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Innovation Economy Outlook 2014 - Global Report
 

Innovation Economy Outlook 2014 - Global Report

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Nearly eight in ten executives in the global innovation sector plan to grow their workforce in 2014, and more than nine in 10 say it is a challenge to find the talent they need to do so, according to ...

Nearly eight in ten executives in the global innovation sector plan to grow their workforce in 2014, and more than nine in 10 say it is a challenge to find the talent they need to do so, according to Silicon Valley Bank's 2014 Innovation Economy Outlook study. These findings are based on Silicon Valley Bank's annual survey of more than 1,200 executives from software, hardware, cleantech and healthcare companiesin startup and growth stages of business in the US, UK and other global innovation hubs. In addition to the high rate of anticipated job creation, the study also reveals pervasive optimism, intent to access international markets for sales, and the ever-present challenge to obtain equity capital by some of the most innovative, high-growth companies in the world.

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    Innovation Economy Outlook 2014 - Global Report Innovation Economy Outlook 2014 - Global Report Presentation Transcript

    • Innovation Economy Outlook Global 2014 Report ENTER
    • 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 Letter from the CEO INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R TA B O U T T H I S R E P O R T
    • 3 Executive summary 5 Report at a glance 3 Introduction 8 Pervasive optimism 12 Tapping into opportunity abroad: Sales and revenue growth 8 Interconnection 32 About Silicon Valley Bank’s Innovation Economy Outlook 2014 34 A snapshot of survey respondents  32 About this report CONTENTS 15 Establishing a global footprint: Production and R&D 19 Attracting capital 24 Seeking talent 29 Protecting intellectual property INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • Executive summary When Silicon Valley Bank opened its doors in 1983, the United States — and Silicon Valley in particular — was the epicenter of an emerging innovation economy. Indeed, the Silicon Valley name has become synonymous with the spirit of innovation. Today, the United States and Silicon Valley remain home to the largest concentration of innovation economy companies and attract the lion’s share of global venture capital. But change is afoot. People around the world share the desire to create and transform. Capital is mobile. Challenges worth solving exist in every economy and every society. Innovation is inherently global. That’s why this year, for the first time, we extended our annual survey of innovation economy executives to business leaders from around the world. The vast majority of respondents still come from the United States, where the ecosystem is most developed and SVB’s network of relationships is deepest. But this year’s survey also offers a first look into the views of C-level executives from Europe, Asia, the Americas, the Middle East and Australia. Around the world, innovation economy executives are optimistic. They have a positive outlook on business conditions and see growth and hiring coming from new products, new markets, scaling their operations and capitalizing on business conditions in their existing markets. Yet international executives also offer a unique perspective — a broader and more interconnected view of how to build their businesses. The future global innovation economy will cut across geographies, bringing together people who share a passion to transform. Some regions will become epicenters with their own clusters of entrepreneurs and investors. Many more will become part of the global mosaic high-growth companies construct to bring together the talent, capital and markets they need to grow from startup to success. All can share in the transformative ideas and economic growth that have made the innovation economy, and Silicon Valley, an icon. INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 3 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • The future global innovation economy will cut across geographies, bringing together people who share a passion to transform. INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 4 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • Highlights page 82% 20 30 40 50 0 10 20 30 40 50 15% 35% ◻ U.S. executives ◻ U.K. executives ◻ Executives in other innovation economies HIGHLIGHTS Across the globe, executives in innovation economy companies look within and beyond their borders to grow. Tappingintoopportunityabroad Executives outside the United States think globally as they decide how to grow their top line. • More than 8 in 10 executives outside the United States are or will be selling products and services outside their home market in 2014, compared with fewer than 6 in 10 U.S. executives. • Executives outside the United States are as likely to project that the majority of 2014 revenue growth will come from outside their home market as within. • Forty-two percent of executives outside the United States expect the majority of their growth in 2014 will come from the United States, 35 percent expect it will come from Europe and 15 percent expect it will come from Asia. The interconnected global economy Report at a glance Eighty-two percent believe business conditions in 2014 will be better than in 2013. Highlights page 82% 10 20 30 40 50 0 10 20 30 40 50 Highlights page 82% 10 20 30 40 50 0 10 20 30 40 50 Three-quarters expect to grow their workforce. Regions driving projected revenue increases in 2014 NON-U.S. COMPANIES 2% 42%6% ◻ United States ◻ Europe ◻ Asia ◻ Central/South America ◻ Other Establishingaglobalfootprint The United States may be the market of choice for growing the top line, but executives outside the United States look more broadly when it comes to research, development and production. • For executives from outside the United States looking to engage in research and development outside their home country, 28 percent say the United States is most appealing, while 21 percent look to Europe and 13 percent look to Asia. • For production, Europe tops the list with 27 percent, followed by Asia with 20 percent and the United States with 16 percent. Asia Europe Preferred locations for international production in 2014 Central and South America United States Middle East Africa 27% 48% 26% 7% 2% 2% 4% 27% 23% 4% 12% 30% 7% 0% 0% 0% 0% Pervasiveoptimism INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 5 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • View of fundraising environment BY THOSE WHO RAISED PRIVATE CAPITAL IN 2014 ◻ North American executives ◻ European executives ◻ Executives in other innovation economies Filed a patent in 2013 42% Other innovation centers 56%U.S. 22% U.K. Biggest challenges in hiring ◻ U.S. executives ◻ U.K. executives ◻ Executives in other innovation economies Skillsand education ExperienceSalaryand benefits 0 5 10 15 20 25 30 35 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 Biggestchallengesinhiring Howchallengingisittofindworkerswithskills 24% 31% 28% 29% 27% 33% 4 in 5 say their filings included a U.S. patent 21% 25% 24% View of the fundraising environment 0 10 20 30 40 50 60 50 60 19% 24% 33% 58% 59% 24% 7% 19% 57% Attractingcapital Around the world, finding the risk capital needed to reach scale isn’t easy. • Venture capital remains the most looked-to source of capital for innovation economy companies in the United States, while angel capital tops the list in the United Kingdom and elsewhere around the world. • Four in 5 executives who successfully raised capital in 2013 still say the fundraising environment is somewhat or extremely challenging. Seekingtalent Executives around the world are focused on finding people with the right experience and skills. • Executives outside the United States are more likely to say hiring is a challenge and more often look for talent outside their home market. • A well-trained workforce tops the list of factors in siting research and development (R&D) facilities. For siting production facilities, cost is top of mind. • Executives outside the United States appear to be dealing with hiring challenges in part by turning to entry-level workers and workers without expertise in the core fields of science, technology, engineering and math (STEM). EXTREMELY CHALLENGING SOMEWHAT CHALLENGING NOT VERY CHALLENGING Protectingintellectualproperty In addition to capital and talent, one additional critical input for innovative companies is defensible intellectual property (IP). • U.S. executives are more likely to use the patent system to protect IP. Fifty-six percent of U.S. executives say their company filed a patent in 2013, compared with only 22 percent of those in the United Kingdom and 42 percent of executives from other innovation centers worldwide. • When companies file for patents, the United States has the go-to patent system globally. Even among non-U.S. executives, 4 in 5 whose company filed a patent in 2013 say their filings included a U.S. patent. Report at a glance HIGHLIGHTS INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 6 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • Around the world, innovation economy executives are optimistic. They have a positive outlook on business conditions and see growth and hiring coming from new products, new markets, scaling their operations and capitalizing on business conditions in their existing markets. INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 7 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • Throughout the global innovation economy, companies performed well in 2013. Across regions, 2 in 3 executives say their company met or beat 2013 revenue targets. U.K. executives reported the strongest performance, with 77 percent saying they met or beat targets. U.S. executives came in second, with 65 percent, and other innovation economies came in strong with 62 percent meeting or beating revenue targets. Heading into 2014, 82 percent of the executives in this year’s survey expect business conditions to improve over 2013. This enthusiasm spans geographies and markets. Those outside the United States and the United Kingdom are particularly optimistic, with 92 percent of executives saying they think 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. Upbeat expectations translate into jobs: 77 percent of all respondents expect to grow their workforce in 2014. As with enthusiasm, plans to expand are pervasive across geographies. That said, U.K. executives are most likely to say they will expand in 2014, though they are the least likely to believe business conditions for their company are on the upswing. 1 2 T A P P I N G I N T O O P P O R T U N I T Y A B R O A D : S a l e s a n d r e v e n u e g r o w t h 1 5 E S T A B L I S H I N G A G L O B A L F O O T P R I N T: P r o d u c t i o n a n d R & D 1 9 A T T R A C T I N G C A P I T A L 2 4 S E E K I N G T A L E N T 2 9 P R O T E C T I N G I N T E L L E C T U A L P R O P E R T Y Pervasive optimism Silicon Valley Bank’s Innovation Economy Outlook 2014 Global Report INTERCONNECTION INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 8 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • 0 10 20 30 40 50 60 Outlook conditions 60% 50% 40% 30% 20% 10% 0% Much better Somewhat better About the same Somewhat worse Much worse Outlook on business conditions in 2014 ◻ North American executives ◻ European executives ◻ Executives in other innovation economies Executives outside North America and Europe are particularly optimistic, with 89 percent of executives saying they think business conditions for their company in 2014 will be better than in 2013. 39% 14% 3% 0% 42% 41% 1% 0% 57% 43% 15% 4% 2% 32% 5% INTERCONNECTION Pervasive optimism INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 9 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • 0 20 40 60 80 100 We will grow We will stay the same We will reduce Plans to hire in 2014 ◻ North American executives ◻ European executives ◻ Executives in other innovation economies 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 77 percent of all respondents expect to grow their workforce in 2014. 76% 22% 2% 80% 20% 1% 81% 19% O% INTERCONNECTION Pervasive optimism INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 10 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • To understand the future of innovation, we must pay attention to the voices of those creating new ecosystems. INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 11 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • Sales Service 0 20 40 60 80 100 International activities 100% 80% 60% 40% 20% 0% International activities (current or planned for 2014) ◻ U.S. executives ◻ U.K. executives ◻ Executives in other innovation economies 58% 78% 86% 69%66% 44% Innovation economy companies in the United States typically start by focusing on the robust domestic market, and then expand internationally as they gain scale. Fewer than 6 in 10 U.S. executives will be selling products and services internationally in 2014. Innovation economy executives from other parts of the world don’t have that luxury, and thus are much more likely to look beyond their home markets for sales and service. More than 8 in 10 executives outside the United States and United Kingdom are or will be selling products outside their home market in 2014. Executives in the United Kingdom fall somewhere in between, at 78 percent. This affects global executives’ expectations for revenue growth in 2014. While many non-U.S. executives expect the majority of revenue growth in 2014 will come from their home market, fully half expect it will come from other markets. Tapping into opportunity abroad: Sales and revenue growth INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 12 CONTINUED ON 13 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • Expectations for rev growth 2014, non US companies Regions driving revenue increase 2% 6% 42% 15% 50% 35% 50% Expectations for revenue growth in 2014 NON-U.S. COMPANIES ◻ Majority will come from country where I am located ◻ Majority will come from another country Regions driving projected revenue increases in 2014 NON-U.S. COMPANIES ◻ United States ◻ Europe ◻ Asia ◻ Central/South America ◻ Other Four in 10 of these global executives are looking to the United States to drive top-line growth in 2014, followed by Europe (35 percent) and Asia (15 percent). As we’d expect, U.K. companies are more likely to look to Europe (and the United Kingdom specifically), with 62 percent seeing their home region as the primary source of revenue growth in 2014, 36 percent looking to the United States and only 3 percent looking to Asia. Conversely, nearly half of executives outside the United States and the United Kingdom see the United States as the primary driver of 2014 revenue growth, a quarter look to Asia and only 14 percent look to Europe. Tapping into opportunity abroad INTERCONNECTION INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 13 CONTINUED FROM 12 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • International executives reinforce the views of their U.S. counterparts, but also offer a unique perspective — in particular, a broader and more interconnected view of how best to seize business opportunities. INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 14 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • 0 10 20 30 40 50 60 Production & RD, international activitiesProduction and R&D: International activities (currently or planned for 2014) ◻ U.S. executives ◻ U.K. executives ◻ Executives in other innovation economies R&D Production 40% 49% 38% 43% 56% 45% While U.S. executives are less likely than other executives to drive top- line sales by turning to international markets, they are more alike when it comes to production and R&D. Here, it is the United Kingdom that stands out, with executives in that country much more likely to say they are going abroad for production and R&D. When companies do look abroad for R&D, the United States is a top choice among executives outside the United Kingdom, while U.S. and U.K. executives are split fairly evenly across regions. For production, U.S. executives have a strong preference for Asia, while the United Kingdom favors Europe as well as Asia. For international production activities, executives look first to Asia, with 43 percent listing it — and in particular, China and India — as the preferred choice. Europe, specifically Eastern Europe, is cited by 26 percent as a top choice. The Americas (North, Central Establishing a global footprint: Production and R&D 60% 50% 40% 30% 20% 10% 0% INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 15 CONTINUED ON 16 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • UNITED STATES 7% U.K. 27% Other innovation economies ASIA 48% U.S. 27% U.K. 12% Other innovation economies EUROPE 26% U.S. 30% U.K. 23% Other innovation economies Production: Most appealing international location ◻ U.S. executives ◻ U.K. executives ◻ Executives in other innovation economiesProduction top locations Production top locations Production top locations and South) are named by only 9 percent, and only 3 percent specifically select the United States as most appealing. Research and development, in a sense, yields the crown jewels of the innovation economy. R&D brings together creative, highly skilled employees to develop products and services that will drive long-term growth for companies and that will build a skilled workforce for regions. Because R&D sits at the core of innovation, executives’ views about where to conduct R&D (and why, as we discuss later in the Seeking Talent section) may have significant implications for the long-term makeup and distribution of the global innovation economy. Within Europe, Eastern Europe is the favorite among executives globally who are looking internationally, whether to conduct R&D or for production. Within Asia, India is the preferred location for both R&D and production. Establishing a global footprint INTERCONNECTION INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 16 CONTINUED FROM 15 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • UNITED STATES 16% U.K. 41% Other innovation economies R&D top locations R&D top locations R&D top locations EUROPE 34% U.S. 20% U.K. 23% Other innovation economies ASIA 33% U.S. 16% U.K. 9% Other innovation economies R&D: Most appealing international locations ◻ U.S. executives ◻ U.K. executives ◻ Executives in other innovation economies Establishing a global footprint Because R&D sits at the core of innovation, executives’ views about where to conduct R&D may have significant implications for the long-term makeup and distribution of the global innovation economy. INTERCONNECTION INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 17 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • Capital is mobile, transcending currencies and borders in pursuit of higher returns. INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 18 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • One of the essential ingredients for high-growth companies is risk capital. Regardless of how we segment the global innovation economy, one message is clear: The fundraising environment is challenging. Access to equity financing is one of the top three challenges executives identify for 2014 (the other two are scaling operations and recruiting employees/ managing talent). Twenty-one percent say access to equity financing is their top challenge. Forty-eight percent of all executives in our survey raised capital in 2013, while another 13 percent tried and failed. Although these findings demonstrate that many companies do find the right investors, 81 percent of those who succeeded still describe it as challenging. Executives outside the United States and the United Kingdom are particularly likely to see the fundraising environment as extremely challenging. Overall, venture capital funds remain the primary provider of risk capital to the innovation economy, with 46 percent of executives who successfully raised capital saying they raised venture capital, and 43 percent of those who expect to raise additional third-party capital saying that they will look to venture capitalists (VCs). Outside the United States, executives are much more likely to say they turned to angel investors than VCs for their 2013 fundraising, though they too will look to venture for their next source of funds. Private equity (PE) also plays a meaningful role, particularly for companies outside the United States and the United Kingdom. Twenty-four percent of executives from other innovation economies say they raised capital from private equity investors in 2013, compared with 20 percent for the United States and 12 percent for the United Kingdom. Looking forward, more U.K. executives say they see PE playing a role compared with those who said it was a source of funding for them in 2013, while fewer U.S. executives say they will turn to PE for their next source of funds than raised it in 2013. Corporate investors are an increasingly important player in the innovation economy. In 2013, 9 percent of U.S. executives and 6 percent of executives in the United Kingdom and other innovation economies say they raised capital from a corporate investor. Across regions, executives see corporate investors playing a bigger role in their future fundraising, with the number Attracting capital CONTINUED ON 21 INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 19 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% EXTREMELY CHALLENGING SOMEWHAT CHALLENGING NOT VERY CHALLENGING View of fundraising environment BY THOSE WHO RAISED PRIVATE CAPITAL IN 2014 ◻ North American executives ◻ European executives ◻ Executives in other innovation economies 24% 24% 57% 58% 59% 7% 19% 33% 19% 81 percent of executives describe fundraising as challenging. Executives outside the United States and Europe are particularly likely to see the fundraising environment as extremely challenging. Attracting capital INTERCONNECTION INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 20 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • 0 10 20 30 40 50 60 70 80 Global sources of capital raised 2013 0% 10% 20% 30% 40% 50% 60% 70% 48% 41% 20% 9% 4% 2% 6% 47% 61% 12% 6% 10% 2% 4% 31% 55% 24% 6% 12% 6% 0% of executives projecting they will raise funds from a corporate investor nearly doubling the number who listed this as a source of capital for their company in 2013. Though the overall probability that companies raised capital in 2013 is fairly consistent across geographies, executives outside the United States are meaningfully more likely than their American peers to have raised that capital internationally. This reflects the deeper pool of venture capital available in the United States, and is yet another indicator that innovation economy companies outside the United States must embrace an international mindset to succeed. The reliance on venture capital to meet the needs of growing companies around the world could be a cause of concern to entrepreneurs outside the United States if global investors shift their focus back to the U.S. market. Evidence suggests that this may be occurring now. In a 2013 survey of 403 venture capital investors from around the world, Deloitte and the National Venture Capital Association concluded that “U.S. venture capitalists [are] more confident in their own backyard” and “enthusiasm [among U.S. VCs] for Brazil, China and other emerging markets is fading.”1 Attracting capital Venture capital Angel investor Private equity Corporate investor Government grant Crowdfunding Other Sources of capital raised in 2013 ◻ U.S. executives ◻ U.K. executives ◻ Executives in other innovation economies 1 2013 Global Venture Capital Confidence Survey, www.deloitte.com/view/en_US/us/Industries/technology/ 85d3d015d8b78310VgnVCM3000001c56f00aRCRD.htm?id=us_furl_tmt_general_survey_071512#. CONTINUED FROM 19 INTERCONNECTION INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 21 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • 43% 49% Projected next source of capital ◻ U.S. executives ◻ U.K. executives ◻ Executives in other innovation economies 41% Attracting capital Venture capital Angel investor Corporate investor Organic growth Bank debt Private equity IPO Merger Crowdfunding Government grant Public solicitation Other 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% INTERCONNECTION INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 22 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • Innovation economy companies outside the United States are more likely to look beyond their borders both to drive their top-line growth and to tap into pools of talent and capital that they need to succeed. INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 23 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • Languages and cultures may differ around the world, but innovation economy companies share two basic facts when it comes to people. First, in order to grow they need people with the right skills and experience. Second, it's difficult to find those people. Across this year’s survey, the vast majority of respondents plan to expand their workforce, including 84 percent of U.K. executives and 76 percent of U.S. and other global executives. Plans to decrease workforce size were virtually nonexistent. Yet executives worldwide also say it is challenging to find workers with the skills they need to grow their business. Fifteen percent of U.S. executives and 20 percent of executives elsewhere around the world see recruiting employees and managing talent as their greatest challenge in 2014. Overall, 91 percent of executives say it is either extremely or somewhat challenging to find workers with the skills they need to grow. Why is it so difficult? Most executives say their top challenge is either finding workers with the right experience or the right skills and education. Salary and benefits, the third most cited challenge, shows up more often outside the United States. Yet while hiring challenges are fairly consistent, the solutions vary. Outside of the United States, executives are willing to seek talent abroad — with the United States as a prime location for finding talent. Ninety-six percent of U.S. executives say they will hire the majority of their employees in the United States in 2014. In the United Kingdom, the number of executives who plan to do most of their hiring at home drops to 89 percent, and in other regions it falls to 85 percent. Seeking talent INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 24 CONTINUED ON 25 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • Plans to hire in 2014 0 20 40 60 80 100 2% 19% 0% 22% 20% 1% 76% 81% 80% This relatively heavier focus on hiring internationally among non-U.S. executives is even stronger when we look at companies’ top two hiring destinations in 2014. Only 24 percent of U.S. executives even list a second country. More than double that number of other global executives — 56 percent for the United Kingdom and 58 percent for other innovation centers — cite a country outside their home country as one of their top two destinations. When non-U.S. executives look abroad to hire, the United States is a top choice. Forty percent of U.K. executives and 45 percent of other global executives list the United States as one of their top two hiring destinations, significantly more than any other country or region. Labor force issues are also an important driver when executives decide to locate R&D and production facilities abroad. For R&D, the availability of people with the right skills is top of mind for executives. Forty-three percent of U.S. executives and 42 percent of other global executives say this is the primary appeal of a foreign R&D location. If we also consider other talent issues (labor costs, proximity to the existing team and office, language and culture), the number of executives saying talent issues drive where to site R&D jumps to 77 percent for U.S. Seeking talent We will grow We will stay the same We will reduce 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Plans to hire in 2014 ◻ North American executives ◻ European executives ◻ Executives in other innovation economies executives, 58 percent for U.K. executives and 71 percent for other global executives. Cost is top of mind when executives decide where to site production facilities. Fifty-one percent of U.S. executives, 80 percent of U.K. executives and 24 percent of executives in other regions say cost is what makes a foreign location attractive for coding, manufacturing or other production. But for U.S. executives, the spectrum of labor-related issues described above beats cost as a driver, with 65 percent of executives listing a talent issue as what makes a foreign country attractive for production abroad. INTERCONNECTION INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 25 CONTINUED FROM 24 CONTINUED ON 26 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • 60% 50% 40% 30% 20% 10% 0% Job positions planning to hire in 2014 0 10 20 30 40 50 60 Likelihood to hire for entry-level and non-STEM skills ◻ U.S. executives ◻ U.K. executives ◻ Executives in other innovation economies Entry level Non-STEM skills 17% 26% 52% 27% 40% 38% If talent is top of mind and competition is fierce, how are executives coping? U.S. executives have a strong preference for experienced employees, primarily those with STEM skills. This is less true outside the United States — including in the United Kingdom where companies may be coping with the skills challenge in part by looking to more entry-level employees and employees without STEM skills. While it is possible that the differences reflect divergent beliefs about the optimal skill sets needed to build a breakthrough company, we believe it more likely is a response to the relatively shallow pool of employees with STEM skills and experience in younger ecosystems. Taken together, executives’ responses to the questions concerning jobs and talent present a very interesting opportunity for countries trying to build their innovation economies. Four issues emerge: 1. There is a widespread need for relevant talent. 2. That talent is difficult to secure. 3. Companies are willing to source from locations where talent exists. 4. Skills and experience — not pay — are top of mind for executives, particularly when it comes to the critical research and development function. Regions that build talent pools populated by motivated workers with relevant skills have the chance to become a destination of choice for rapidly growing companies, and to provide their citizens with high-quality, well- paying jobs. Seeking talent INTERCONNECTION INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 26 CONTINUED FROM 25 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • Skills and education Experience Salary and benefits Biggest challenges in hiring ◻ U.S. executives ◻ U.K. executives ◻ Executives in other innovation economies 0% 5% 10% 15% 20% 25% 30% 35% 0 5 10 15 20 25 30 35 0 10 20 30 40 50 60 Biggest challenges in hiring How challenging is it to find workers with skills Other innovation centers 70% 60% 50% 40% 30% 20% 10% 0% 60 70 80 25 30 35 0 10 20 30 40 50 60 70 80 0 10 20 30 kers with skills How challenging is it to find workers with the necessary skills? Executives planning to hire outside of their country United States United Kingdom Extremely challenging Somewhat challenging Not very challenging 60%Other innovation centers 56% United Kingdom 24% United States 21% 25% 24% 24% 31% 28% 29% 27% 33% 30% 25% 6% 9% 60% 69% 61% 36% 3% Seeking talent INTERCONNECTION INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 27 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • Regions that build talent pools populated by motivated workers with relevant skills have the chance to become a destination of choice for rapidly growing companies, and to provide their citizens with high- quality, well-paying jobs. INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 28 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • Filed a patent in 2013 42% Other innovation centers 56%U.S. 22% U.K. If capital and talent are two necessary ingredients for a successful innovation ecosystem, the ability to turn intellectual property (IP) into a defensible market advantage is a third. Companies in the United States are much more likely than their peers in other countries to turn to the patent system to achieve this objective.2 Fifty-six percent of U.S. executives say their company filed a patent in 2013, compared with only 22 percent of U.K. executives and 42 percent of executives in other innovation centers. But regardless of nationality, when a company files a patent, its first-choice system is that of the United States. Ninety-eight percent of U.S. executives whose company filed a patent in 2013 say they filed a U.S. patent. Among executives from the United Kingdom and other innovation centers, those numbers are 73 and 83 percent. Other patent systems — in the United Kingdom, Europe and elsewhere internationally — drew only about half that level. After the U.S. system, U.K. executives were most likely to turn to their home system, while executives from other innovation centers were most likely to turn to other international patents (including their home system). Protecting intellectual property 2 For a discussion about the role of the patent system in the U.S. innovation economy, visit SVB online: www.svb.com/Blogs/Dan_Allred/Strengthening_the_U_S__Innovation_Economy_by_Ending_Abusive_Patent_Litigation. INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 29 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • International patent filings OF COMPANIES THAT FILED A PATENT IN 2013* ◻ U.S. executives ◻ U.K. executives ◻ Executives in other innovation economies International patent filings US patent Euro patent Other patent UK patent U.S. PATENT FILINGS 98% U.S. 73% U.K. 83% Other innovation economies U.K. PATENT FILINGS 18% U.S. 59% U.K. 19% Other innovation economies EUROPEAN PATENT FILINGS 39% U.S. 41% U.K. 43% Other innovation economies OTHER INTERNATIONAL PATENT FILINGS 36% U.S. 23% U.K. 52% Other innovation economies International patent filings US patent Euro patent Other patent UK patent International patent filings US patent Euro patent Other patent UK patent * Locations where companies that filed patents filed at least one patent International patent filings US patent Euro patent Other patent UK patent Protecting intellectual property INTERCONNECTION INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 30 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • People around the world share a universal desire to create and transform. Challenges worth solving exist in every economy and society. Innovation is inherently global. INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 31 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • Innovation Economy Outlook 2014 is Silicon Valley Bank’s fifth annual report based on its survey of executives in the innovation economy. When we launched the survey and report in 2010, we focused on United States startups — companies with up to $50 million USD 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. In 2013, we added startups in the United Kingdom. This year, we expanded the survey to include executives covering the full depth and breadth 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. In this report, we examine 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. Our second report focuses on the United States, examining the outlook for growth and challenges across different sectors and regions in the world’s largest innovation economy. The third report in the series explores the U.K. innovation economy, summarizing the views of U.K. entrepreneurs and comparing those with the views 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 1,218 executives who took the time to answer this year’s survey. Through them, we hope we will encourage others to see how much the future has to offer those who are 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 4 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 INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 32 V I E W R E P O R T S BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • “The company has been growing organically for the last four years at an average of 25 percent year-on-year and now has the opportunity to ̒break out ̓ with the right partner/investor.” — CEO, IRISH ENTERPRISE SOFTWARE COMPANY “We are a struggling startup … Our challenge is that domestic investors have very low risk appetite … On the other hand, it is an opportunity for growth working in a developing economy.” — CTO, INDIAN ENTERPRISE SOFTWARE COMPANY “The rise of MINT (Mexico, Indonesia, Nigeria and Turkey) is a huge opportunity. Emerging markets are challenging but offer amazing value.” — CEO, JAPANESE CONSUMER INTERNET COMPANY INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 33 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • Survey respondents We received 1,218 responses from executives around the world. Of these, 1,004 are with U.S. companies, 100 with U.K. companies and the remaining 114 with companies located in other markets around the world. 22% 9% 4% 6% PERCENTAGE OF RESPONDENTS BY SECTOR ◻ Software ◻ Healthcare ◻ Hardware ◻ Cleantech ◻ Other 59% 79% 29% of executives work for a company that has fewer than 100 employees. of respondents work for a company that was pre-revenue in 2013. The vast majority of respondents come from the C-suite: 56 percent are CEOs, 18 percent are CFOs, and 9 percent are other C-level executives. The largest concentration of responses comes from the software sector (59 percent), followed by healthcare (22 percent), hardware (9 percent), cleantech (4 percent) and other industries (6 percent). Outside the United States, the share of software companies was somewhat higher (82 percent in the United Kingdom and 70 percent in other innovation centers). That increased representation may influence the responses somewhat, because software executives tend to be more optimistic among U.S. respondents. These differences are important in understanding the survey responses. As we would expect, given the nature of the innovation economy, smaller companies predominate this year’s survey: 39 percent of executives work for a company that has fewer than 10 employees, and 79 percent work for a company that has fewer than 100 employees. The median number of employees is 20.5. In terms of revenues, 29 percent of respondents work for a company that was pre-revenue in 2013. Among those earning revenue, 49 percent work for a company with revenue below $5 million USD in 2013, and 44 percent work for a company that was profitable in 2013. Overall, 96 percent of the respondents work for a privately held company. SNAPSHOT INNOVATION ECONOMY OUTLOOK GLOBAL REPORT 2014 34 BACK NEXT I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T
    • 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 Entrepreneur First Galvanize Hattery Illinois Venture Capital Association Intelligent.ly Level39 MassBio MassMEDIC Medical Device Manufacturers Association Mid-America Healthcare Investors Network National Venture Capital Association Seedcamp Software & Information Industry Association (SIIA) Startupbootcamp Techstars TechHub 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 on with Q&A Research, a third-party source. The material is based in part on 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 investment or other decisions. I N T R O D U C T I O N I N T E R C O N N E C T I O N A B O U T T H I S R E P O R T