R&D & venture capital funding

What does this indicator measure?
This indicator measures funding levels for technology-driven research and development in local universities, as well as venture capital funding for business start-up.

Why is this indicator important?
The shift in the U.S. economy away from manufacturing has created a need for highly trained and skilled professionals who can drive the service-based economy. Research and development (R&D), venture capital, and other seed investments are often a reflection of the industrial mix and the quality of technical skill in an area. While there is a “chicken or the egg” issue at hand, continued investment in an area can lead to the development of a high-tech “cluster"—a self-reinforcing combination of institutions, investment, and workforce skills—that can have a long-term positive effect on an area’s economic growth.

Nationally, areas of the East and West Coasts, in particular San Francisco and Boston, are most often recognized for the depth of their high-tech economies. In Texas, Austin has attained recognition as a technology center, and Dallas, because of the telecom industry, has joined Austin on the elite listing.

How are we doing?
In recent years, beginning in 2000, the United States has witnessed a decline in funding for R&D that has been mirrored by Texas’ performance in this area, raising concerns for maintaining the U.S. global leadership role in R&D. Evidence of the concerns surrounding the declining R&D resources is documented by the American Entrepreneurs for Economic Growth (AEEG) in its Entrepreneurial Public Policy Agenda, indicating the following:

The Federal government’s investment in research and development funding for engineering and science programs in universities has been a critical foundation for much of the innovation that has fueled US high-tech dominance. Unfortunately, funding for basic science has been overshadowed in the budget/appropriations cycle by life-science funding.

Yet, in spite of declining revenue, the state’s performance in R&D funding and activity has been ranked among the top 10 states in the nation.

Federal R&D obligations to the state of Texas for 2002 totaled $3.4 billion, ranking Texas sixth in the nation, according to the Science and Engineering State Profiles: 2001–2003 of the National Science Foundation. California and Maryland ranked first and second, respectively.
In 2002, the state of Texas ranked fourth in the nation for total R&D funding, with $14.2 billion. The totals included $10.7 billion for industry R&D (ranked fourth) and $2.5 billion for academic R&D (ranked third).
In 2004, Texas received $1.15 billion in National Institutes of Health (NIH) funding for 2,836 awards, and was ranked sixth nationally, according to the Texas Workforce Investment Council’s Texas Index 2005.
According to The Alliance for Science & Technology Research in America, Texas’ gross state product (GSP) ranked third in the nation in 2000 at $742 billion and ranked 18th in the nation for GSP per capita at $35,000. During that year, Texas had an R&D intensity—the ratio of R&D to GSP— of 1.56%, ranking 28th in the nation.

Locally, the Dallas Primary Metropolitan Statistical Area (PMSA) has also enjoyed a robust R&D environment, with contributions from industry as well as academia that include the following:

Partnerships between academic and corporate entities in the Dallas PMSA have recently been established to meet the future science and technology needs of this community.
- The University of Texas at Dallas and Texas Instruments have announced plans to build two facilities, which are expected to provide the impetus for a strong high-tech economy into the coming decades, as reported by the Metroplex Technology Business Council in November 2004.
- Since 1999, the University of North Texas and Texas Instruments have partnered in research efforts to develop nanotechnology for creation of materials for advanced electronic applications, as reported in the October 2000 issue of University of North Texas Resource.
Universities in the Dallas PMSA have received significant federal funding for science and engineering R&D. The National Science Foundation’s Federal Science and Engineering (2005) reports that in 2002, the following awards were made:
- Baylor College of Medicine: $266.8 million
- Southern Methodist University: $5.3 million
- University of North Texas: $11 million
- University of Texas at Dallas: $13 million
- University of Texas Southwestern Medical Center: $162.3 million
- University of Texas at Austin: $146 million

One indicator of new product innovation is patents issued. Between 1963 and 2004, 2.22 million patents were issued in the United States. Patent numbers represent the capacity of U.S. corporations and individuals to develop new products that can ultimately determine the competitive advantage and ability to support higher wages, according to the Progressive Policy Institute’s 2002 State New Economy Index.

In May 2004, the National Science Foundation (NSF) released a report titled Science & Engineering Indicators – 2004. Indicating the relevance of patents to the overall economy and technological advances, the report states the number of patents issued for inventions is an indication of the changes in technology. Between 1988 and 2001, the number of U.S. patents increased from approximately 80,000 to 166,000.

Patents are regarded as an indicator, albeit an imperfect measure, of a state’s innovation and reflect the R&D sector’s ability to convert research into practical applications for commercialization. States with above-average numbers of high-tech corporate headquarters or R&D labs generally produce greater numbers of new patent requests. Data specific to the state of Texas indicate the following:

Patents awarded to individuals and corporations during 2003 numbered 6,378, a decline from a 5-year high of 6,789 patents in 2000, according to the Texas Workforce Investment Council’s Texas Index 2005.
Patents per capita remained steady at 0.03% per year between 1999 and 2003.
The Metropolitan New Economy Index , released in 2001 by the Progressive Policy Institute, ranked Dallas 25th in patents per 1,000 workers. Rochester, New York; San Francisco, California; and Austin, Texas, were respectively ranked first, second, and third in the same survey.
Between 1990 and 2003, 25,883 patents were awarded in the Dallas region. Of all patents awarded, 25.7% (6,685) were given for information and computer technology (IT) and telecommunications innovations, according to the Texas Workforce Commission’s State of Texas Information and Computer Technology Cluster Assessment.
Dallas is ranked second behind Austin in the percentage of all patents awarded related to IT and telecommunications for 1990–2003, according to the Texas Workforce Commission’s report.

Texas enjoyed a robust economy during the Internet boom of the late 1990s and early 2000. However, since 2000, annual venture capital investment in the United States has dropped from a high of $104.7 billion in that year to $21.7 billion in 2005. Information derived from a National Venture Capital Association MoneyTree Survey released in January 2006 indicates trends in Texas mirror national trends. However, survey results for fiscal year 2005 show this region continues to benefit from venture capital investment, revealing the following:

Venture capital investment in Texas, despite the decline in investments since 2000, has stabilized at an annual venture capital investment rate of approximately $1.07 billion.
Between 1995 and 2003, approximately 25.7% of all venture capital invested in Texas was directed toward the IT industry, according to the Texas Workforce Commission’s State of Texas Information and Computer Technology Cluster Assessment.
Venture capital invested in the technology sector during the last quarter of 2005 was $295 million. Approximately $34.3 million (11.6%) was invested in start-up and early-stage company development funding.
In Texas, three counties in the Dallas PMSA were listed in the top nine Texas counties for venture capital investment during the last quarter of 2005. Those three counties were Dallas County ($121 million), Collin County ($19.7 million), and Denton County ($5.1 million).
Texas was ranked first nationally in the number of companies receiving venture capital during the last quarter of 2005.
Nationally, Texas was ranked first as a source of venture capital funding during the last quarter of 2005.