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July 05, 2007 A Venture Backed Economy?
Recently, there has been a slew of blogs and articles examining the unprecedented success of private equity firms. While the success of these firms is very apparent, it is more difficult to quantify the impact they are having on the economy as a whole. Could their success have a direct impact on the average American or is it simply a lucky few reaping the rewards?
According to a study conducted by Global Insight and issued by the National Venture Capital Association US companies that received venture capital from 1970-2005 (23,500 US based companies) accounted for 10 million jobs and $2.1 trillion in revenues in 2005. This represents 9.0 percent of the total private sector work force and 16.6 percent of total US GDP. Venture-backed companies also outperformed their non-ventured counterparts between 2003 and 2005 with a 4.1 percent compound annual growth rate in jobs and an 11.3 percent compound annual growth rate in sales versus total private sector growth rates of 1.3 percent and 8.5 percent, respectively. The study further revealed that venture-backed companies comprise significant percentages of the jobs and revenues in the technology and retail sectors. Some of the nation's best known venture-backed companies include FedEx, Intel, Cisco, Starbucks, Genentech, Google, eBay, Apple and Home Depot.
While the study only analyzed data through 2005, consider the fact that venture investment itself represents just 0.2 percent of US GDP, but venture backed companies account for nearly 17.0 percent of GDP. The data illustrates that the boom being seen in private equity in recent years is effectively fostering growth and vibrancy in the economy as a whole. While many people see a lucky few cashing in on what may seem to be absurd deals, it appears there may be more at stake than meets the eye.
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