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A Closer Look at Funding Innovation

November 23, 2015



2015 Global Venture Capital Confidence Survey
Deloitte and National Venture Capital Association (NVCA), September 2015

The most recent edition of this annual survey of venture capitalists from around the world reveals that these investors are confident they have fully recovered from the Great Recession. While VCs express particular enthusiasm for the startup scenes in Israel, Canada, and the traditional hubs in the United States, the outlook for emerging markets like India and Brazil is less rosy. The Web looms large; respondents were confident about investment in cloud computing, mobile, and the Internet of Things.

“The Future Postponed: Why Declining Investment in Basic Research Threatens a U.S. Innovation Deficit”
MIT Committee to Evaluate the Innovation Deficit, April 2015

This report argues that the United States will pay the price if it does not reverse the decline in federal investment in basic science. The authors note that the percentage of the federal budget devoted to R&D has gone from around 10 percent in 1968 to less than 4 percent in 2015. They review 15 critical areas that could be spurred by federal funding, with a focus on supercomputing, secure information systems, and defense technologies—areas in which the U.S. risks being left behind as Europe and China invest heavily.

“Killing the Golden Goose? The Decline of Science in Corporate R&D”
By Ashish Arora, Sharon Belenzon, and Andrea Patacconi
NBER Working Paper, January 2015

This paper from a trio of economists shows that big U.S. companies invest far less in basic research than they once did. From 1985 to 2008, large firms’ share of all private-sector R&D investments in the United States dropped from 73 percent to 51 percent. Scientists with these firms are also now less likely to publish in scientific journals. While the authors argue that this is mostly a result of increasing competition from overseas eating into R&D budgets, they also ask where the innovations that will drive future earnings for these companies will come from.

“Public R&D Investments and Private-Sector Patenting: Evidence from NIH Funding Rules”
By Pierre Azoulay, Joshua S. Graff Zivin, Danielle Li, and Bhaven N. Sampat
NBER Working Paper, January 2015

Economists have long debated how effective government R&D funding can be in spurring innovation in the private sector. This paper attempts to provide a quantitative answer, at least with regard to biotechnology. The authors show that every $10 million in National Institutes of Health funding for biomedical research results in an additional 2.3 private-sector patents, on average. The authors also show that federal funding does not lead private companies to invest less of their own money in R&D but, rather, encourages them to use their research dollars more efficiently.

Zero to One: Notes on Startups, or How to Build the Future
By Peter Thiel
Crown Business, September 2014

Silicon Valley prides itself on being a bastion of the free market. But in this slim book published in 2014, the iconoclastic PayPal cofounder and investor Peter Thiel argues that far from living in a world of perfect competition, companies like Google function as near-monopolies. Rather than seeing this as a cause for concern, though, Thiel argues that it is precisely Google’s monopoly on Internet search that has allowed it to invest heavily in its wide-reaching research program, to the benefit of us all. The trick is then to find the paradigm-shifting ideas that will sustain the “creative monopolies” of tomorrow.

“Women Entrepreneurs 2014: Bridging the Gender Gap in Venture Capital”
By Candida G. Brush, Patricia G. Greene, Lakshmi Balachandra, and Amy E. Davis
The Diana Project, January 2014

Researchers at Babson College in Massachusetts have provided the first update on venture capital funding for female entrepreneurs in more than a decade. They find that although significant progress has been made, a broad gap still persists in the funding of companies led by men and women. Not surprisingly, the study finds that VC firms with female partners are more than twice as likely to invest in companies with female executives. Beyond fairness, the authors make the economic case for increasing gender diversity in the industry by demonstrating that startups led by women do as well as or better than those led by men.

“Beijing’s Test Tube Baby”
By Christina Larson
Foreign Policy, September 2015

Well-funded state-run science organizations have until recently been the only avenue for funding and support of scientists and inventors in China, but they have also been characterized by fraud, corruption, and a rigid structure that has stifled innovation and driven young talent overseas. Business reporter Christina Larson looks at the private and semiprivate ecosystem of entrepreneurs and investors taking root in China. In people like the young biotech entrepreneur Bowen Zhao she sees a drive to innovate that is “reminiscent, in some ways, of the idealism that built Silicon Valley.”

“Tomorrow’s Advance Man”
By Tad Friend
The New Yorker, May 2015

This 13,000-word profile details the investment philosophy of Marc Andreessen, the creator of Netscape and a longtime Facebook investor and board member. Andreessen’s venture capital firm is notable for its departure from the traditional model in which each VC partner operates largely independently, instead using a large staff of researchers and experts to help partners identify the best startups in a variety of fields. Andreessen dismisses concerns about the prodigious wealth now concentrated in Silicon Valley, telling the author, “Would the world be a better place if there were fifty Silicon Valleys? Obviously, yes.”


Global Corporate Venturing and Innovation Summit
January 27–28, 2016
Sonoma, California

SuperInvestor U.S.
February 1–3, 2016
San Francisco

International Conference on Innovation in Economics and Business
February 3–4, 2016
Florence, Italy

The Montgomery Summit
March 8–9, 2016
Santa Monica, California

Women’s Private Equity Summit
March 9–11, 2016
Half Moon Bay, California

SuperReturn China 2016
April 18­–20, 2016

Global Private Equity Conference
May 9–12, 2016
Washington, D.C.

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