Grady

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

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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

èAXracBveness of other economies èU.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” (èBy 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 èStrengthen 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

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