New ideas and technologies help produce high-quality goods and services that keep metropolitan Chicago competitive in today's global marketplace. Innovation is spurred by both the private sector and local academic institutions.
The number of venture capital deals conducted in the State of Illinois (the majority of which are in metropolitan Chicago), as reported by PricewaterhouseCoopers.
Why it matters
Innovation in new goods, services, and technologies drives economic growth. For newly created firms, the cost of conducting research, creating new products, and marketing them can be substantial. In these instances, investors can support high-risk, high-growth startup companies through venture capital funding. Leading venture capital regions such as New York, northern California (which encompasses the Bay area, including Silicon Valley and portions of the California coastline), and Los Angeles are all accounting for a growing share of the nation's venture capital deals while venture capital deal making in the state of Illinois has remained stagnant.
Venture capital plays a key role in the new business startup process by providing support to businesses before they are financially sustainable or able to secure traditional funding streams. Venture capital investing is often a high-risk, high-reward endeavor as startup companies can fail at high rates. Venture capital investments tend to fund innovative ideas and companies in high-growth sectors. Venture capital funding levels by industry can change significantly depending on economic conditions. Popular industries for venture capital activity include: Software, Biotechnology, Media and Entertainment, Information Technology Services, and Computers and Peripherals. Industries garnering the preponderance of venture capital investment tend not to require significant up-front capital investments in heavy equipment or construction that would be required for industries like manufacturing. Investment in venture-backed companies only equates to between 0.1 percent and 0.2 percent of U.S. gross domestic product each year, yet venture capital backed firms employ over 10 percent of the private sector workforce. The National Venture Capital Association estimates that for every $1 of venture capital invested between 1970 and 2010, $6.27 in revenue was generated. This underscores the sizable economic benefits that venture capital investment can bring to regional economies.
The venture capital funding process occurs in four discrete stages over a period of several years. Each stage provides funding for different purposes. Investment in early startup stages poses higher risks for investors while later stage funding carries less risk since the startup company is more stable. The first stage of the venture funding process, known as the "seed" stage, occurs when a new concept or product is under development, but not fully functional or vetted. Companies in this stage generally seek financing from angel investors or venture capital firms to conduct further product research and development.
After a startup company develops a prototype product or service, a stage of "early" funding is sought to help the firm continue development. Companies seeking early stage funding generally have a proven prototype, along with promising initial sales, but require additional funding to expand production. Early stage funding is usually followed by expansion funding, which can be used to support major product revisions or marketing expansion. Later stage funding is generally used to finance firm expansion or prepare the business for an initial public offering.
Nowhere in the U.S. is the value of venture capital more apparent than in northern California. The region's concentration of tech workers has made it a magnet for venture capital funding. In 2014, northern California captured an estimated $23.4 billion in venture capital funding – nearly half of the national total. The region's dominance in venture capital attraction has prompted many startup businesses to leave their home market and move to the area. While moving benefits the individual businesses, the outward flow of innovative ideas and technologies from other metropolitan areas to northern California can limit other regions' innovative capacities.
The estimated number of venture capital deals nationwide peaked in the late 1990s before falling substantially during the dot-com bust, which began in March of 2000. Over 8,000 deals were conducted in the U.S. in 2000. That number fell by over 60 percent just three years later when, in 2003, approximately 3,000 deals were reported. In 2014 there were an estimated 4,400 deals conducted nationwide, which is still substantially lower than the deal totals for the late 1990s, but nonetheless represents the continued rebound of venture capital activity from the most recent recession.
Local and Peer Region Trends
Since the mid-1990s, data show that the State of Illinois has steadily accounted for roughly two percent of U.S. venture capital deals. (Due to data limitations, metropolitan-level data are not available for the Boston or Chicago region, however the vast majority of venture capital deals in the state originate in these metropolitan areas.) Since 1995, peer regions such as northern California, Los Angeles, and New York City, have increased their respective shares of national venture capital deals while deal activity in Illinois has remained stagnant. In 2014, these four peer regions attracted nearly 60 percent of venture capital funding in the U.S.
About the Data
Since venture capital deals are conducted as agreements entered into between two private parties, no public data source exists which reports venture capital activity. The data presented in this analysis are produced by Thomson Reuters and published by PricewaterhouseCoopers (PwC) and the National Venture Capital Association. The data reported represent a "best guess" of venture capital activity by region and state. The analysis presented here focuses on the number of venture capital deals conducted rather than total funding amounts since a small number of high-value deals can distort trends. PwC does not track data for the Chicago region. This analysis uses State of Illinois estimates in lieu of regional data.
The data used in measuring venture capital activity presented here should be viewed as a partial snapshot of innovation and venture capital activity. The data do not address issues such as what percentage of firms receiving funding succeed or fail, or what percentage of firms exceeded their growth expectations. Furthermore, some regions may experience higher rates of funding and deal activity but also experience higher startup failure rate. Some regions may excel at producing a large number of "niche" startups, while others may produce a smaller number of startups with greater growth potential.
Geographies used in this analysis are defined by PwC:
New York City: Metropolitan New York City area, northern New Jersey, and Fairfield County, Connecticut
Los Angeles: Southern California (excluding San Diego), the Central Coast, and San Joaquin Valley
Northern California: Bay area, including the area known as Silicon Valley, and coastline.
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The number of invention disclosures filed, patents granted, technology licenses issued, and startup companies formed as a result of research conducted at Chicago region academic institutions.
Why it matters
The region's universities play a critical role in encouraging innovation. Promising research conducted at academic institutions is often patented and licensed to private sector entities. In 2013, the region's academic institutions filed 654 invention disclosures, obtained 199 patents, and issued 105 technology licenses for private use. Technology transfer activity also led to the creation of 25 new startup companies.
While the majority of innovation in the region is fueled by the private sector, Chicago's academic institutions also play an important role in spurring innovative development by conducting research that can be licensed to private businesses. This process, known as "technology transfer," includes discovering, patenting, and licensing of university inventions to businesses or startups. The technology transfer cycle is complex and can take several years to complete.
The first stage occurs when a researcher files an invention disclosure form with the academic institution's Technology Transfer Office. The disclosure is an official proclamation that something new has been discovered that could be commercially viable and patented. After an invention is disclosed, the university's Technology Transfer Office explores the possibility of patenting the disclosure and obtains a patent if the invention is determined to have commercial potential.
The final step in the university technology transfer process involves licensing the patent out to commercial businesses or creating a startup company and licensing the patent to the new firm. The licensing stage is especially important to academic institutions as licensing revenues can be used to support the Technology Transfer Office or fund additional research. Each step of the technology transfer process is designed to identify technologies with increasing commercial feasibility.
Although the technology transfer process is relatively straight forward, its implementation is often complicated, and inventions with high commercial potential do not always reach the licensing stage. Researchers at academic institutions are often focused on pursuing knowledge that advances their field of study rather than pursuing research which has commercial feasibility. Often times, academic breakthroughs do not translate into commercial breakthroughs.
Even when a new technology is disclosed and deemed to have commercial potential, inventors face numerous hurdles to commercialization. University Technology Transfer Offices may have difficulty finding a business to license the invention. In most instances, businesses that license new university research already have an existing relationship with the inventor or the University Technology Transfer Office. Thus, the commercialization potential of an invention is often limited by the size of the researcher's or Technology Transfer Office's network. Furthermore, Technology Transfer Offices that find potential licensee businesses must create an effective marketing plan to license the technology and secure future commitments for further research. In the instances in which inventors decide to start a new business themselves, they face numerous hurdles, including the process of securing financing, finding staff or resources to design a viable business model, and reaching the intended user or consumer. The technology transfer process is complex, includes a high degree of risk for inventors and investors, and frequently fails.
Regional Trends in Technology Transfer
This analysis focuses on data for 2013 (which includes disclosures from the University of Chicago, the University of Illinois at Chicago, Northwestern University, Loyola University Medical Center, and Rush University Medical Center), as well as a time series analysis for three regional institutions (University of Chicago, University of Illinois at Chicago, Northwestern University) that have participated in the Association of University Technology Manager's technology transfer survey since 2002. These three institutions account for the vast majority of reported technology transfer activity in the region.
In 2013, the region's academic institutions filed 654 invention disclosures. Technology Transfer Offices obtained 199 patents, and 105 licenses were issued. Technology transfer activity also led to the creation of 25 startups. Long-term trends show that the number of invention disclosures filed by Chicago region institutions rose by nearly 60 percent between 2002-12 before falling slightly in 2013. The region's increase in invention disclosures has also been accompanied by an increase in the number of patents obtained in recent years. Since 2009, the number of patents issued for inventions has more than doubled.
While an increase in invention disclosures and patents is promising, the number of licenses granted for new inventions has declined since peaking in 2011. Licensing activity is a key metric of technology transfer performance because it brings funds to universities and is indicative of the true commercial viability of academic inventions.
About the Data
Technology transfer data are obtained from the Association of University Technology Managers annual technology transfer survey. Since survey participation is voluntary, comprehensive technology transfer data are not available for the region or nation.
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The total number of utility patents, also known as "patents for inventions," issued by the U.S. Patent and Trade Office.
Why it matters
High levels of patent production generally indicate an innovative region supported by an educated workforce with a strong capacity to conduct research and development. In 2013 the Chicago Metropolitan Statistical Area (MSA) produced 3,766 utility patents. The Chicago region has the third largest metropolitan population in the U.S. and produced the sixth highest number of patents among all metropolitan areas over the last decade.
National Patent Production on the Rise
Nationwide, patent activity is at its highest point ever (based on data dating back to the 1960s). The number of new patents issued annually has grown especially quickly since the early 2000s, increasing from roughly 85,000 in 2000 to 134,000 in 2013 -- 52 percent more. A recent report issued by the Brookings Institution notes that increased levels of R&D expenditures coupled with the recent surge in communications technology innovation have fueled increased patent activity. The vast majority of patent production in the U.S. comes from individuals and businesses located in metropolitan areas. Patent activity in the Chicago metropolitan area is also at an all-time high. The region was granted over 3,700 patents in 2013 – up by more than 70 percent since hitting a low point in 2008.
Among peer metropolitan areas, the most active patent producing region over the last decade was Silicon Valley (San Francisco-San Jose), which accounted for over 143,000 total patents between 2004-13. The New York metropolitan area was the second largest patent producing region, accounting for 54,381 patents over the last decade, followed by Los Angeles (45,520), Boston (38,118), Seattle (29,728), and Chicago (27,550).
In most instances, the total number of patents produced in U.S. metropolitan areas is correlated with each region's total population. In 2013, for example, the Chicago MSA was home to 3 percent of the U.S. population and accounted for 2.8 percent of total U.S. patents. The New York metropolitan area, which accounted for 6.3 percent of the country's population in 2010, produced 5.9 percent of all patents. Top performing regions such as San Francisco-San Jose Boston, and Seattle, however, account for a substantially greater portion of total patent activity relative to their total metropolitan populations. In 2013 for example, the San Francisco-San Jose region accounted for 2 percent of the country's population in but produced over 16 percent of the nation's patents thanks to the region's specialization in technology fields.
Boston's high rate of patent output can be attributed to its fledgling biotechnology cluster. Seattle's aerospace cluster supports significant patent production, and Minneapolis-St. Paul's specialization in medical devices and technology have led to high rates of patenting. Other large metropolitan regions (such as Miami and San Antonio, for example) produce fewer patents than their respective populations would suggest.
Chicago Region Experiencing Declining Share of Patent Activity
Much of the Chicago region's patent activity originates in the communications sector, and, like other metropolitan areas, a handful of key players account for a sizable portion of the region's total. In 2013 the metropolitan area's top patent-producing business was Motorola Mobility, followed by WMS gaming, which makes slot machines and other gaming equipment, petrochemical firm UOP, and Trading Technologies, which makes software for financial asset trading. Individuals accounted for the largest number of patents issued, with 364 granted in 2013.
Patent production trends tend to vary by metropolitan area since the number of patents produced depends on the industry composition of the area. Regions with specializations in computers and electronics, for example, have seen significant growth in patenting activity in recent years, while patent growth in other industries, such as manufacturing, has been slower. Additional state-level patent data show that Illinois is a strong performer in producing Computer and Peripheral Equipment and Basic Chemicals industry patents. See CMAP's recent patenting policy update for a more fine-grained analysis of patenting by industry.
About the Data
The Patent and Trade Office maintains a comprehensive database listing the number of utility patents issued by metropolitan area based on the home or business address listed by the primary patent applicant. Data and analysis on this indicator focus exclusively on utility patents, which are referred to throughout simply as patents. The data include all counties in the Chicago-Joliet-Naperville MSA, which includes several counties in northwest Indiana and Kenosha County in Wisconsin.
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Employment in Science, Technology, Engineering, and Mathematics fields in the seven-county Chicago region.
Why it matters
The demands of many professions are becoming increasingly complex as technology drives innovation and growth in today's economy. Workers employed in science, technology, engineering, and mathematics (STEM) occupations play a significant role in fostering innovation that leads to economic growth. STEM occupations comprise 12.4 percent of metropolitan Chicago's total jobs, exceeding rates in Los Angeles and New York, but falling short of Boston and Washington, D.C. Growth in STEM occupations in the Chicago region has lagged behind STEM growth in other metros.
STEM Employment in the Chicago Region
Workers in STEM fields drive the creation of new technologies and ideas, which, in turn, spur economic growth. Data show that scientists and engineers apply for patents at a rate eight times higher than the national average. The propensity of individuals in STEM fields to innovate drives the creation of new jobs and new opportunities for regional economic growth.
In 2014 the Chicago metropolitan area was home to 530,000 STEM jobs, which accounted for 12.4 percent of the region's total jobs. Regional STEM employment trends have closely followed national economic trends, with employment increasing between 2004-08, followed by a large decline between 2008-10 during the recession and subsequent recovery in the years following. The proportion of Chicago region jobs falling under the STEM category has increased slightly over the last 13 years, accounting for 11.8 percent of the region's total employment in 2001 and 12.4 percent in 2014.
STEM occupation growth in Chicago since 2001 has been much slower than in peer metropolitan areas. Between 2001-14, STEM employment in the region grew by 3.9 percent, less than half the rate of Boston (8.8 percent), far behind Los Angeles (7.1 percent) and New York (7.0 percent), and less than one-quarter of the rate of STEM occupation growth in Washington, D.C. (16.6 percent).
While the U.S. is a leader in the field of scientific innovation, standardized tests show that many students perform poorly in STEM subjects relative to students in other developed nations. The U.S. also lags behind other nations in producing graduates with core STEM degrees, such as natural science or engineering, according to studies. This mediocre student performance in the STEM field has garnered increasing attention in recent years and has led to the passage of education reforms aimed at enriching the STEM curriculum at the federal level. Many of the fastest growing and highest paying career fields require STEM skills, and providing students with adequate STEM educations will help prepare them for the demands of future occupations.
About the Data
EMSI data are used to estimate total STEM employment in the seven-county CMAP region. STEM employment reported here includes STEM occupations as classified by the federal Standard Occupation Code (SOC) Policy Committee in 2010.
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