NCPA - National Center for Policy Analysis

In U.S., Venture Capital Is Geographically Concentrated

February 3, 2000

Venture capital firms have constituted one important element in the nation's 107-month economic expansion. But the money they shell out goes to a relative handful of states -- and is concentrated among certain favored industries. Those are the findings of RFA/Dismal Sciences economist Steven G. Cochrane.

  • PricewaterhouseCoopers reports that U.S. venture capital firms distributed a record $9.04 billion in the 1999 third quarter alone -- up 138 percent from the year-earlier level.
  • Nearly 75 percent of venture capital funds flowed into just six states in 1999 -- California, Massachusetts, New York, Texas, Washington and Colorado.
  • States in the Southeast and Mountain West can offer businesses lower taxes, as well as lower energy and housing costs.
  • But the competitive advantages of California and Northwestern states in attracting venture funds for technology start-ups are skilled workers and research produced by their college and university systems.

By late 1999, communications, software and information-processing businesses were garnering nearly 60 percent of venture funding -- up from 41 percent in 1995. On the other hand, shares going to health care and biotechnology have fallen -- from 12 percent and 8 percent, respectively, to 4 percent and 3 percent.

Source: Gene Koretz, "Where Venture Capital Ventures," Business Week, February 7, 2000.


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