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Innovation

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.

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Venture Capital

What
The number of venture capital deals conducted in Illinois, a majority of which are in metropolitan Chicago.

Why it matters

Innovation in new goods, services, and technologies drives economic growth. For newly created firms, the cost of conducting research and of creating and marketing new products and services 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, Los Angeles, and northern California (which encompasses the San Francisco Bay Area, including Silicon Valley) account for an increasing share of the nation's venture capital deals, while the Illinois share of venture capital deal making has remained largely stagnant.

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Venture capital plays a key role in the business startup process by providing support to businesses before they are financially sustainable or able to access traditional funding streams.  Venture capital investing is often a high-risk, high-reward endeavor because startup companies fail at high rates.
 
Venture capital investments tend to fund innovative ideas and companies in high-growth sectors.   Popular industries for venture capital activity include Software, Biotechnology, Media and Entertainment, Information Technology Services, and Computers and Peripherals. Industries with small up-front capital investments attract the preponderance of venture capital deals, while industries with higher up-front capital costs, such as manufacturing, attract a smaller portion.
 
Investment in venture-backed companies only equates to 0.1 to 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 generated, yielded $6.27 in revenue.  This underscores the sizable economic benefits that venture capital investment can bring to regional economies. 
 
The venture capital funding process generally occurs in four stages over a period of years.  Each stage provides funding for different purposes.  Investment in early startup stages poses higher risks for investors, whereas later-stage funding carries less risk as the startup company becomes 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 and promising initial sales, but they require additional funding to expand.  Early stage funding is usually followed by "expansion" funding, which can be used to support major product revisions or further marketing expansion.  Later stage funding is generally used to finance major 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 and other "knowledge spillovers"  has made it a magnet for venture capital funding. In 2015, northern California captured an estimated $27.8 billion in venture capital -- nearly half of the national total.  

National Trends

National venture capital deal making peaked in the late 1990s before falling substantially during the dot-com bust of the early 2000s.  In 2015 there were an estimated 4,500 deals conducted nationwide, which is substantially lower than the deal totals for the late 1990s.  Nevertheless, increased deal-making activity represents the continued rebound of venture capital activity from a slight downturn during the 2007-09 recession. 
 
The average investment amount per venture capital deal has increased substantially since 2013, suggesting a more favorable market for investment.  In 2015, the average investment amount per deal surpassed its previous year 2000 peak both nationwide and in Illinois.  The average venture capital investment in Illinois in 2015 was $11.8 million, compared to the national average of $13.3 million. 
 

Local and Peer Region Trends

Since the mid-1990s, 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 regions; however the vast majority of venture capital deals in each state originate in their respective 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 relatively stagnant.  In 2015, these four peer regions attracted nearly 60 percent of total venture capital funding in the U.S.  

About the Data

Because venture capital deals are conducted as agreements between two private parties, no public data source captures 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.  It is important to note that annual average total funding amounts can be skewed by a small number of high-value deals.  PwC does not track data for the Chicago region.  This analysis uses Illinois estimates in lieu of regional data.
 
The data 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 remain viable or exceed 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. 
 
The geographies used in this analysis are defined by PwC: New York City (metropolitan New York City, including northern New Jersey, and Fairfield County, Connecticut); Los Angeles (southern California, excluding San Diego and including the Central Coast and San Joaquin Valley) and northern California (Bay Area, including Silicon Valley and coastline).
 
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Technology Transfer

What
The number of invention disclosures filed, patents granted, technology licenses issued, and startup companies formed as a result of research conducted at select academic institutions in the Chicago region.

Why it matters

The region's universities play a critical role in encouraging innovation.  Promising academic research can be patented and licensed to private sector entities.  In 2014, the region's academic institutions filed 643 invention disclosures, obtained 222 patents, and issued 96 technology licenses for private use.  Technology transfer activity also led to the creation of 25 new startup companies.

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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 development by conducting research that can be licensed to businesses.  Known as "technology transfer," this process includes discovering, patenting, and licensing university inventions to businesses or startups.  
 
The technology transfer cycle is complex and can take several years to complete.  The first stage of the cycle occurs when a researcher files an invention disclosure form with their 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 feasibility 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 integral to academic institutions, as licensing revenue can be used to support the Technology Transfer Office or fund additional research.  
 
Although the technology transfer process is relatively straightforward, its implementation is often complicated, and inventions with high commercial potential do not always reach the licensing stage.  Academic researchers are often focused on pursuing knowledge that advances their field of study rather than pursuing commercially feasible research.  Thus, academic breakthroughs do not always 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.  
 
Technology Transfer Offices that find potential licensee businesses must also 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 may face obstacles 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 includes a high degree of risk for inventors and investors, and frequently fails. 

Regional Trends in Technology Transfer

This analysis aggregates disclosures in 2014 from the University of Chicago, the University of Illinois at Chicago, Northwestern University, and Loyola University Medical Center, as well as a time series analysis for three regional institutions, University of Chicago, University of Illinois at Chicago, and Northwestern University, that have participated in the Association of University Technology Manager's (AUTM) technology transfer survey since 2002.  These institutions account for the majority of reported technology transfer activity reported in the region.
 
In 2014, the region's academic institutions filed 638 invention disclosures.  Technology Transfer Offices obtained 219 patents, and 96 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 number of invention disclosures continued to fall slightly in 2014. The region's increase in invention disclosures since 2002 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 increased by nearly 125 percent.
 

While invention disclosures and patents activity in the region remains 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 based on an Association of University Technology Managers (AUTM) annual survey.  Because survey participation is voluntary, comprehensive technology transfer data are not available at the regional or national levels.  Prior years' indicators included Rush University, but because Rush did not report technology transfer data for 2014, it was omitted from the 2014 Chicago region university technology transfer activity bar graph.   
 
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Patents

What
The total number of utility patents, also known as "patents for inventions," issued by the U.S. Patent and Trademark Office.

Why it matters

High levels of patenting generally indicate a talented regional workforce and businesses with a strong capacity to conduct research and development.  In 2015 the Chicago metropolitan statistical area (MSA) produced 3,909 utility patents -- slightly less than in 2014, a decrease that was mirrored nationwide.

 

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The invention of new products and services enhances the competitiveness of our region's industries. Patents play a special role in encouraging innovation by granting inventors exclusive rights to use or license an invention for a set period of time. These rights help businesses capitalize on their investments in research and development and provide a competitive edge in the marketplace.

National Patenting Trends

In 2015, the U.S. Patent and Trademark Office granted nearly 300,000 patents.  Increased levels of research and development expenditures and a surge in information technology innovation have fueled patenting growth in recent years, with the number of patents issued nationwide growing by 78 percent since 2009.  Most recently, the number of total patents issued decreased slightly (one percent) from 2014-15. 
 
Foreign inventors are playing an increasing role in the U.S. patent landscape, with more than half of all patents granted in 2015 sought by businesses and individuals outside of the U.S.  Our nation's size and wealth lead foreign inventors to file for patents in the U.S., which often presents the highest commercial potential for their invention.  Recent reforms to the nation's patent law have also made it easier and less costly for foreign inventors to file for U.S. patents. This has the potential to expand the inventions available for foreign product and business development in the U.S.  

Patenting in Peer Regions

 

Over 95 percent of U.S. utility patents are granted to individuals and businesses located in metropolitan regions.  The most active for patents in the last decade has been the San Francisco-San Jose area (which includes Silicon Valley), accounting for 104,631 total patents between 2006-15. Chicago patents between 2006-15 increased 45 percent, on par with Los Angeles at 46 percent, yet growth here has lagged behind other peer regions. During the same decade, Seattle increased 107 percent, and San Francisco-San Jose increased 88 percent, while Boston and New York patents grew 72 percent and 57 percent, respectively. 
 
Patent production trends tend to vary by metropolitan area because the number of patents depends primarily on regional industry composition.  For example, Boston's high rate can be attributed to its burgeoning biotechnology cluster, while Seattle's aerospace cluster drives patent production.  State-level patent data show that Illinois is a strong performer in Computer and Peripheral Equipment and Basic Chemicals industry patenting.  (See CMAP's Policy Update on patenting in Illinois manufacturing for a more fine-grained analysis.) 
 
Patenting strategy may vary among industry. Regions with specializations in industries such as Computers and Electronics have seen significant growth in recent years. These industries have propensity for higher patent production in order to attract licensees and generate revenue. Patent production in other industries such as Beverage and Tobacco or Wood Products has been slower. These industries are typically much more discrete in patenting choices.

Region's Top Patent Seekers

Much of the Chicago region's patent activity originates in the information technology sector, and, like most metropolitan areas, a handful of key players account for a sizable portion of the region's total patents.  In 2015 the region's top patent-producing business was petrochemical firm UOP, followed by Google and Cleversafe, which provides large-scale data storage services. Individuals accounted for the largest number of patents issued, with 359 granted in 2015.

About the Data

The U.S. Patent and Trademark Office maintains a 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 for this indicator focus exclusively on "utility patents," which are referred to throughout simply as patents. The Chicago metropolitan statistical area (MSA) encompasses 14 counties, including the counties of Cook, DeKalb, DuPage, Grundy, Kane, Kendall, Lake, McHenry, and Will in Illinois, Kenosha County in southeast Wisconsin, and the counties of Jasper, Lake, Newton, and Porter in northwest Indiana.

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STEM Occupations

What
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 new ideas that lead to economic growth.  As of 2015, STEM occupations represented 12.5 percent of metropolitan Chicago's total jobs, higher than proportions in Los Angeles and New York but lower than those of Boston and Washington, D.C.  Growth in STEM occupations in the Chicago region has lagged behind STEM growth in other metropolitan regions.

 

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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. STEM workers' propensity to innovate can also lead to the creation of new goods, services, and jobs.  
 
In 2015, metropolitan Chicago was home to over 540,000 STEM jobs. The region's proportion of STEM jobs increased slightly over the last 14 years, increasing by 0.7 percent to 12.5 percent of the region's total employment in 2015. 
 
Regional STEM employment has closely followed national economic trends, with employment increasing between 2004-08, followed by a large decline between 2008-10 during the recession. Since the recession, STEM employment in the region has recovered and now exceeds its pre-recession peak. 
 

 

Since 2001, STEM occupation growth in the region has been much slower than in peer metropolitan areas.  Between 2001-15, the total number of STEM jobs in the region grew by 6.0 percent, less than half the growth rate in Boston (12.8 percent) and Washington, D.C (19.6 percent), while also lagging behind Los Angeles (11.4 percent) and New York (10.6 percent).

 

Although 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 in producing graduates with core STEM degrees such as natural science or engineering.  Mediocre STEM student performance in the U.S. has garnered increasing attention in recent years and has led to the passage of education reforms aimed at enriching 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

Economic Modeling Specialists International (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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