Startups
23%
19%
15%
10%
8% 8%
7%
5%
1%
3%
0%
5%
10%
15%
20%
25%
Tax
Incentive
to
Investin
Startups
Credit/O
ffsetfor
Pre-ProfitCom
panies
JustG
etItDone
So
W
e
Have
Certainty
M
ake
the
Code
Sim
pler
Perm
anentR&D
Tax
CreditLow
erCorporate
Tax
RateKeep
Cap
G
ains
Rate
atCurrentLevel
G
overnm
ent
Investm
ents
in
R&D
Incentive
forDom
estic
M
anufacturing
O
ther
“Provide incentives for developing technology, hiring new people,
creating manufacturing jobs in the US. We need the incentive in the
forms of cash, deregulation, tax incentives.”
President/CEO, Medical Device Startup
“Reward startups that our actively growing with tiered payroll tax incentives
to help them carry the burden of losses as they get to profitability. Stop
taxing us so much while we are creating jobs and growing the economy.”

U.S. Manufacturing
Highlights:
▶▶ Over one-third (35 percent) of executives are
at companies who currently manufacture
(21 percent) or plan to in the next 18 months
(15 percent).
▶▶ A great deal of this activity is in the United States.
▶▶ Two-thirds of those who currently
manufacture (64 percent) say they
manufacture “mostly domestically.”
▶▶ Four in 10 of those who plan to manufacture
(40 percent) say they will manufacture
“mostly domestically.”
Policymakers and many business leaders would like to
find ways to re-invigorate U.S. manufacturing, as a way
to grow the U.S. economy and create middle class jobs.
In order to understand the opportunities within the
startup sector better, we asked executives about their
manufacturing plans, what factors drive their decisions
about where to locate manufacturing facilities, and what
kinds of workers they hire for manufacturing jobs.
Not surprisingly, manufacturing is centered in the
healthcare, hardware and cleantech segments.
Excluding software, 68 percent of these companies
manufacture or plan to manufacture in the next 18 months,
compared to only 10 percent in the software sector.
Notably, pre-revenue companies are much more likely
to predict that they will begin manufacturing than
their revenue-generating peers indicate is likely. As
for regional differences, Boston area companies report
that they manufacture at nearly twice the rate of their
counterparts in other regions.
Startups use various approaches to manufacturing:
in-house, through partners, or a combination of the
two; domestically, overseas, or a combination of the
two. In our survey, we found that companies that are
currently manufacturing tend to rely more heavily on
in-house, domestic manufacturing than those who
Plans to Manufacture
(by Region)
28% 27%
42%
38%
47%
36%
34%
27% 22%
Northern CA Boston MA Other Regions
Currently Manufacture
Plan to Manufacture in
Next 18 Months
No Plans to Manufacture
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
(by Revenues)
Pre-Revenue<
$5M
in
Revenues
$5
-$24.9M
in
Revenues
$25
-$99.9M
in
Revenues
Next 18 Months
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
28%
45% 45% 42%
24%
41%
50% 54%
49%
14%
5% 4%
(by Industry)
Consum
erInternet
Enterprise
Softw
are
Healthcare
Hardw
are
Cleantech
5% 8%
33%
50%
42%
2% 4%
31%
19% 30%
93% 88%
35% 31% 28%
0%
20%
40%
60%
80%
100%
120%
Next 18 Months

27
say they will begin manufacturing in the coming 18
months, although it is difficult to know what is driving
those differences.
From a policy perspective, two of the most important
questions to understand are: the factors that
drive startups’ decisions about where to locate
manufacturing facilities, and the kinds of jobs these
facilities create.
On the first, the question of talent and the availability
of skilled workers again rises to the top. This is
followed by two factors relating to the production
process: the quality of available production facilities,
and the speed of production. The next two factors again
concern the workforce: the cost of salaries and benefits,
and the ease/difficulty of managing workers (language,
distance, etc.). Rounding out the list are regulatory
costs and delays, proximity to major markets and
customers, tax incentives, regulatory restrictions,
energy costs, and other.
This implies that policymakers have an opportunity to
promote U.S. manufacturing without having to use tax
expenditures.
The Startup Outlook survey also indicates that taking
these steps would be smart — for all Americans, not
just for technology companies. A meaningful number
of the manufacturing jobs that startups would create
require only a high school diploma or relevant experience,
and fewer than one in three of these jobs require a
college education or above.
Education/Training Needed for Majority of
Manufacturing Jobs
High School Highly Experienced
Workers,
Regardless of
Education
We Provided the
Necessary
Training
A Combination
of Above
College or Above
21%
29%
21%
4%
24%
0%
5%
10%
15%
20%
25%
30%
35%
What Drives Startups’ Decisions About Where to
Locate Manufacturing Facilities?
Availability
ofW
orkers
w
ith
Needed
Skills
None
ofthe
Above
O
ther
Energy
Costs
Regulatory
Restrictions
(Land
Use,Env.,Labor,Etc.)
Tax
Incentives/Refunds
Proxim
ity
to
M
ajor
M
arkets/Custom
ers
Ease/Difficulty
ofM
anaging
W
orkers
Regulatory
Costs/Delays
Salaries
and
Benefits
of
M
anufacturing
W
orkers
Speed
ofProduction
Q
uality
ofAvailable
Production
Facilities
44%
41%
35% 35%
32%
22%
19%
16% 14%
7%
11%
4%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Manufacturing: U.S. Versus Non-U.S.
Coming 18 Months
64%
23%
14%
40%
16%
44%
0%
10%
20%
30%
40%
50%
60%
70%
Mostly
Domestically
Mostly
Overseas
Both
Manufacturing: In House Versus Partners
33%
30%
37%
11%
45% 44%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
In House Through
Partners
Combination of
Both
Coming 18 Months

The Medical Device Tax
Highlights:
▶▶ Executives at medical device companies are aware
of the 2.3 percent revenue tax that started at the
beginning of 2013.
▶▶ Three in four (75 percent) say they know how it
will impact their business. One in four (23 percent)
say they have heard of the tax but do not know
how it will impact their business. Just two percent
were unaware of the tax.
▶▶ The top ways to handle the tax are passing along
most or all of the increased cost to customers (34
percent of executives plan to do this) or focusing
on expanding overseas instead of in the U.S. (28
percent of executives plan to do this).
▶▶ Over eight in 10 (82 percent) say the device tax
will have an impact on their company’s long-
term growth.
This year’s survey also digs into a critically important
segment of the U.S. innovation economy: the medical
device sector. There are a number of reasons why
policymakers and ordinary Americans should care
about the health of the device industry. Perhaps most
importantly, new, innovative devices help improve
patient outcomes and reduce costs. In addition, U.S.
leadership in commercializing medical devices helps
ensure that U.S. patients have early access to new tools
for diagnosing and treating conditions. The device
industry also creates high paying jobs and is a major
exporter and an important contributor to the U.S.
balance of trade.
Yet for nearly a decade, rising regulatory costs, delays,
and uncertainty have made it significantly harder
for device companies to succeed. This has reduced
the amount of capital being invested in new device
companies to an 11-year low. It has also caused a shift
in investments away from capital intensive segments,
impeding the discovery and commercialization of
treatments for chronic, costly conditions such as
diabetes, obesity and vascular disease.
While Congress and the FDA are taking steps to turn
this around, those efforts are still in the relatively early
stages. And now a new challenge has emerged for
growing companies: starting January 1, 2013, all device
companies must pay a 2.3 percent tax on their total
U.S. sales. This tax applies even to companies that are
not making a profit. We wanted to hear firsthand how
executives are dealing with the tax and how they think
it will affect the device industry going forward.

29
Familiarity with the Device Tax
75%
23%
2%
I know how it will impact
my business
I don't know how it will
impact my business
I have never heard of the
device tax
Startups’ Responses to the Device Tax
21%
21%
13%
22%
30%
21%
25%
0% 5% 10% 15% 20% 25% 30% 35%
We will reduce staffing/forego new
hires
We will shift resources away from
growing our business
We will invest less in R&D for our
existing products
We will invest less in R&D for new
products
We will pass along most or all of the
increased cost
We will need to raise an additional
round of capital
We will focus on expanding overseas
instead of domestically
Startups’ Predictions: Impact of the Tax
18%
34%
27%
21%
0% 5% 10% 15% 20% 25% 30% 35% 40%
No meaningful impact
The tax will impact when we
become profitable
The tax will impact our ability to
raise capital
The tax will impact our chances
of being successful
“The Medical Device Tax is punitive and particularly unfair to
earlier stage companies struggling to satisfy FDA, CMS and extremely
expensive clinical trials. We are in the perfect storm and this
tax is one more nail in the coffin of this industry.”
Generally speaking, executives in the device industry
were aware of the tax, although many were still working
to understand how it would affect their business.
Across the board, executives view the tax as a big issue,
with eight in 10 saying it will affect their company’s
long-term growth. One in four will focus on expanding
overseas instead of domestically. At least two in 10
will take one or more other steps in response to the
tax, including reducing their workforce or foregoing
new hires, shifting resources away from growing their
business, investing less in R&D for existing and new
devices, or trying to raise more capital from investors.

And, finally, the survey data illustrated that the
headwinds facing the device industry threatens U.S.
manufacturing jobs.
▶▶ About half of the device respondents (46 percent)
currently manufacture devices. Ninety-three
percent of these companies manufacture mostly
in the United States.
▶▶ Most of the remaining device companies (45 percent)
plan to start manufacturing in the next 18 months.
Of these, 50 percent expect to manufacture mostly
in the United States.
▶▶ More than half of the device manufacturing jobs
require only a high school degree (28 percent) or
hire based on experience regardless of education
(28 percent). Only 16 percent require college or above.
Other Respondents:
2012 Compared to 2011
13%
22%
65%
Worse than last year
Same as last year
Better than last year
Medical Device Companies:
27%
32%
41% Worse than last year
Same as last year
Better than last year
As the data in the earlier sections of this report shows,
the device tax compounds other challenges that
threaten to affect U.S. leadership in medical device
innovation. Device companies were much more likely
than startups in other sectors to say they fell far short
of their 2012 revenue targets (17 percent versus nine
percent for other segments). Device executives were
also much less optimistic about business trends than
their peers in other sectors. Not surprisingly, this
translated into less robust expectations for hiring than
is true for other startups.
Similarly, the data in the remainder of the survey
shows that these companies — and the breakthroughs
in medical care they are creating — are small, growing
entities that aren’t yet profitable, and hence are highly
vulnerable to a tax on topline revenues.
▶▶ Seventy percent of the companies had fewer than
25 employees. 98 percent had fewer than 100
employees.
▶▶ Sixty-one percent aren’t yet earning revenues. Of
those earning revenues, 56 percent earned less
than $5 million in 2012, 95 percent earned less
than $25 million in 2012.
▶▶ Fewer than one in 10 expected expect to be
profitable in 2012.

31
Medical Device Companies:
15%
25%
60%
Will be worse in 2013
Will stay the same
Will be better in 2013
Other Respondents:
5%
16%
78%
Will be worse in 2013
Will stay the same
Will be better in 2013
Likelihood of Hiring:
Medical Device Companies
17%
6%
77%
Not likely to hire
Neither likely nor unlikely
Likley to hire
Likelihood of Hiring:
Other Respondents
6%
3%
91%
Not likely to hire
Neither likely nor unlikely
Likley to hire
“Lean is my only guidance to offer the FDA. Build excellence into
systems that ensure safety, and don’t do anything else. Let markets drive cost-
effectiveness. Let the NIH and peer-reviewed guidances determine efficacy.”

U.S. and U.K. Startups:
Similarities and Differences
In this year’s survey, we reached out to entrepre-
neurs in the U.K. for the first time. Over 125 U.K.
executives responded.
Like their U.S. counterparts, U.K. entrepreneurs are
optimistic about future conditions and growth. In fact,
at times U.K. entrepreneurs express greater confidence
than their U.S. peers. Here are some of the views from
across the pond, on the questions common to the
two surveys.
For a full report on the views of U.K. startups, go to
http://www.svb.com/startup-outlook-report
Business Conditions
▶▶ U.K. startups were slightly more likely to exceed
revenue targets than their U.S. peers (18 versus
15 percent), and more likely to meet targets (55
versus 43 percent).
▶▶ U.K. startups were somewhat more likely to
describe business conditions in 2012 as better than
2011 (66 versus 60 percent).
▶▶ Looking forward, U.K. startups are more optimistic,
with eight in 10 (83 percent) saying conditions in
2013 will be better than 2012, compared to seven
in 10 (74 percent) of U.S. entrepreneurs.
▶▶ Two-thirds of U.K. startups reported revenues in
2012 – roughly the same as in the U.S. with 64
percent of revenue-generating startups.
▶▶ Close to half of U.K. revenue-generating startups
(46 percent) expected their company to be
profitable in 2012, compared to around one-
quarter of U.S. startups (27 percent). Looking into
2013, seven in 10 U.K. entrepreneurs (71 percent)
expect their company will be profitable.
Hiring
▶▶ Like their U.S. counterparts, U.K. startups are
hiring. As in the United States, nine in 10 (87
percent) plan to hire new employees in 2013.
▶▶ Ninety-five percent of U.K. startups with
10 or more employees plan to hire, versus
84 percent of smaller U.K. startups and 88
percent of U.S. startups with 10 or more
employees.

33
Hiring (con’t.)
▶▶ Similar to U.S. startup executives, U.K. startups are
looking primarily for workers with STEM (Science,
Technology, Engineering, and Math) skills.
▶▶ Four in 10 (38 percent) say STEM skills are the
most critical job skills, versus one-quarter (23
percent) who say management, marketing,
and other non-STEM skills are most critical.
Among U.S. startups, those numbers were 40
and 17 percent, respectively.
▶▶ As in the United States, finding the right workers
will be difficult.
▶▶ Nine in 10 (89 percent) say it is “challenging”
to find workers with the skills needed to grow
their businesses. (Eighty-seven percent of U.S.
executives said the same.)
Intellectual Property (IP)
▶▶ Just fewer than four in 10 of the U.K. respondents
(38 percent) classify IP as a “key strategic asset,”
compared to 46 percent of the U.S. respondents.
Fifteen percent of U.K. respondents say that IP
is primarily a defensive tool, compared to 11
percent of U.S. respondents. One-quarter of U.K.
respondents (23 percent) say IP is a combination of
both, compared to 35 percent of U.S. respondents.
▶▶ Over eight in 10 U.K. entrepreneurs (84 percent) in
this study rarely or never face disputes, compared
to 77 percent for the United States.
▶▶ Over half of U.K. entrepreneurs (57 percent)
say they focus on non-legal means rather than
on IP rights to create a competitive advantage,
significantly more than for U.S. startup executives
(46 percent).
U.K. Fundraising Environment
(U.K. Survey Only)
▶▶ Nine in 10 of entrepreneurs in this study (90
percent) say the U.K. fundraising environment
is challenging.
▶▶ Most are looking to angel investors or VCs for their
next source of funding (39 percent for each).
▶▶ Over half of U.K. entrepreneurs say government
initiatives that would help the startup sector are
greater access to government grants and funds
designed specifically for startups and tax reform
(56 percent and 52 percent, respectively).
Founding Teams
▶▶ Twenty-six percent of startups in the U.K. survey
have women on founding team, compared to 22
percent for startups in the U.S. survey.
▶▶ Thirty-seven percent of startups in the U.K. survey
have foreign born members on founding team,
compared to 46 percent for startups in the U.S. survey.

About Silicon Valley Bank
Silicon Valley Bank is the premier bank for technology,
life science, cleantech, venture capital, private equity
and premium wine businesses. SVB provides industry
knowledge and connections, financing, treasury
management, corporate investment and international
banking services to its clients worldwide through
27 U.S. offices and seven international operations.
(Nasdaq: SIVB)
www.svb.com
About the Startup Outlook Survey
In addition to this comprehensive report, Silicon
Valley Bank is publishing a series of more detailed
reports focusing on different sectors and issues within
the broader survey. For copies of these additional
reports, as well as to access the Startup Outlook 2010,
2011 and 2012 reports, please visit us at
www.svb.com/startup-outlook-report
“Big Data and Cloud computing markets that we are part of will be huge.
Financial instabilities make companies look for other vendors so small
startups like us become a very good option for them as we are agile,
cost effective and approachable.”

Silicon Valley Bank
3003 Tasman Drive
Santa Clara, California 95054
408.654.7400
svb.com
©2013 SVB Financial Group. All rights reserved. Silicon Valley Bank is a member of FDIC and Federal Reserve System. SVB>, SVB>Find a way,
SVB Financial Group, and Silicon Valley Bank are registered trademarks. B-12-12611. Rev. 04-30-13.

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