Innovation America Innovation America Accelerating the growth of the GLOBAL entrepreneurial innovation economy
Founded by Rich Bendis
Furthermore, small- and medium-sized enterprises produce between 14 times more patents per employee than large corporations, another key measure of innovation-led growth.[4] Indeed, small companies are a key source of innovation for themselves and for large companies in terms of fueling mergers and acquisitions as well as technology licensing activities. Many new commercially viable ideas for new products and services and other technological discoveries flow out of small start-up companies commercializing publicly funded research—companies that go on to become major players or are acquired by others to boost their own competitive advantage. Either way, our economy benefits enormously.

What worked after the last two recessions, however, may not work so well today given the fragile nature of our financial markets, which is why we need a national innovation framework to help ensure this commercialization process runs more smoothly and efficiently. In fact, the already massive funding gap for young innovative companies—the other Achilles’ heel of our innovation-led economy—has only grown wider over the past decade. The so-called “valley of death”—the early-stage funding gap for young entrepreneurial companies (see Figure 4)—has always existed for early-stage innovation and entrepreneurs, but it has widened because of the current national economic crisis.

 

Investing in Innovative Small Companies

 

Venture capitalists are husbanding their financial resources to keep their current portfolios of startup companies alive and have already moved further up the financial cycle. The average investment by venture firms last year was $8.3 million per investment and only about 4 percent of the capital went to early-stage companies.[5] Angel investors—individual investors with a keen eye for technology—who previously had filled the role of assisting some startups cross this valley of death reduced their investments by over 26 percent in 2008, and the availability of investment capital among angels decreased dramatically by 40 percent over the same period.[6]