CONNECT Releases Second Quarter CONNECT-track Data, Introduces CONNECT Innovation Quarterly Report

CONNECT, San Diego's technology and life sciences accelerator, today released the second quarter 2008 data from CONNECT-track, the first independently-verified, comprehensive index of new technology company formation in California. The index measures the vitality and velocity of innovation throughout the state. Data reveal San Diego is now the second-leading new business start-up county in the state, behind only Los Angeles, up from third in Q1 2008.

CONNECT-track measures the economic output and growth in seven industries: software; communications; pharma/bio/medical; computer and electronics; environmental technology; defense and transportation; and recreational goods. Venture capital investment tracking data was also included in CONNECT-track for the first time to measure which sectors receive the most funding for new business innovation.

New CONNECT-track data show a 36 percent increase in new tech businesses in California: from 430 started in the 1st quarter of 2008 to 585 such businesses in the 2nd quarter. Although significantly lower than the 922 and 1,367 tech businesses started in the 3rd and 4th quarters of 2007, the annual increase nevertheless shows a 14.7 percent gain, year-over-year from 510 in the same quarter of 2007.

"Seasonality is a consistent repeating pattern reflected during the year for each quarter," said Kelly Cunningham, Senior Fellow & Economist at the San Diego Institute for Policy Research. "More tech businesses may start-up in a given quarter, for example, because of tax advantages from being registered at the end of the year."

The CONNECT-track results show 346 new companies in the seven innovation categories added in Southern California and 148 new companies added in Northern California. The top counties were: Los Angeles with 159 new companies; San Diego with 76; Santa Clara with 71; Orange with 71; Alameda with 26; San Bernardino with 23; San Francisco with 22; Contra Costa with 18; Riverside with 17; and Sacramento with 11.

The leading innovation categories in Q2 2008 were communications which accounted for 28.4 percent of all new companies; software at 28.2 percent; computer and electronics at 19.1 percent; and pharma/bio/medical at 13.3 percent.

San Diego's technology start-ups increased from 47 companies in Q1 2008 to 76 companies in Q2 2008, ranking it second in the State. San Diego's leading categories were pharma/bio/medical and software.

"Given the pattern established in 2007, the creation of tech businesses may still significantly increase in the 3rd and 4th quarters of 2008," said Cunningham. "With the nation's credit and housing markets in turmoil, consumers are drastically cutting back spending. Business investment had been one factor supporting economic growth for the nation, but with liquidity also drying up, investment dollars are likely to be tight as well. Continued investment in technology and business start-ups is critical for California's economic prosperity."

Venture capital investment in California companies totaled $3.9 billion in Q2 2008, representing nearly 53 percent of the total U.S. venture capital investment, according to the PricewaterhouseCoopers/National Venture Capital Association MoneyTree(TM) Report for Q2 2008.

The majority of the venture funding took place in northern California's Silicon Valley. In San Diego, 38 local companies received a total of $366 million in venture capital -- a decrease of $91 million (20 percent) from Q1 2008. San Diego's life sciences sector, made up of the biotech, medical devices and health care services industries, received the largest investment at $151 million, or 41 percent of local funds invested.

"Although the total amount of funding for San Diego companies was down quarter over quarter; the total number of companies receiving investment was about the same," said Jim Ingraham, partner at PricewaterhouseCoopers. "San Diego is seeing a greater portion of its investments going into expansion stage companies as compared to the national average. The level of investment in the Southern California region (San Diego and LA/Orange County) was $950 million for the quarter. The Southern California region continues to be strong and now receives the second most funding of any region in the country."

For Q3, 2008, CONNECT-track will continue, but will now be a part of the new CONNECT Innovation Quarterly Report (CIQR), which will also track five additional indicators of economic innovation in San Diego: angel and venture capital investment; new patent applications; research grant awards; institutional research employment; and technology business closings.

"The CONNECT Innovation Quarterly Report will help business leaders, policy makers, and researchers gain a better appreciation of the impact of our emerging technology businesses and innovative research and development activities within the region," said Duane Roth, CEO of CONNECT. "This will be a valuable indicator of the economic strength of the knowledge economy in San Diego and across the state."

Support to launch CONNECT-track was provided by Procopio, Cory, Hargreaves & Savitch LLP, Roth Capital Partners, the County of San Diego, and the San Diego Institute for Policy Research. Complete results are available at: www.connect.org/policy/connect-track/.