Ouch! New England’s Incredibly Shrinking VC Share
Written by Don McLagan (contact - e-mail) -- April 22nd, 2008 | Recommend ThisNew England was a tough place to get funded in the first quarter of 2008. Venture capitalists in the region cut Q1 spending by 27% from a year ago. The retreat by the New Englander investors was much sharper than by their non-New England colleagues who cut their spending just 2%. As a result, New England’s share of venture capital funding declined from 13% of total US funding in Q1 2007 to 10% in the first quarter of this year.
Do the cutbacks anticipate a tougher economic slowdown in the Northeast? Have New England entrepreneurs suddenly become less clever? Or is it just a dose of Yankee conservatism? Whatever the reason, the tighter purse strings won’t help New England innovators catch their rivals elsewhere.
Prof. Ross Gittel has published an article on the subject called “Demographic Demise” in the New England Journal of Higher Education. The University of New Hampshire professor shows that the New England states held six of the bottom ten rankings in young adult population declines (population ages 25-34) over the years 1990 to 2004. Gittel notes that this young cohort shrank by more than one-fifth in each of the New England states. His data show that while more than 6% of US full-time students go to college in New England, a decade later only 4.5% of 25-34 year-olds live here. He cites a 2003 study by the Boston Chamber of Commerce and the Boston Consulting Group which determined that half of the area’s college graduates get their diplomas and then leave the area – believing the attractions and opportunities were greater elsewhere.
The shrinking New England share data become really painful when we look at two high profile examples of lost opportunities. In 1974 amid rising oil prices and the Vietnam War, Bill Gates left New England to start Microsoft. Thirty years later, in 2004, with the Internet struggling with its recession, Mark Zuckerberg left New England, got angel financing for Facebook in California and founded his company in Palo Alto. Today the web sites of these two New England collegians account for 4% of all time spent online in the US, with this share more than doubling in the last year and growing at rate of 7% per month. Now, Microsoft employs more than 47,000 people in the US and Facebook plans to double its number of employees to 700 this year.
Ouch!
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April 23rd, 2008 at 2:16 am
You know, it is way easier to get hold of VC funding if you’re in the Bay Area. I’ve seen people who have virtually nothing except good relations in San Francisco, and they’re running web sites with no potential whatsoever, and yet a couple of million dollars is a breeze. What i’m trying to say is that when there’s another dotcom cash, you might want to be an entrepreneur or a VC fund who stayed in new england, beacuse maybe the lower funding level there reflects reality, as opposed to the dangerously optimistic levels of funding in Silicon Valley.
April 23rd, 2008 at 10:14 am
Being from New England, we can understand why those who grow up here or go to school here — leave as the opportunites do seem greater elsewhere. Interesting to see the data to back it up.