We live in a world of fascinating innovations, where looking ahead is mandatory even if the future is sometimes illusory. One minute we are talking about high-speed rail, the next about a hyperloop.
Every year Silicon Valley Bank surveys entrepreneurs and executives to help get a better sense of the issues on the minds of leaders in the innovation economy. Hardly a surprise after a great 2014, most leaders surveyed in the just-released Innovation Economy Outlook predict an even better 2015.
But here is the most encouraging news for sustaining growth: While confidence is high, it is also measured.
This year’s survey, concluded in January 2015, included responses from more than 1,100 executives from software, hardware, cleantech, life science and healthcare companies — from startups to multinational enterprises — in the U.S., U.K. and other global innovation hubs. We gauged their perceptions on business conditions, capital formation, hiring and keeping talent, and public policy issues relevant to technology and life science companies.
The big takeaway: Executives are optimistic yet realistic about growth opportunities. Optimism is great as long as results are delivered, and companies did. Three of four executives reported they met or beat their revenue targets in 2014 (and two of three who did were within 20 percent of the target). In 2010, by comparison, half of companies fell below their revenue targets.
From my vantage point, the pace of disruption is faster than at any time in SVB’s 32-year history. The survey shows a lot of positive signals for long-term growth, yet these executives also recognize the challenges: From raising capital and globalization trends to competition for talent and need for even more accurate forecasting to stay competitive.
Although the return of IPOs makes for good headlines, most leaders, in fact, are focused on identifying growth opportunities, and not an immediate exit. Less than 1 percent of executives reported that they filed for an IPO last year, but 49 percent said they successfully raised private capital. In 2015, most are hiring, raising growth capital, focusing on sales and expecting to derive more of their revenue from international markets.
The combination of companies hitting and exceeding their revenue targets and successfully raising capital is telling us that reality, not over-exuberance, is driving their optimism.
Capital in the public and private markets is available, but that doesn’t mean it’s easy to come by. While the success rate for raising capital has increased, 81 percent of executives still said the fundraising environment is challenging.
Fundraising isn’t supposed to be easy. We see investors are demanding more fully developed ideas and business models, and in many cases entrepreneurs and executives are meeting those expectations. One sign of growing investor confidence in the innovation economy, pre-revenue companies were more successful in raising capital in 2014 than they were the previous year.
Individual investors, including angel investors, are playing a significant role funding innovation. Venture capital remains essential and crowd funding is still rare, creating a mosaic of capital sources for growing companies. Asked the planned source of their next round of capital, 32 percent of executives said venture capital, 14 percent said angel investors, 12 percent said private equity, 8 percent said bank debt and 7 percent said corporate investors.
Global growth is intensifying, as international and U.S. executives are looking abroad for new revenues. More than two-thirds of companies have earned revenue abroad. In fact, 34 percent of those with global revenues derived more than 20 percent of their revenues overseas in 2014, and 41 percent expect to hit that target in 2015.
The innovation economy is an increasingly powerful job creator. Nearly 80 percent of executives of companies of all sizes said they expect to hire in 2015. Of those planning to hire, 62 percent expect headcount to grow by more than 20 percent. These growth-minded leaders, however, are experiencing headwinds when it comes to finding talent: 95 percent of those surveyed said it is somewhat or extremely challenging to hiring workers with the right skills.
As companies mature, the executives told us they see their brand, more than salary or even equity, as the main draw to attract the talent they need. For new and growing companies, understanding how to handle employee equity — from promise to payout — is key to finding the talent they need to grow. While three-quarters of executives agree employee liquidity is important to their company, delivering on the promise is difficult as companies stay private longer.
With the ongoing debate over gender equity in technology, we asked executives if they have programs in place aimed at hiring and promoting women. While many technology companies publicly acknowledge the need for more women in their ranks, 71 percent in the survey said they do not have any programs in place.
As technology becomes integrated in our lives, government is taking on a bigger role in shaping innovation. In our survey, top policy issues that emerged highlight the need for collaboration among government and companies on the leading edge of innovation. On issues ranging from immigration to consumer privacy and cybersecurity, business leaders do see a role for government in helping to support their transformative ideas. But they want policies that broaden opportunities, not limit them.
What’s clear to me from this survey is that the innovation economy is poised to stay strong –serving as a global engine for job growth and advancing technologies. What’s most encouraging is that business leaders are adhering to important lessons that will keep this economy humming.
