Funding R&D at Local Universities: What is Our Commitment to the Innovation Pipeline?

Research and development expenditures at local universities is an indicator of our nation’s commitment to seeding the innovation pipeline.  New ideas—some with commercial applications—flow forth from U.S. academic centers, particularly in strong innovation regions like Silicon Valley.  So, how are we doing?  The latest numbers are in.  The story is mixed.

The long-term trend nationally has been positive.  Over the past decade, between 2005 and 2014 (the latest data available), R&D expenditures at U.S. universities grew an inflation-adjusted 17%.  However, between 2013 and 2014, the amount of total R&D funding at U.S. universities actually dropped from $68.1 billion to $67.2 billion.

R&D Growth Total August 2016


Some innovation regions have done much better than the nation as a whole over the past decade.  New York City metropolitan area substantially outperformed the national average over the past decade, increasing its university-based R&D expenditures by 68% between 2005 and 2014.  So too did Boston (+34%) and Seattle (+26%).

Silicon Valley, however, did not kept pace with the national average, increasing its R&D expenditures only 12% during the past decade.  Our region did outpace Austin (+10%) and Southern California (+9%).

Was the New York City metro area’s rapid rise really the result of a large percentage gain from a small base?  No, the region recorded a total of $3.6 billion in university-based R&D funding in 2014, larger than the totals in Boston and Silicon Valley, and well ahead of those in Seattle and Austin.

Taking a closer look at what happened in 2014, only Silicon Valley and New York City metro universities did better than the nation as a whole. Silicon Valley’s R&D expenditure rose one percent between 2013 and 2014 while the R&D fell one percent across all U.S. institutions. New York City experienced the fastest annual growth in R&D expenditures of the comparison regions (+7%) while levels in Boston, Seattle, and Austin dropped.

Certainly, a lot of R&D takes place outside universities and those figures are not included in these totals.  So, these numbers are an indicator of our commitment to idea generation in academic settings, which has been an important source of innovation in Silicon Valley over the decades.  Does that fact that we have lagged the national average in long-term R&D growth a cause for concern?

Clearly, decreasing federal funding for basic research is an important factor.  Still, some regions have fared better than others – and this may be because universities in these regions have diversified and expanded their sources of R&D funds as the federal pie has shrunk. Universities increasingly leverage other non-federal sources of R&D funding including funds from state and local government, business, nonprofit organizations, and the institution’s own funds.

R&D Expenditures 8.2016


In 2014, 54 percent of total R&D expenditures in Silicon Valley’s universities came from the Federal government, the lowest of the innovation regions. At the same time, a diversified set of funding sources is likely to be a more sustainable source of R&D funds.

Silicon Valley does match Boston in overall university-based R&D expenditures, even though Boston has a larger number of institutions.  But, what about the fact that Southern California and New York City both have substantially higher levels of university-based R&D investment than Silicon Valley?  Does it matter and should we care?  If so, what should we be doing about it?  Let us know what you think.


John Melville is Co-CEO of Collaborative Economics.

Unlike Many Top Innovation Regions, Silicon Valley’s Early Stage Investment is Up Since the End of 2015

By John Melville and Janine Kaiser

Boston, New York City, Seattle, Southern California—all experienced drops in early-stage investment (Angel, Seed, Seed VC, and Series A) in the first half of 2016.  Austin’s numbers rose modestly, but Silicon Valley’s rose faster.  And, the Valley’s overall level of early-stage investment remains well above all these comparison regions.

Q2 2016 did produce a quarterly drop in early-stage investment across all these innovation regions, including Silicon Valley, so we will have to see if this continues or reverses in the coming quarters, if it is a general trend or applicable to some regions and not others.

Regardless, even with this Q/Q dip, early stage investment into Silicon Valley companies remained above the historical average for the region.

Early State Investment


Initial Public Offerings is a measure on which Silicon Valley is not doing as well compared to some innovation regions.  The region’s number of IPOs and their total valuation dipped below that of New York City and Boston during the first half of 2016.

How significant is this trend?  The reality is that while valuations in each of these regions rose in the second quarter, they all remain below—or well below—their peaks of the last three years.  In fact, Renaissance Capital has reported that the U.S. IPO market in the first quarter of 2016 was its weakest since the 2008-2009 recession.

IPO Valuations


John Melville and Janine Kaiser are Co-CEO and Senior Consultant, respectively, at Collaborative Economics, a Silicon Valley-based consulting and research firm.

Halftime Report: Investment in Silicon Valley Has Rebounded From 2015’s Low

Halftime Report:  Investment in Silicon Valley Has Rebounded From 2015’s Low

By John Melville and Janine Kaiser

 Mid-year Venture Capital Levels Rise After 2015 Dropoff

After rising in the first half of 2015, venture capital investment dropped substantially over the remainder of the year in Silicon Valley.  However, this trend did not continue in the first half of 2016, as venture investments into Silicon Valley-based firms (including San Francisco) ended higher than their Q4 2015 level.

VC Funding


Tempering this news is the fact that the rebound was modest; Silicon Valley’s VC levels remained below last year’s high, and according to CB Insights data, Q2 2016 seems to have been lower than the Q1 2016 investment.  On this last point, not all the second quarter numbers have been recorded, as several late-stage investments did not publically disclose valuations, including Scoot Networks, August Home,, Qnovo and Droom Technology.

So, we will know in the coming months if there really was a Q2 dip, whether it was the start of a downward trend or just a one-quarter hiccup in what otherwise is a rebound from 2015’s low point.  What we do know is that VC investment is currently well below the level recorded at this time last year—and that it would take substantial gains in the second half of 2016 to match 2015’s annual total.

Silicon Valley Well Ahead of and Not Losing Ground to Top Innovation Regions

At the same time, Silicon Valley performed better than most comparison regions.  Boston and New York City experienced declines in VC investment in the first half of 2016, while Austin and Seattle posted only small gains.  Southern California saw a sharp increase in venture investment in the second quarter of 2016, driven in part by a $200M investment in San Diego-based Human Longevity, the second largest VC investment in California in Q2 2016.  But let’s be clear:  Silicon Valley remains well ahead of these regions in overall VC investment.

Venture Capital Fundraising

VC Fundraising Getting Stronger Nationally

What does the VC pipeline look like?  According to the National Venture Capital Association, in Q1 2016 fundraising among venture capital firms in the U.S. was the highest in a decade, at $14B.  Fundraising in the first half of 2016 was 24 percent higher than the first half of 2015.

So, what does this halftime report tell you?  Share with us what you think is happening in the Valley, and what is on the horizon.


John Melville and Janine Kaiser are Co-CEO and Senior Consultant, respectively, and Collaborative Economics.