Presentation to the 2014 Jackson Hole Economic Conference
Entrepreneurship and Economic Growth
Robert E. Grady Cheyenne Capital Fund Center for the Arts Jackson, Wyoming July 11, 2014
Good News/Bad News
Good News/Bad News
Good News/Bad News
The Good News: Jackson , WY • Air service
Ø Almost 300,000 in 2012 Ø +55% since ’00; 62% of all in WY • Human Capital Ø 50% with bachelors + (vs 24% WY) Ø Supply of “under employed” • InternaBonal Ø Can aXract engineers, finance, ReputaBon talent • Finance
Ø #3 county in U.S. per cap income Ø Investments > 50% of income; #1 in USA
The Good News?: U.S. Economy & Markets • U.S. GDP Growth for 2013: 1.9% • Dow Jones Industrials: 16,935 • S&P 500: 1,967 -‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐ • BUT: – Ave. U.S. GDP Growth 1929-‐2012: – China Q4 GDP Growth: – Chile Q4 GDP Growth: – Indonesia Q4 GDP Growth: – Singapore Q4 GDP Growth:
3.3% 7.5% 5.7% 5.8% 3.8%
Entrepreneurial Companies Have Been America’s Job-‐CreaBng Engine • In 2011, venture-‐backed companies: – Provided 11.9 million US jobs (11% of private sector employment) – Had sales of $2.9 trillion (21% of all US GDP) Ø Yet $30 billion of VC invested in 2013 was under 0.2% of US GDP • Venture-‐backed companies outperform rest of U.S. economy: – Faster job growth – Faster revenue growth
è Yet returns, fundraising and investments of venture capital are down for systemic reasons
Sources: Venture Impact 2011 by HIS Global Insight (Wharton/DRI); NVCA Yearbook 2013
Some VC-‐Backed Investments
America at a Crossroads
Item: THE WALL STREET JOURNAL, January 30, 2014
“Detroit Debt Proposal Favors Pension Funds” Detroit’s Bankruptcy:
• $11 billion in debt • $2 billion in cash • Components of debt: – $6 billion reBree health benefits – $3.5 billion pensions – $500 million general obligaBon debt
Item: THE WALL STREET JOURNAL, January 30, 2014
“Napolitano Lays Out Vision for Univ. of California” UC System:
• State support cut by 27% from 2008-‐09 to 2012-‐12 • TuiBon increased 26% in 2009-‐10 school year • TuiBon up another 36% next 2 years
GROWTH AND COMPETITIVENESS WILL DETERMINE OUR FUTURE STANDARD OF LIVING
12
Some Economic PerspecBve The U.S. vs. Europe – 1992-‐2007 Ave. GDP Growth Ave. Unemp. Rate
United States ~3.3% ~5.4% Eurozone ~1.8% ~9.1% *Eurozone includes 23 countries in the Euro area included in the OEDC data base Source:OECD
What Two Decades of Superior Growth Looks Like 450!
China! 400!
United States! Mexico!
350!
Canada! 300!
EU! Japan!
250! 200!
2005!
2004!
2003!
2002!
2001!
2000!
1999!
1998!
1997!
1996!
1995!
1994!
1993!
1992!
1991!
100!
1990!
150!
The Building Blocks of America’s Growth Economy • Unparalleled University Research • Excellent Universal K-‐12 EducaBon • High Quality Infrastructure – physical, electric, telecom • Free and Open Trade • Access to Capital • Rule of Law ! Growth as the Organizing Principle of U.S. Economic Policy
Research and Development Budget FY 2014 vs. FY 2013 vs. Select Major EnKtlement Expenditures
2013 2014 Change NIH $30.0 30.2 +0.1% NSF $ 5.3 5.1 -‐4.3% $11.1 11.3 +1.5% NASA DOE Science $ 2.03 2.06 +1.2% -‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐ Medicaid $265.4 $308.6 +16.2% Medicare $491.8 $513.2 + 4.4%
Source: Office of Management and Budget Historical Tables
Medicaid, Medicare & US GDP Over 25 Yrs. 1988 2013 % Change MulBple US GDP Medicare Medicaid
$5.0T
$16.3T +226%
3.3x
$76.9b 523.3
+580%
6.8x
$30.5b 282.8
+828%
9.3x
Source: Office of Management and Budget Historical Tables
Government spending as a % of GDP for key accounts 6.00% Healthcare
5.00% 4.00% 3.00% 2.00% 1.00%
R&D
0.00%
Education
1970
1976
1982
Education Source: Bureau of Economic Analysis.
1988
1994
Healthcare
2000 R&D
EducaBonal CompeBBveness: The Data Out of 34 OECD Countries: • U.S. rank in science: 21st • U.S. rank in math: 26th • U.S. rank in reading 17th
Source: 2012 PISA Test; OECD
Infrastructure
Energy: • U.S. electric use scheduled to grow by 28% from 2012 to 2040 (U.S. Energy Outlook 2012) • World Economic Forum: U.S. 30th in quality of electricity supply Highways: • WEF: U.S. 18th in quality of roads
Infrastructure Broadband: • U.S. is 7th and 16th among 34 OECD countries in wireless and fixed broadband penetraBon, respecBvely OECD Broadband Penetration and GDP Per Capita
Broadband penetration, June 2013 50
45 40
GDP per capita , USD PPP, 2011
100,000
Fixed broadband penetration (subscribers per 100 inhabitants, June 2013) GDP per capita (USD PPP, 2011)
35 30
90,000 80,000 70,000
Simple correlation = 0.63
60,000
25
50,000
20
40,000
15
30,000
10
20,000
5
10,000
0
0
Source : OECD
Trade
• Slowing pace of trade agreements in U.S. – No new agreements since 2008 – Delayed approval of Korea, Colombia – “Fast track” (TPA): A priority? – TTIP and TPP going to make it?
• Cases against China in poultry, auto parts, solar, Bres • Ambivalence over NAFTA when benefits have been substanBal ! AcceleraWng pace of trade agreements elsewhere
Capital Markets CompeBBveness • Reg FD • DecimalizaBon of the Nasdaq • Eliot Spitzer’s Global Research SeXlement • Sarbanes-‐Oxley • Dodd-‐Frank è Less Research on Growth Companies è Less Trading in Growth Companies
VC-Backed IPOs from 1995 to 2013 300
Number of IPOs
250 200 150 100 50 0
Source: National Venture Capital Association
IHS Global Insight: 92% of job growth for young companies occurs post-‐IPO
The Drop in the U.S. IPO Market
U.S. Capital Markets Are Increasingly Less CompeBBve
The “JOBS Act” Didn’t Really Solve the Problem DID: ü Reduce “general solicitaBon” rules for private offerings ü Enhance crowdfunding ü Ease registraBon requirements for companies offering $50 million or less
DID NOT: § Increase small cap trading § Increase small cap research § Lower size hurdle for companies coming public § Alter mix of M&A vs. IPO for VC exits
Health of the VC Industry
Source: NVCA
Obama, Wall Street and Steve Jobs • October 5, 2011:
– “…among the greatest of American innovators…”
• December 6, 2011:
– “…if we don’t have an economy that’s built on bubbles & financial speculaKon, our best & brightest won’t all gravitate towards careers in banking & finance…”
• Moved to Sunnyvale because his Dad worked for Spectra Physics • Spectra Physics first IPO for RS&Co. and H&Q • Apple VC backers: Venrock, Sequoia • AAPL IPO: Nasdaq, July 1980 • AAPL market cap 2014: $574 billion
Past is Not Necessarily Prologue New Cato InsKtute Report (8/22/13):
• U.S. stock of Foreign Direct Investment: $3.5 trillion (3x world #2) • FDI into the U.S. in 2000: $314 bil • FDI into the U.S. in 2011: $227 bil • FDI into the U.S. in 2012: $147 bil èAXracBveness of other economies èU.S. investment climate
Michael Porter on Competitiveness • “A region’s standard of living is determined by the productivity with which it uses its human, capital and natural resources” • “Productivity in a region is a reflection of what both foreign and domestic firms choose to do in that location” (èBy the way, Wyoming has “high and rising” prosperity)
Factors Affecting Cluster Development ü Education and workforce training ü Business attraction ü Export promotion ü Specialized physical infrastructure ü Science and technology infrastructure èStrengthen the clusters we already have !Create new clusters
California: A Case Study
• On elecBon day, November 6, 2012, California voters passed Prop. 30, raising the top marginal tax rate for top earners by 3% to 13.3% -‐-‐ 14.55% when adding special tax for mental health • From 1986-‐2007: – PopulaBon grew by 10 million – Medicaid recipients grew by 7 million – Tax filers who must pay taxes grew by 150,000 • 2010 Census: 37.7 million populaBon – 144,000 tax returns pay 48.4% of income tax • 2012 Results: NaBonal Assessment of EducaBonal Progress (NAEP) – First place: ND, MT – Last place: DC, Miss., CA • In 2012, California lost 5.2% of its businesses (73,000+) • Second highest percentage lost was Kansas with 3.1% Source: M. Boskin, Stanford Univ.; 2010 Census, Orange County Register; Bureau of Labor StaWsWcs
Case Study: Wyoming • #1 tax environment in the U.S. • 50% lower energy costs vs. industrial states • Highly educated work force – 81% graduate; 59% aXend college (vs. 46% 10 yrs ago)
• World-‐class transportaBon infrastructure • Affordable, plenBful housing • Outstanding recreaBon and lifestyle 3 4
Prosperity Is Not a Guarantee STATE POPULATION GROWTH¹
600,000
568158
State PopulaSon 100,000's
700,000
491755
500,000
-‐7%
400,000
300,000
330,969
459260
494657
576412
2% 15%
8%
340000 45%
3%
200,000
State populaBon change by State Actual percentage PopulaBon Campbell County
100,000
Natrona County Laramie County
0
1960 (est) 1961
1971
1981
1991
2001
2011
2012
Source: Wyoming Business Alliance Wyoming Energy Assessment, August 2013
Sweetwater County
Wyoming LOST Jobs in the 1980s 350000
WY STATE EMPLOYMENT GROWTH¹ 309,380 302,438 298,179
300000
-‐3%
257,700
250000
200000
150000
237,300 217,100
+45%
125,768
130,297
16%%
2%
17%
-‐9%
State Employment
100000 3.5% 50000
0 1961 1972 1981 1991 2001 2008 2011 2012 (est) Source: Wyoming Business Alliance Wyoming Energy Assessment, August 2013
Adding Value in Energy
The CompeBBve Environment Today
Explosion of Global Trade
Worldwide total merchandise trade 1970-‐Present ($ in billions)
10,000
8,000 6,000 4,000 2,000 0 1970
1976
Source: World Trade Organization.
1982
1988
1994
2000
2006
The Mobile Device Explosion
Time to achieve 1st billion users: Time to achieve 2nd billion users:
20 years 3 years
Time to achieve 3rd billion users:
18 months 9 months
Time to achieve 4th billion users: Source: Motorola, Cisco Systems, Estimates
Powerful Growth Engines • ConnecBvity and compuBng – Smartphone demand YoY: +41% è 700 mil units – Tablet demand Y0Y: +64% è 117 mil units – The rise of big data
• Life sciences innovaBon • The energy revoluBon • GlobalizaBon: – China Outbound FDI: $70 billion (+26% YoY)
The Correlation of Income,Employment Status, and Educational Attainment
Source: U.S. Bureau of Labor Statistics
Be The Answer “The future depends on what
you do today.”
-‐-‐ Mahatma Gandhi
Thank you! bgrady@cheyennefund.com
44