Innovation Economy Outlook 2014 - U.S. Report

Innovation Economy
Outlook U.S.
2014 Report
ENTER

Letter from the CEO
Welcome to Innovation Economy Outlook 2014, Silicon
Valley Bank’s annual study of executives’ perceptions
in the innovation sector. Each year, we take the pulse of
these companies to find out how they’re doing, from past
performance to future prospects, and the challenges and
opportunities they foresee.
This year we expanded our survey to include companies
in innovation centers around the world and, in addition to
startups, larger companies with revenues upward of $1 billion
USD. With insights reflecting the more than 1,200 survey
responses, I’m pleased to offer the most comprehensive look
yet at the state of the global innovation economy.
Our prognosis is, in a word, momentum. We see abundant
potential in the pace of new company formation, global
expansion and availability of capital, and in the emergence
of new products and solutions that will change the world.
Many of the executives surveyed are SVB clients, which
should come as no surprise to those of you who know us. SVB
is the bank for half of all venture capital-backed technology
and life science companies in the United States, two-thirds of
those companies that went public in 2013, and a majority of
the investors who fund them. The makeup of our client base
is growing increasingly global and has expanded over the
years to serve companies of all sizes.
As the bank of the global innovation economy, we are
committed to bringing clients the connections and tailored
financial solutions they need to succeed, and we also consider
ourselves champions for innovation. With studies like this one,
we can build a better understanding of what it takes to disrupt
an industry or launch a high-growth company. And with that
knowledge we can help create a better environment in which all
innovators can thrive.
Thanks for taking a look at this year’s report. Reading between
the statistics, insights and observations, you’ll find stories of
the phenomenal intelligence, courage and determination it
takes to build a successful company.
Greg Becker
President and Chief Executive Officer
Silicon Valley Bank and SVB Financial Group
INNOVATION ECONOMY OUTLOOK U.S. REPORT 2014
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S U R G I N G F O R W A R D K E E P I N G M O M E N T U M A B O U T T H I S R E P O R TI N T R O D U C T I O N M E E T I N G O B S T A C L E S

CONTENTS
3 Executive summary
4 Report at a glance
3
Introduction
7 Surging forward: Upbeat
mood pervades the
innovation economy
8 2013 year in review
11 2014: A look ahead
13 Driving growth in 2014
14 The broader financial
environment: Exits
and IPOs
16 Growth means jobs
19 It’s all about skills
and experience
7
Surging forward
20 Meeting obstacles
head-on
22 The first hurdle:
Access to equity
25 The shifting landscape
of innovation capital
28 The second hurdle:
Access to talent
30 Keeping momentum
32 Establishing a
global footprint
20
Meeting obstacles
30
Keeping momentum
34 About Silicon Valley Bank’s
Innovation Economy
Outlook 2014
36 A snapshot of survey
respondents
34
About this report
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A B O U T T H I S R E P O R TK E E P I N G M O M E N T U MS U R G I N G F O R W A R D M E E T I N G O B S T A C L E SI N T R O D U C T I O N

Today, the United States leads the race to capitalize
on the global innovation economy. The nation is home
to the largest concentration of innovation economy
companies in the world.
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Executive summary
For the past five years, Silicon Valley Bank has taken the pulse
of the nation’s innovation economy. We ask entrepreneurs and
executives what they are experiencing, how their companies are
performing and how they view the future.
This year, a clear theme emerged. The innovation economy is
big — and getting bigger. And it’s moving fast. It has momentum.
It is a powerful force for job creation and economic growth
across the United States, from early-stage startups to large,
successful companies.
In the following pages, we explore the views of more than 1,000
U.S. executives from rapidly growing companies in the software,
hardware, healthcare and cleantech sectors. Through their eyes,
we see a picture of strength and optimism as they wrap up a very
strong 2013 and look toward an even brighter future.
Yet alongside these positive results an equally compelling
challenge emerges. Innovation economy companies are all about
getting to scale — reaching the size, breadth and depth to be
significant players in their markets. It takes scale to generate the
financial returns and transformative breakthroughs that keep the
innovation economy humming. For companies to achieve this scale,
they must overcome a pair of limiting factors: securing access to
capital and finding and keeping workers with the right skills.
INNOVATION ECONOMY OUTLOOK U.S. REPORT 2014 3
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Experienceandskillsmatter.
Eight in 10 executives seek workers with experience,
particularly in STEM disciplines. This illustrates the
innovation economy’s role in creating the high-
paying, high-quality jobs we need to maintain U.S.
competitiveness in the global economy.
2013wasthebestyearyet.
Two in 3 respondents met or beat 2013
revenue targets, the best performance in five
years of surveys.
2014couldbeevenbetter.
Even coming off a strong year, 82 percent of
executives say business conditions will improve
in the coming year.
Strongperformanceandapositiveoutlookmeanjobs.
Three in 4 executives say their company will grow its
workforce in 2014 — a very bright spot in a broader
U.S. economy still struggling to get people back to work.
Surging forward: Upbeat mood pervades the innovation economy
Executives offer generally positive reviews of sector performance in 2013 and a bright outlook for 2014:
Report at a glanceHIGHLIGHTS
1
Most optimistic ever
2010 20122011 2013 2014
◻ Business conditions will improve
Growing in 2014? U.S. respondents
◻ We will grow our workforce.
◻ We will stay flat.
◻ We will reduce our workforce.
76% 22%
8in10executives seek workers
with experience
Greatest opportunity in 2014
◻ New products or markets
◻ Scaling operations
◻ Business conditions in existing markets
◻ Access to equity financing
◻ Mergers and acquisitions
◻ Other
11%
7%
24%
11%
36%
11%
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1.Scalingoperations
Most young companies struggle to get to scale — to grow in size,
expand their line of products and services, continue to innovate,
add employees and locations, bring in revenue and, of course,
earn profits.
2.Gettingfunded
Access to equity is difficult even for those who successfully raised
capital in 2013. The challenge is most acute in cleantech and
healthcare and for companies with less than $5 million in revenue,
wheremorethan90percentofexecutiveswhoraisedcapitalsaythe
fundraising environment is somewhat or extremely challenging.
Meeting obstacles head-on
Executives cite three major hurdles as their companies seek to realize their potential:
Keeping momentum
Winners and losers in the
innovation economy will be
defined by regions that connect
companies with talent and capital.
The opportunity lies in converting
these challenges into strengths:
3.Findingskilledemployees
Similarly, 91 percent of executives — a higher percentage than last
year — say it is hard to find employees with the experience, skills
andeducationtheyseek.Andwhileexecutivessaytheylookfirstto
hire in the United States, many will look farther afield if necessary.
Growastrongworkforce.
Regions with well-educated youth and a well-trained
workforce can become destinations of choice for
growing companies.
Connectcapitaltocompanies.
Smoothing the path between capital providers and
high-growth companies that need equity to grow can
foster a region’s long-term economic success.
Report at a glance
HIGHLIGHTS
2 3
View of the 2014 fundraising environment:
Getting the right people:
Tough and getting tougher
◻ Extremely challenging
◻ Somewhat challenging
◻ Not very challenging
9%
61%
30%
BY THOSE WHO SUCCESSFULLY RAISED CAPITAL IN 2013
Software Hardware Healthcare Cleantech
◻ Somewhat
challenging
◻ Extremely
challenging
38%
15%
36%
42%
52%
54%
59%
53%
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The spoils will go to the
sectors, regions and nations
that figure out how to keep
the innovation funnel
packed with young startups
and provide companies
with the people and capital
needed to grow.
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Today, the United States leads the race to capitalize on the global innovation
economy. The nation is home to the largest concentration of innovation economy
companies in the world and is a focal point for entrepreneurs in the software,
hardware, cleantech and healthcare sectors worldwide.
Yet nothing is static — least of all innovation —
because the impulse to invent and transform
is universal.
Over the past decade, entrepreneurs and investors
have come together to create increasingly vibrant
ecosystems in places such as the United Kingdom,
Israel, China and India. Clusters of young companies
and sophisticated investors continue to emerge in
markets across the globe. Governments are working
to strengthen these emerging networks because they
recognize the innovation economy’s capacity to drive
economic growth.
Today’s innovation economy is more than a series
of isolated regional clusters. It’s an interconnected
global ecosystem, in which rapidly growing companies
look both within and beyond their borders to find the
growth opportunities, people and capital that breakout
companies need.
In the following pages, we explore the views of
1,004 U.S. executives about the opportunities
and challenges faced by their companies and, by
extension, our economy. Together, they paint a
picture of how executives at the epicenter of the
global innovation economy are thinking. In our other
Innovation Economy Outlook reports, we bring in the
views of another 214 executives worldwide to give
us an unprecedented perspective on how today’s
innovation companies look to achieve scale.
The decisions being made by these executives will
shape the future of global innovation. It’s a race to
the top, where huge rewards await. The spoils will
go to the sectors, regions and nations that figure out
how to keep the innovation funnel packed with young
startups and provide companies with the people and
capital needed to grow.
8 2 0 1 3 Y E A R I N
R E V I E W
1 1 2 0 1 4 : A L O O K
A H E A D
1 3 D R I V I N G G R O W T H
I N 2 0 1 4
1 4 T H E B R O A D E R
F I N A N C I A L
E N V I R O N M E N T:
E X I T S A N D I P O S
1 6 G R O W T H M E A N S
J O B S
1 9 I T ’ S A L L A B O U T
S K I L L S A N D
E X P E R I E N C E
Surging forward: Upbeat mood
pervades the innovation economy
CHAPTER1 Silicon Valley Bank’s
Innovation Economy Outlook 2014 U.S. Report
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Although executives in last year’s
survey expressed mixed feelings about
2012, they were hopeful about 2013.
And their hope proved justified. For
innovation economy companies, 2013
was a very good year, with 65 percent
of U.S. executives saying their company
met or beat their revenue goals. That’s
up from 54 percent in 2012 and higher
than in any of the past five surveys.
Most of the companies that beat targets over-
performed, usually in the range of 1 to
20 percent.
Across sectors, the pattern was generally consistent.
Interestingly, the strongest performance was in
cleantech, a sector that has faced significant headwinds
in recent years. Executives at cleantech companies were
the most likely to say they beat targets (29 percent), and,
at the median, cleantech companies that beat targets did
so by 30 percent — much more than was reported for any
other sector.
The strong performance by cleantech companies could
be the result of relatively conservative expectations for
those companies. Expectations may have been higher for
the software and hardware sectors, and, if so, that would
explain why those sectors beat targets by a smaller margin.
Among executives who report that they missed 2013
revenue targets, at the median, cleantech and hardware
executives report the biggest misses at 25 percent, while
software and healthcare come in at 20 percent.
2013 year in review
2013 REVENUE
PERFORMANCE
◻ Above target
◻ On target
◻ Below target
65%
of U.S. companies
met or beat their
revenue goals
35%
44%
21%
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2013 year in review
CHAPTER 1
2009 20112010 2012
50% 50%
37%
63%
40%
60%
46%
54%
35%
2013
2013: THE BEST YEAR YET
◻ Met or beat revenue targets
◻ Missed revenue targets
Beating 2013 revenue targets
PERCENTAGE ABOVE TARGET FOR THOSE
EXCEEDING 2013 REVENUE GOAL
◻ 1%–20%
◻ 21%–50%
◻ More than 50%
Missing 2013
revenue targets
PERCENTAGE BELOW
TARGET FOR THOSE
MISSING 2013
REVENUE GOAL
◻ 1%–20%
◻ 21%–50%
◻ More than 50%
65%
67%
70%
60%
50%
40%
30%
20%
10%
0%
9%
24%
56%
9%
35%
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Four-fifths of respondents
believe that business
conditions in 2014 will be
better than in 2013.
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Optimism among executives heading
into 2014 is unparalleled. The number
of executives who believe that business
conditions for their company in 2014
will be better than in 2013 is particularly
surprising given the strength of 2013.
Across stages, sectors and regions the level of
optimism is high. Even among those executives
who are relatively less optimistic — the leaders of
healthcare, pre-revenue and New England-based
companies — at least three-quarters believe that
business conditions for their company in 2014 will be
better than in 2013.
PricewaterhouseCoopers (PwC) recently released its 17th
annual Global CEO Survey, which helps to put this level of
optimism in context. PwC asked CEOs of major companies
in 68 countries (including 162 U.S. CEOs) whether they
were confident the global economy would improve in the
coming year and whether they plan to hire. Confidence
in growth and hiring were both up dramatically from a
year ago, but were still far below the level we see in the
innovation economy. Only 40 percent of those U.S. CEOs
surveyed said they are confident the global economy will
improve, and only 62 percent expect to hire this year.
Although the questions were not identical to those in our
survey, the magnitude of the different levels of optimism
highlights the strength and growth potential in the U.S.
innovation economy as compared with the overall global
economy in the eyes of executives on the front lines.
2014: A look ahead
Most optimistic ever
75%
2010
71%
2012
78%
2011
74%
2013
82%
2014
85%
80%
75%
70%
65%
60%
55%
of executives
believe that
business
conditions for
their company
in 2014 will
be better than
in 2013
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The overall focus
on new products,
new markets,
scaling operations,
equity and business
conditions is true
across sectors and
company sizes.
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Executives in this year’s survey intend
to drive growth in 2014 primarily by
finding new markets for their products
and scaling their business operations.
To a lesser extent, companies plan to
capitalize on business conditions in their
existing markets and tap equity capital.
While the overall focus on new products, new
markets, scaling operations, equity and business
conditions is true across sectors and company sizes,
executives with larger companies (those with more than
$50 million in revenue) and healthcare companies also
cite mergers and acquisitions as a top opportunity.
Healthcare executives are more likely to see access to
equity as their top opportunity, while hardware executives
are more likely to look to new products and markets.
Conversely, executives with companies earning more
than $5 million in revenue are less likely to cite access
to equity as a top opportunity, and executives with
pre-revenue companies are less likely to see business
conditions in their existing market as a top opportunity.
Driving growth in 2014
Greatest
opportunity
in 2014
◻ Business conditions in
existing markets
◻ Mergers and acquisitions
◻ Other
36%
11%
7%
24%
11%
11%
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The survey paints a positive picture — a
strong 2013, expectations for an even
better 2014 and compelling organic
growth opportunities — that translates
into meaningful job creation. This
picture fits with what we know about
innovation economy companies based
on the work we do with them across the
nation and around the world.
One cause for optimism among executives is the
rebound in the number of initial public offerings
(IPOs) during 2013. IPOs are important for a number
of reasons. For entrepreneurs and investors, they can
serve as a sought-after “exit strategy,” allowing those
who build successful companies to begin to reap the
financial rewards of what they have created. For the
companies themselves, tapping public equity markets
can provide the capital needed to keep growing.
And for the U.S. economy, IPOs mean jobs, since
historically the greatest job creation in venture-backed
companies occurs after having gone public.
This past year was the best for the U.S. IPO market
since 2000. A total of 222 companies went public in
2013, raising $55 billion. Eighty-one of these offerings
were by venture-backed companies, and another 70
were by private equity-backed companies. In both
cases, these numbers represent a sharp increase over
2012, when 46 venture-backed companies and 45
private equity-backed companies went public.
In addition to the sheer number of offerings, the
market was much more reliable in 2013. The window
for U.S. IPOs remained consistently open, rather than
opening and closing in fits and starts as had occurred
during the previous several years. This provided a
more stable and predictable foundation for executives
considering a public offering. 1
IPO momentum continues in 2014. According to
Bloomberg, by mid-February, 42 Internet and other
technology-related companies had announced plans
to go public, with aspirations to raise more than
$2 billion.2
That is more than half the number of all
venture-backed IPOs in 2013.
U.S. mergers and acquisitions — the other source of
successful “exits” for high-growth companies — were
also up in 2013. Last year, U.S.-targeted M&A deals
totaled $1.3 billion, up 23 percent from 2012 and the
The broader financial environment:
Exits and IPOs
2007 2008 2009 2010 2011 2012 2013
0
50
100
150
200
250
Number of U.S. IPOs
222
CONTINUED ON 15
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strongest showing in at least five years. In another
five-year high, U.S. M&A activity in 2013 reached 48
percent of worldwide M&A activity.3
Strong performance in 2013 on the IPO front was
driven in significant part by the strength of the stock
market. In the words of CNNMoney, “2013 is one for
the record books.” The S&P 500 gained 29.6 percent,
its biggest jump since 1997. The Dow Jones industrial
average had its best year since 1998, gaining 26.5
percent and hitting 52 all-time highs during the year.
And the Nasdaq gained 38 percent, its best year
since 2009.4
The “IPO On-Ramp,” enacted by Congress in 2012
as part of the JOBS Act,5
also likely contributed to
2013’s strong IPO showing. This new law lets smaller
companies explore their prospects for a successful
IPO by letting them keep their early submissions to
the Securities and Exchange Commission confidential
(until they actually decide to go public) and letting
them test the waters with potential investors. This
change on the regulatory front seemed to help
reinvigorate the small-cap IPO market and increase
executives’ ability to make good decisions grounded
in good information. It also gave investors access to
some of the most interesting companies out there.
In short, the engine is humming. The number of newly
formed startups continues to rise. Companies are
performing well. The stock market is up. Investors
and entrepreneurs see good exits, including some
spectacular ones such as WhatsApp, FireEye and Zillow.
As a result, the flow of capital into companies with
great ideas, the transformation of great ideas into great
companies, and the return of capital to investors are
alive and well and fueling the innovation economy.
1 Renaissance Capital, “U.S. IPO Market 2013 Annual Review: Best Year for U.S. IPO Market in Over a Decade,”
www.renaissancecapital.com/ipohome/news/renaissance-capitals-2013-us-ipo-annual-review-17213.html.
2 Bloomberg News, “Goldman No. 1 in Equities Ranking as IPO Pipeline Grows in 2014”, March 4, 2014,
www.bloomberg.com/news/2014-03-05/goldman-no-1-in-equities-ranking-as-ipo-pipeline-grows-in-2014.html.
3 Thomson Reuters, “U.S. Accounts for Highest Percentage of M&A Since 2001; European Merger Activity Falls to 10-Year
Low,” blog.thomsonreuters.com/index.php/preliminary-mergers-acquisitions-review-fy-2013/.
4 CNNMoney, “Stocks: 2013 Is One for the Record Books,” Dec. 31, 2013,
buzz.money.cnn.com/2013/12/31/stocks-record-bull-market/.
5 U.S. Securities and Exchange Commission, “Jumpstart Our Business Startups (JOBS) Act,”
www.sec.gov/spotlight/jobs-act.shtml.
The broader financial environment:
Exits and IPOs
CHAPTER 1
◻ PE-backed deals
◻ VC-backed deals
Number of U.S. venture-backed
and private equity-backed IPOs
2009 2010 2011 2012 2013
0
20
40
60
80
100
120
140
160
70
81
4651
61
12
22
37
35 45
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Strong performance, high optimism
and growth from within a company’s
core business translate into new
jobs. Three-quarters of this year’s
respondents plan to grow in 2014, and
virtually all survey participants think
that, at minimum, their company will
stay the same size.
Across the country, across sectors and across
organizations of all sizes, companies plan to hire.
About 7 in 10 hardware and healthcare executives say
they plan to grow. In software and cleantech, 8 in 10
say they will grow. And while executives in Northern
California, New York and the Southwest are particularly
upbeat, those in every region of the country are
extraordinarily positive about prospects for growth.
Even at the low end of the spectrum, executives project
a median employment growth rate of 20 percent.
Across the survey, 64 percent of executives expect
their workforce to grow by more than 20 percent.
The median expected workforce growth is 30 percent.
Expectations vary a bit by sector, from 50 percent
median growth projected by hardware executives to
33 percent in cleantech to 30 percent each in software
and healthcare.
Not surprisingly, smaller companies plan to grow more,
in percentage terms. Executives from companies with
revenue under $5 million project a median growth rate
of 50 percent. Executives from companies with more
than $50 million in revenue, meanwhile, project a
median growth rate of 15 percent, still enough to create
a meaningful number of new jobs in 2014.
Growth means jobs
Growing in 2014?
◻ We will grow our workforce.
◻ We will stay flat.
◻ We will reduce our workforce.
76%
2%
22%
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Growth means jobs
CHAPTER 1
Planned
workforce
growth in
2014: Median
responses by
region
While executives
in Northern
California, New
York and the
Southwest are
particularly
upbeat, those in
every region of
the country are
extraordinarily
positive about
prospects for
growth.
Expected
workforce growth
◻ 1%–20%
◻ 21%–50%
◻ 51%–100%
◻ More than 100%
60%
50%
40%
30%
20%
10%
0%
20%
30%
40%
50%
PRE-REVENUE COMPANIES
REVENUE-GENERATING COMPANIES
$50M+ COMPANIES
25%
18%
27%
24%
15%
2%
31%
6%
34%
22%
45%
76%Northern
California
New
York
New
England
NorthwestSoutheastGreat
Lakes
SouthwestMid-
Atlantic
Great
Plains
Southern
California
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As companies grow,
support functions
become increasingly
important. Forty-three
percent of companies
exceeding $50 million
in revenue expect most
of their hires to be in
non-STEM functions.
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Companies need workers to grow.
In terms of skills, workers with science,
technology, engineering and math
(STEM) skills are most in demand. In
terms of experience, more than 8 in
10 executives say their companies are
looking for employees with a track
record. Put those two factors together
and more than half of respondents
say their companies will hire mostly
experienced STEM workers.
The numbers are particularly compelling for
hardware companies, where 92 percent say
they want to hire mostly experienced staff and
71 percent say they are looking specifically for
experienced STEM workers.
As companies grow, support functions become
increasingly important. Only 26 percent of pre-revenue
companies expect most of their hires to be in non-STEM
functions. Among companies with $50 million or more in
revenue, that number rises to 43 percent.
Regionally, Texas and New York stand out for placing an
extraordinary emphasis on skilled workers (96 percent
and 93 percent, respectively), while the Southwest
stands out for its relatively high demand for people
with management, marketing, sales, finance, operations
and other non-STEM skills.
It’s all about skills and experience
WORKFORCE GROWTH:
OVERALL MIX
◻ Experienced STEM
◻ Experienced Other
◻ Entry-level STEM
◻ Entry-level Other
More than half say
their company will hire
mostly experienced
STEM workers.
60%
50%
40%
30%
20%
10%
0%
53%
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Scale — and how to achieve it — is the core challenge for executives trying to build
a breakout company.
The top three challenges are pieces of a whole: how
to build the infrastructure and product set, how to
assemble a team that can successfully ramp up and how
to raise the capital it takes to reach scale.
Within the overall mix of obstacles, the survey
responses break down fairly clearly by stage of
growth. Executives with pre-revenue companies are
most focused on raising equity financing, with 41
percent saying access to equity is their top challenge
in 2014.6
As companies mature, executives shift their
focus to the challenge of scaling operations. Finding
the right people is a challenge across the board.
Not surprisingly, there are also some variations by
sector. Executives in the capital-intensive healthcare and
cleantech sectors are particularly focused on access to
equity, and healthcare executives see the regulatory
and political environment as a greater challenge than
recruiting and managing employees. In contrast,
executives in the software sector are especially
focused on recruiting and managing talent.
2 2 T H E F I R S T H U R D L E :
A C C E S S T O E Q U I T Y
2 5 T H E S H I F T I N G
L A N D S C A P E O F
I N N O V A T I O N
C A P I T A L
2 8 T H E S E C O N D
H U R D L E : A C C E S S
T O T A L E N T
6 This is twice the number in the companion U.K. survey, though significantly more venture capital is invested in U.S. startups than U.K. startups.
Meeting obstacles head-on
CHAPTER2
Silicon Valley Bank’s
Top challenges for 2014
◻ Recruiting employees
and managing talent
◻ Regulatory/political environment
◻ Business conditions in existing markets
24%
21%
15%
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The top three challenges
are pieces of a whole:
how to build the
infrastructure and
product set, how to
assemble a team that
can successfully ramp
up and how to raise
the capital it takes to
reach scale.
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Building teams, developing products
and penetrating markets aren’t easy —
or cheap. That’s why many high-growth
companies need to continue raising
capital long after they begin earning
revenue, and why continued access
to adequate risk capital is key to
their success.
Overall, innovation economy companies fared
reasonably well in 2013. About half of the executives
in this year’s survey (48 percent) raised equity capital
in 2013, and 24 percent obtained a loan or other form
of credit financing. For pre-revenue companies, the
mix between debt and equity was shifted, with a much
smaller number (9 percent) saying they obtained credit
and far more (51 percent) saying they raised equity.
In contrast, 13 percent of all executives — and 23
percent of those with pre-revenue companies — say
they were unable to raise private capital in 2013.
Cleantech companies were particularly challenged,
with 28 percent of executives in that sector reporting
unsuccessful fundraising attempts.
The fact that some companies cannot raise funds
doesn’t necessarily signal a problem in the overall
fundraising environment. It’s a basic truth of the
innovation economy that many companies won’t
succeed in raising capital.
That’s why we asked only those who succeeded in
raising capital what they think about the fundraising
environment. And even though these executives were
the ones who survived the gauntlet, they were clear in
their assessment: It’s tough out there.
The first hurdle: Access to equity
CONTINUED ON 24
48% 24% 13% 6% 1%
2013 fundraising landscape
◻ Successfully raised private capital
◻ Obtained a loan
◻ Unsuccessfully attempted to raise private capital
◻ Acquired or were acquired
◻ Filed for an IPO
Note: This question allowed for more
than one response.
NEXTBACK

CHAPTER 2
Types of capital raised
About half of the executives in this year’s
survey (48 percent) raised equity capital
in 2013, and 24 percent obtained a loan or
other form of credit financing.
◻ All companies
◻ Pre-revenue companies
6%
8%
Other
2%
3%
Crowdfunding
4%
3%
Government
grant
9%
12%
Corporate
investor
20%
17%
Private
equity
41%
59%
Angel
capital
48%
38%
Venture
capital
Raising equity capital in 2013
◻ Successfully raised private capital
◻ Unsuccessfully attempted to raise private capital
48%
13%
51%
23%
ALL RESPONDENTS
PRE-REVENUE
COMPANIES
NEXTBACK

Across the survey, 8 in 10 executives who raised
capital in 2013 rate the environment as somewhat
or extremely challenging. Numbers for cleantech and
healthcare are near unanimous, at 96 percent and 91
percent. Software company executives fared somewhat
better, with “only” 74 percent saying the environment
is challenging.
Broken out by stage, a similar pattern emerges. Nine
in 10 executives at companies with revenue under $5
million call the fundraising environment challenging,
compared with only 6 in 10 executives with companies
bringing in more than $50 million.
For those who successfully raised capital in 2013,
venture capital remains the go-to source. Among
executives who raised capital in 2013, 48 percent say
they raised venture dollars. Angel capital comes in a
close second, with 41 percent of executives raising
capital from angel investors, followed by private equity
at 20 percent. Nine percent of executives say they raised
capital from corporate investors, followed by government
grants (4 percent) and crowdfunding (2 percent).
Not surprisingly, the pattern varies depending on the
company’s stage of growth, with executives at pre-revenue
companies reporting angel funding 59 percent of the
time. Geographically, venture capital is more common
in Northern California and Massachusetts, while private
equity is more common in the middle part of the country.
CONTINUED FROM 22
CHAPTER 2
Healthcare
Software
Hardware
Cleantech
38%
15%
36%
42%
View of fundraising environment: by sector
52%
54%
59%
53%
NEXTBACK

Responses to the survey illustrate the
shifting pattern of innovation capital.
Among executives planning to raise
funds, 43 percent predict that funds
will come from venture capital (down
from 48 percent).
The number who expect their next round of funding to
come from angel investors dropped even more, from
41 percent to 23 percent, although this may reflect the
natural shift of maturing companies to larger investors.
Sixteen percent of executives, up from 9 percent, plan to
look to corporate investors, while only 14 percent plan
to look to private equity, down from 20 percent.
Overall, 14 percent of companies, and 26 percent of
those with revenue over $50 million, are planning for
organic growth, while another 14 percent are looking to
raise bank debt. Public capital markets become relevant
only for the larger companies in the survey, with one-
quarter of executives at companies with revenue above
$50 million saying they intend to go public to raise their
next round of equity.
These results reflect broad changes in sources of
funding. Ten years ago, venture capital dominated the
scene. More recently, the mix of capital has become a
blend of angels, venture, corporate, private equity and
others. We believe that in 2013 “innovation capital”
looked more or less like the depiction at right, with
venture capital remaining a very important contributor
but making up only a fraction of total dollar funding.
The evolution will likely go on as nonequity
crowdfunding continues to provide seed-stage
financing, as equity crowdfunding either takes hold
or atrophies under its heavy regulatory burden, as
two forms of fundraising7
that the JOBS Act made
significantly easier gain a footing and as technology
platforms increasingly match buyers and sellers
across a broader landscape.
The expansion in funding sources is important
for two reasons.
The shifting landscape of innovation capital
7 The two forms of fundraising are private offerings, under what is generally referred to as “Reg D” offerings, and small
public offerings, under a new provision called “Reg A+.”
8 Silicon Valley Bank, National Crowdfunding Association, Angel Capital Association, NVCA, Dow Jones.
$0.7$2.8$4.4
$22.5
$24.3
$101
2013 mix of innovation
capital (billions)8
◻ Tech private equity
◻ Venture capital funds
◻ Angel investors
◻ Corporate venture funds
◻ Crowdfunding
◻ Micro VC
CONTINUED ON 26
NEXTBACK

First, over the past several years, the rate of company
formation has been strong and rising, and venture funds
have been investing an increasing share of their capital
into these early-stage companies. The mouth of the
funnel is widening. But at later stages, venture investors
have been completing fewer deals, placing larger
amounts of capital into a smaller number of “winners.”
In other words, the stem of the funnel is shrinking.
In addition, since 2008, venture funds on average
have been investing significantly more (on the
order of $6 billion to $10 billion annually) than they
have been raising.
The net result? There are a lot of younger companies out
there with an appetite for growth capital that venture
alone can’t meet. And that comes full circle, back to the
views of the executives in the survey: Finding capital is
a challenge.
CHAPTER 2
50%
40%
30%
20%
10%
0%
14%14%14%
16%
23%
43%
The next source of capital
Venture
capital
Angel
capital
Corporate
investor
Bank Organic
growth
Private
equity
CONTINUED FROM 25
NEXTBACK

CHAPTER 2
9 NVCA Yearbook 2013, PWC/NVCA 2013 MoneyTree Report, Thomson Reuters/NVCA 2013 Fundraising Report.
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
$50
-$75
$0
Projected
Venture capital: A looming funding gap (billions)9
◻ VC fundraising
◻ VC investments
◻ Cumulative shortfall
◼ Projected
There are a lot of younger
companies out there with
an appetite for growth
capital that venture alone
can’t meet.
$50
$0
-$75
NEXTBACK

The good news is that innovation
economy companies are hiring. The
challenge is that they are struggling
to find and retain the people they
need to grow.
Awhopping 91 percent of executives in the survey
say it’s challenging to find workers with the skills
and experience necessary to grow their business. That’s
up from 2013, when 87 percent took this view.
The pain is particularly acute in the software and
hardware sectors, where 94 percent and 92 percent
of executives, respectively, say the situation is
challenging. Northern California and New York top the
list of regions with the biggest challenges on this front.
New York, which has a smaller employee base upon
which to draw because of its shorter history as a tech
hub, faces a particular challenge, exacerbated by a very
high cost of living.
Interestingly, larger companies are more likely than
their smaller peers to characterize the situation as
extremely or somewhat challenging. In fact, pre-revenue
companies are the least likely to have that view and
are significantly more likely than larger companies
to define the situation as not very challenging. This
probably reflects the greater number of people needed
by larger companies as well as the draw toward tech
startups across the nation, particularly in places such
as San Francisco and New York.
Hiring difficulties cut to the core of companies’ ability to
succeed and can’t be solved by companies alone. One-
third of executives say the biggest challenge is finding
workers with the necessary experience, and 28 percent
say the biggest challenge is finding people with the right
skills and education. Executives in the software sector
switch the order, putting skills and education at the top
of the list, likely because of the rapidly evolving types of
skills needed by software companies.
Hiring and retaining people with the right skills and
experience is a challenge across the country. Finding
experienced workers is particularly challenging in
regions farther from technology hubs such as the
Southwest and Southeast where executives cite
location as a significant obstacle.
The second hurdle: Access to talent
NEXTBACK

The second hurdle: Access to talent
CHAPTER 2
Getting the right people:
Tough and getting tougher
◻ Not very challenging
57%
28%
Jobs and hiring:
Top challenges
◻ Experience
◻ Skills/education
◻ Salary and benefits
◻ Candidates prefer companies of a different size
91%
2014 RESPONSES
Executives surveyed say it’s challenging to find workers with the skills
and experience necessary to grow their business.
34%
21%$
6%
30%
30%
9%
13%
2013 RESPONSES
61%
Find hiring
somewhat
or extremely
challenging
87%
NEXTBACK

The race is on. While the United States remains the epicenter of the global
innovation economy today, nothing is static. As this year’s survey makes clear,
there is enormous opportunity ahead — and those sectors, regions and countries
that can help executives access equity and talent will have a good shot at enticing
and retaining rapidly growing companies, which need both.
All other things being equal, it’s apparent that U.S.
executives would rather build companies close
to home, both domestically and regionally. Keeping
employees together helps entrepreneurs create a strong
culture and promote collaboration, particularly in earlier-
stage companies.
Yet while most executives in the survey see the United
States as their top hiring market, many are open to
hiring from outside the country. This view is most
often shared by executives at software companies,
larger companies with revenue above $50 million, and
companies in Northern California and New York.
More broadly, innovation economy companies often
establish a broader global footprint as part of their
normal evolution and growth, and even relatively small
companies look to international markets as they expand.
In this year’s survey, 30 percent of executives with
companies generating revenue below $5 million say they
sell internationally, and an equal share say they have
overseas production capabilities. Moreover, the level of
activity rises as revenue rises. Among companies with $50
million or more in sales, three-quarters sell outside the
United States now or plan to do so in the coming year.
It’s an exciting time to be in the innovation economy. The
level of creativity is extraordinary. The opportunities are
exciting and changing constantly. And even the challenges
are good ones to have, because they exist only in an
environment where organizations are thriving.
Keeping momentum
CHAPTER3
Silicon Valley Bank’s
NEXTBACK

Hiring difficulties cut to
the core of companies’
ability to succeed and
can’t be solved by
companies alone.
NEXTBACK

Establishing a global footprint
CHAPTER 3
44% 39% 36% 35%
14%
6%
8% 4% Innovation economy
companies’ global footprint
PERCENTAGE OF RESPONDENTS PERFORMING
ACTIVITIES OUTSIDE THE U.S.
◻ Currently
◻ Next 12 months
Sales Production
(includes
coding and
manufacturing)
Service R&D
TOP REGIONS FOR HIRING ABROAD
U.S. RESPONDENTS
◻ Europe
◻ Asia
◻ Americas (exclude U.S.)
◻ Middle East
31%
13%
4%
PLAN TO HIRE PRIMARILY IN THE U.S.
Top hiring destinations
96%
52%
While most executives in the survey see the United States as their top hiring market,
24 percent are also planning to hire from outside the country. Even relatively
small companies look to global markets as they grow.
24%
PLAN TO DO SOME HIRING
OUTSIDE THE U.S.
NEXTBACK

While most executives in
the survey see the
United States as their
top hiring market, many
are open to hiring from
outside the country.
NEXTBACK

Innovation Economy Outlook 2014 is Silicon Valley Bank’s fifth annual report based
on a survey of executives in the innovation economy.
When we launched the survey and report in 2010,
we focused on U.S. startups — companies with up
to $50 million in revenue and fewer than 500 employees.
Not surprisingly, given our focus, we named our findings
Startup Outlook.
As SVB has grown by serving entrepreneurs and
high-growth companies of all sizes around the world,
so has our survey. Last year, we added startups in the
United Kingdom. This year, we expanded the survey
to include executives covering the full breadth and
depth of the markets we serve, including executives in
larger companies and from around the world. In light
of our expanded focus, we’ve renamed our report the
Innovation Economy Outlook.
To help readers focus on the insights most relevant to
them, we are presenting our findings in three separate
reports. This report focuses specifically on the innovation
economy in the United States, the world’s largest,
examining the outlook for growth and challenges across
different sectors and regions. It is a companion to two
other reports based on SVB’s Innovation Economy Outlook
2014 survey. One focuses on the global innovation
economy, examining views from executives across the
global survey, highlighting the most important issues
and opportunities for growing companies and comparing
the views of executives from the United States, the
United Kingdom and the rest of the world. The other
explores the U.K. innovation economy, reporting the
views of U.K. entrepreneurs and comparing them with
those of their peers across the Atlantic.
In addition to the three comprehensive reports, we are
issuing targeted reports that look at executives’ views by
industry sector, company stage and geography. Over the
coming months we will also examine key public policy
issues, the representation of women in the innovation
economy, and the ties that link innovation economy
companies across regions and nations.
We are grateful to the 1,200 executives who took the
time to answer this year’s survey. Through them, we
hope we will encourage others, across the United States
and around the world, to see how much the future has to
offer to those willing to do the hard work that drives the
innovation economy.
BACKGROUND
About Silicon Valley Bank’s
Innovation Economy Outlook 2014
All reports are available
at www.svb.com
3 6 A S N A P S H O T
O F S U R V E Y
R E S P O N D E N T S
V I E W R E P O R T S
NEXTBACK

“We are not limited by business
opportunities. We are limited by
access to capital, both debt and
equity. Solving this would move
our business forward domestically
and internationally.”
— CTO, SOUTHWEST CLEANTECH COMPANY
“I feel very fortunate I started my
company in 2013 and am now prepared
to fundraise. The climate is very good
compared to the last five years.”
— CEO, CALIFORNIA BIOTECH COMPANY
“This is an exciting time for new
healthcare technology startup
companies; capital is readily available
for experienced management teams
and the future is very bright.”
— EXECUTIVE, NEW ENGLAND HEALTHCARE IT COMPANY
NEXTBACK

A snapshot of survey respondents
The Innovation Economy Outlook 2014 U.S. Report provides
a representative view of high-growth companies across the United
States. Of the 1,004 respondents, more than half are CEOs and
84 percent are C-level executives.
Executives in 36 states and the District of Columbia participated.
California, particularly Northern California, dominates the
sample, with 48 percent of respondents, followed distantly by
Massachusetts at 9 percent and New York at 5 percent.
By sector, software companies account for the largest number of
respondents (55 percent), followed by healthcare (25 percent).
Within software, more than half of the respondents are from the
enterprise software or consumer Internet/digital media subsector.
In terms of size, the innovation economy is shaped like a funnel,
with a very large number of very small companies, a smaller number
of midsize companies and far fewer large companies.
Thirty-one percent of this year’s respondents work for a company
that did not earn revenue in 2013. Of those whose companies earned
revenue, nearly half had revenue below $5 million in 2013 and
nearly one-third had revenue between $5 million and $25 million.
BACKGROUND
RESPONDENTS BY REGION
◻ California 48%
◻ New England 10%
◻ Southeast 9%
◻ Southwest 7%
◻ Mid-Atlantic 6%
◻ New York 5%
◻ Northwest 5%
◻ Texas 4%
◻ Great Lakes 3%
◻ Great Plains 2%
EARNING REVENUE YET?
◻ Revenue-generating
◻ Pre-revenue
48%
55%
69%
By sector, software companies
account for the largest
number of respondents.
31%
California dominates
the sample, with 48
percent of respondents.
25%
5%
10%
5%
PERCENTAGE OF
RESPONDENTS BY SECTOR
◻ Software
◻ Hardware
◻ Healthcare
◻ Cleantech
◻ Other
NEXTBACK

Overall, 43 percent of this year’s respondents say their companies were
profitable in 2013, up significantly from 26 percent last year. While
the share of companies that were profitable in 2013 increased with
company size, one-quarter of executives working for companies with
revenue of $50 million or more say their company was not profitable
in 2013. This illustrates the long road to profitability that innovation
economy companies take, because they need to invest so much in their
businesses to reach the level of success to which they aspire.
In the survey, 39 percent of respondents say their company
has fewer than 10 employees. Two-thirds report fewer than 50
employees, and more than three-quarters report fewer than 100.
The vast majority of companies represented in the survey are
privately held.
Survey respondents
BACKGROUND
U.S. REVENUE-
GENERATING COMPANIES
◻ Less than $1M
◻ $1M–$4.9M
◻ $5M–$9.9M
◻ $10M–$24.9M
◻ $25M–$49.9M
◻ $50M–$99.9M
◻ $100M+
39%
of respondents say their company has
fewer than 10 employees
28%
11%
20%
18%
9%
8%
6%
Of those
whose
companies
earned
revenue,
nearly half
had revenue
below $5
million in
2013.
PUBLICLY TRADED
VS. PRIVATELY HELD
◻ Privately held
◻ Publicly traded
74%
26%
96%
4%
All
respondents
$50M+
companies
PROFITABLE YET?
◻ Yes
◻ No
43%
of this year’s respondents
say their companies were
profitable in 2013
NEXTBACK

Special thanks to dcIQ for your collaboration on this study. Thank you for your support:
Angel Capital Association
Churchill Club
Cleantech Group
Computer History Museum
Engine
Galvanize
Hattery
Illinois Venture Capital Association
Intelligent.ly
MassBio
MassMEDIC
Medical Device Manufacturers Association
Mid-America Healthcare Investors Network
National Venture Capital Association
Software & Information Industry Association (SIIA)
Techstars
The Capital Network
TiE
TUGG (Technology Underwriting Greater Good)
Washington Biotechnology & Biomedical Association
Acknowledgments
©2014 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.
A third-party firm, Q&A Research, conducted the survey online on our behalf from January 8 through January 29, 2014.
This material, including without limitation the statistical information herein, is provided for informational purposes only and is compiled from the survey that we worked with Q&A Research, a third party source. The
material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate
or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions.
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