US Bureau Of Labor Statistics (BLS) Report: High Failure Rate For Silicon Valley Startups In 2000

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16 Monthly Labor Review September 2011

Silicon Valley Businesses Born in 2000

Tian LuoandAmar Mann D

urg th t 1990 2000, urry o vtmt Itrt thoogy omp gv r to

th ot-om u. T urh t pk o Mrh 10, 2000, whth NASDAQ (ormry th Nto A-oto o Surt Dr AutomtQuotto) tt v o 5,132, out4 tm hghr th t h 3 yr r-

r. A th gp tw th vuto th prorm o my omp -m pprt, Itrt tok tum. Tnasdaq rh t ow pot o Otor 9,2002, wh t to 1,114, roughy o-thth v t t pk. Grou zro urgth pro o oom ut w SoVy, r tr rou S

Jo, Cor. T r w hom to myo th Itrt- omp tht mto typy th ot-om rzy o th r.

Rgr th go tr o tho-

og ovto,1

So Vy rvprogou mout o vtur pt -

vtmt th t 1990 2000, gvgr to thou o w u thr. Vtur pt vtmt rhthr hght v 2000, wh $32.3 -o w pump to So Vy.2 (Shrt 1.)T rt xm th ohort o So

Vy hgh-th u or m th

Tian Luo is an economistin the San Franciscoregional ofce, Bureauof Labor Statistics; AmarMann is a supervisoryeconomist in the sameoce. Email: [email protected] or [email protected]

Survival and growth o Silicon Valleyhigh-tech businesses born in 2000

High-tech businesses born in 2000 in the Silicon Valleyhad below-average survival and employment growth rates

rom 2000 to 2009, except or the year 2000, during whichsurviving rms o the cohort experienced signicant growththat carried over or 8 years; year-specic and industry-mixefects, however, weaken the latter conclusion

2000 vtmt rzy, urg whh thot-om u rh t px. T rttrk th 2000 hgh-th ohort throughth o 2009, pro ompg otoy th ruup o th ot-om oom,ut o th mv hgh-th owturtht oow th ot-om ut, w th ro tht g Dmr 2007.Frt, th 2000 ohort hrtrt r

pro, ug th umr o u jo rt, tgorz y hgh-thutry trtup z. T, th prorm- o th 2000 hgh-th ohort, mur trm o urvv rt mpoymtgrowth, ompr wth th prorm o typ hgh-th ohort. o ow or rompro o th two ohort, tor -ug th u or ur o hgh-thtrtup, uh yr-p utry-mx t, r xm. I othr wor,th rt r how th rtv u

or ur o th ohort w u ytor uh th rgr u y th y o promt utr thohort. Fy, th 2000 hgh-th ohortmpoymt growth rt r xm yt utry to how whh utr

wr mot or t uu ovr th xt.

So Vy h rputto or rthoog ovto h

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Monthly Labor Review September 2011 17

Chart 1. Investment in venture capital or Silicon Valley frms, 19952009

Billionso dollars

Billionso dollars

35

30

25

20

15

10

5

01995 1997 1999 2001 2003 2005 2007 2009

35

30

25

20

15

10

5

0

SOURCE: Money Tree ReportTM, PricewaterhouseCoopers and the National Venture Capital Association.

to moy th opt o rtv truto, or-g to whh omp rty rvt thmv trtup trprur hg th

u. T omptto ott hurg h y vovg p o hgh-th omp th So Vy, whh rm mog th rgt mot ut hgh-th tr th wor. Ty prt hr w prov mur o th tur-ovr xpr y hgh-th trtup th Vy o tor tht u th urvv growth o womp, wh o g th t o th 2000hgh-th ohort.

Data

T t prt th rt r o mro-t xtrt rom th Buru o Lor Sttt (BLS, thBuru) Qurtry Cu o Empoymt Wg(QCEW) progrm, whh h ormto o roughy 9.1mo U.S. u thmt th pu pr-

vt tor. T t r omp o urtry or Stt umpoymt ur tx purpo rt umtt to th Buru. T QCEWprogrm Fr-Stt ooprtv vtur tw th Buru th Stt Workor Ag. T progrm ot

ormto o pproxmty 98 prt o jo thUt Stt.T op o th tuy prt ompr x out3

tht mk up wht kow th So Vy 11utr4 hgh th org to th 2007North Amr Iutry Cto Sytm (NAICS)5o o. T rt ou o t mt t th u- or rm v. Eh u my oprt goto or hv mutp thmt rt r-. Frm r t y thr Empoyr IttoNumr, whh ggrgt th vu u t-hmt o h mpoyr. Troughout wht oow, u or urvvor , t y gv tm, tt o o t thmt tv h potvmpoymt th t t tht tm. By to,

or u to or prt o th 2000 rthohort, t ot xt th t or hv potvmpoymt pror to th yr 2000. T to oth rth rt th thmt urvv mth-ooogy vop or Bu Empoymt Dym(BED) t.6

Athough th rt u prmry th 2000 rthohort, QCEWmrot o u rth, th, mpoymt tw 1991 2009 r u to otrut , or typ, ohort. T typ ohort rt o

8/3/2019 US Bureau Of Labor Statistics (BLS) Report: High Failure Rate For Silicon Valley Startups In 2000

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Silicon Valley Businesses Born in 2000

18 Monthly Labor Review September 2011

urvv mpoymt growth r ompr wth rtor th 2000 ohort. Bu tht wr ur or thtmrg wth othr rm m up out 1.1 prt o u ovr th 19912009 orvto wow,ut r xu rom th y orr to vo kw-

g th rut or mpoymt growth urvv rt.7

2000 birth cohort

I th yr 2000, out 2,600 hgh-th u wror th So Vy, g ovr 27,000 jo to tho oomy. T vrg rth z o th hgh-thu w 10 mpoy; howvr, mpoymt th wy orm u rg rom 1 to morth 1,000.

Nry h o So Vy hgh-th trtup 2000 wr omputr ytm g rt rv-

, mor th o-urtr o u wr Itrt, tommuto, t prog. Bu- th two utr o m up 62 prt oth ohort mpoymt th rt yr. (S t 1.)

Nry 91 prt o w hgh-th u th 2000 wr rv-provg u, wh oy 5 pr-t wr goo proug th rmg o wru oprtg mutp utr. I trm o wmpoymt, howvr, goo-proug u m up20 prt o th tot, wh rv-provg um up 76 prt o th tot, wth th rmr ou mutp utr. Othr tu o hv how tht

goo-proug rm t to hv hghr v o tmpoymt th rv-provg o.8

T oowg tuto how tht, though u- whh trt wth our or wr mpoy m up 64prt o w hgh-th rm 2000, th mrrm out or oy 11 prt o w hgh-th m-poymt rom th 2000 ohort rth yr:

Percent distribution

Birth size Businesses Employment

4 or wr (m)............ 63.8 11.45 to 49 (mum)............ 32.3 39.0

50 or mor (rg)........... 3.9 49.6

By otrt, rgr rm or wth 50 or mor mpoyout or jut 4 prt o u, ut m uph o w mpoymt 2000.T rt o th rt trk th ohort o out 2,600

So Vy omp or 2000 rom tht yrthrough th urtr o 2009. A w how,hg th ohort wr grty t y yr-p utry-mx t.

Employment and survival

Amog th u th 2000 ohort o hgh-thtrtup, mpoymt grw rom out 27,000 2000 to pk o ry 34,500 2001. (S hrt 2.) Dptth growth or trtup, xtg hgh-th rm hpproxmty 16,000 jo tht yr.9

I 2002, th ohort h t tpt mpoymt, og ovr 11,500 jo, mor th th th g 2001. T yr 2002 o w th tpt So Vy tr hgh-th tor.10 T2000 ohort mpoymt o otu huut yr, y th o 2009 th ohortmpoy wr th 9,400 mpoy, oy 34 prt oth t mpoymt v 2000.T mjorty o hgh-th u or 2000

ot urvv pt 2003. (S hrt 2.) By 2009, wr th 1

5 hgh-th trtup or 2000 wr t u.T 2000 ohort hght u urvv rt, 93 prt,ourr t rt yr. T g ott wththo rom prvou tu, whh o how tht u- gry hv hghr urvv rt thr rt

yr. T ro tht w u ot hv ought rrv to urvv or t t 1 yr.11 Gv thrg poo o vtur pt g tht w vto yr-2000 trtup, t urt tht thy wr to urvv th rt yr , ot th prgprgrph, v jo. T owt u urvv rtor th 2000 ohort wr xpr 2002 2003

(thr thr ourth yr, rptvy). Btw 2004 2008 (thr th through th yr), u ur-

Table 1. Distribution o businesses and employment among SiliconValley high-tech startups, by major industry, 2000

[In percent]

Industry Business Employment

All business and employment startups 100.0 100.0

Computer systems design and relatedservices 46.6 36.0

Internet, telecommunications, and dataprocessing 25.7 25.9

Architecture and engineering services 11.1 5.9

Software publishers 4.5 5.4

Scientic research and development services 3.1 2.9

Semiconductor and electronic componentmanufacturing 2.8 11.7

Electronic instrument manufacturing 1.2 2.6

Computer and peripheral equipmentmanufacturing .5 4.3

Communications equipment manufacturing .5 .9

Pharmaceutical and medicine manufacturing .2 .1

Aerospace product and par ts manufacturing .0 .0

Businesses operating in multiple industries 3.9 4.4

SOURCE: U.S. Bureau of Labor Statistics; Quarterly Census of Employ-ment and Wages.

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Monthly Labor Review September 2011 19

Chart 2. Employment and cumulative survival o 2000 birth cohort o Silicon Valley high-tech frms, 20002009

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

EmploymentSurvival rate

(percent)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

SOURCE: U.S. Bureau of Labor Statistics, Quarterly Census of Employment and Wages.

100

90

80

70

60

50

40

30

20

10

0

Total employment

Yearly survival

Cumulative survival

vv rt wr gry rg. T U-hp urvtr y th u urvv rt o So Vy 2000

hgh-th ohort ott wth mr pttr ou othr tu.12Amog th hgh-th omp rom th 2000 ohort

tht urvv, mpoymt h, o vrg, ou y2009. Lk th rt, prvou tu o u urv-

vorhp growth hv how tht urvvg ompt to grow thr mpoymt.13 (S hrt 3.) I thrt yr, urvvg rm grw thr vrg mpoymtrom 10.4 to 14.4 mpoy pr rm. Foowg th -t urg, 2002 vrg mpoymt urvvg rmropp to ry th m v thr trtup yr o2000. Atr 2003, howvr, urvvg rm h, o vr-

g, ott mpoymt growth, y 2009 thy h vrg o 20.4 mpoy pr rm.

Both urvv mpoymt growth rt vrgrty wth th rth z o th rm, g oorv prvou tu.14 (S hrt 4.) Survvgrm wth m rth z h muh rgr mpoymtgrowth, ut owr urvv rt, th rm o rgr rthz. Dpt urvv rt o oy 17 prt, mu tht urvv vrg ry thror thr mpoymt ovr th pro xm.

A rut o th growth mog urvvor, m rm, whh m up 11.4 prt o th 2000 ohort t

mpoymt v, out or 23.4 prt o tot m-poymt y 2009. (S hrt 5.) I otrt, u org rth z xpr hghr urvv rt (29 pr-t), ut tho whh urvv t to otrt thrmpoymt v, rutg o mpoymt hr.

T otruto to 2000 ohort mpoymt rom rgrm r rom 49.6 prt 2000 to 38.5 prt 2009. For u o mum rth z, th hr o2000 ohort mpoymt o r, rom 39.0 prtto 38.1 prt. How