The Innovation Report: Highlights

See Article on The San Diego Union-Tribune Website
By: Mike Freeman

Despite a dip in the number of start-ups founded last year, San Diego remains a good place for innovation, powered by diverse technology clusters and a continued healthy flow of federal research dollars.

That’s the gist of the 2015 San Diego Innovation Report released Thursday by local start-up accelerator Connect. It takes the pulse of the region’s innovation economy, including funding, new startups founded and jobs created.

Overall, the numbers were solid, with 405 new tech/life sciences startups opening their doors. That’s down slightly from 449 startups in 2014.

“It’s a little bit lower than last year, but I don’t think that is too material,” said Greg McKee, chief executive of Connect. “Three hundred was the average for San Diego for a long time, and now in the last several years we have been above 400.”

Statewide, San Diego ranked fourth in number of new companies created, trailing Los Angeles, Santa Clara and San Francisco.

The region also ranked second in California for patent applications and patents granted.

San Diego ranked in more than $1.3 billion in research grants from the National Institutes of Health, the National Science Foundation, NASA and other federal agencies.

Much of this federal money goes to the region’s universities and research centers, such as the Scripps Research Institute.

“We are just so fortunate to have so much federal funding plowed into San Diego to underwrite all of our research and development,” said McKee.

For the region’s technology startups, however, raising capital remains a challenge, said McKee. Even through the flow of venture capital into young firms was strong nationwide last year, much of the money was concentrated in the Bay Area.

“So we are in an environment where there is more money than ever, but there is still less here,” said McKee. “I think that is one of the biggest things that we have to improve.”

Last year, the amount invested in San Diego startups actually increased 34 percent over the prior year to $1.2 billion.

But in Silicon Valley, young companies pulled in nearly $20 billion, according to the National Venture Capital Association/PricewaterhouseCoopers.

One consequence of the funding gap is fewer San Diego software/tech startups receive the financial backing they need to grow large to become publicly traded companies, said Rory Moore, co-founder of startup incubator EvoNexus.

So they end up selling instead.

“Scaling requires funding,” said Moore. “Large funds create larger companies with initial public stock offering potential and not just merger and acquisition outcomes.”

In the Innovation Report, Connect highlighted trends that have emerged in the past couple of years. Startup diversity is one. Of the startups launched last year, 255 were software companies, 82 were life science firms and 50 were new communications/electronics companies. Aerospace, environmental tech and recreational goods manufacturing rounded out the list.

“We are known as a tourism town, a big defense town and a life sciences town, which we are,” said McKee. “But in the last couple of years there have been a number of new software companies.”

Other highlights in the Innovation Report:

  • $187 million was raised by the three San Diego companies that went public last year. All were life science firms – Cidara Therapeutics, aTyr Pharma and Tracon Pharma.
  • $74 million in angel capital was invested in 122 San Diego deals last year.
  • 1,650 new jobs were created by local startups last year, including 906 in software, 342 in computer electronics and 330 in life sciences.
  • 6,967 patent applications from local companies were published, and 6,443 patents were granted.
  • Employment in San Diego’s innovation economy overall — including startups and established firms — totaled nearly 150,000. The average salary was $116,000.