In a couple weeks, the Office of Advocacy will release the next edition of our quarterly indicators for small business.  Much of that document will hinge on what we learn from the first quarter 2009 real gross domestic product (GDP) figures, which will be released on April 29.  Given the severity of the recession, I would not expect these numbers to show much improvement.  

            The National Association of Business Economists (NABE) earlier this week released an industry survey (members only access) showing that 93 percent of economists felt that real GDP would decline for the year as a whole.  With that said, the survey also suggests that declines in the economy are “abating.”  According to Sara Johnson of IHS Global Insight, “Key indicators — industry demand, employment, capital spending, and profitability — are still declining, but the breadth of the decline is narrowing.”

            There are a couple surveys out which show that there are “glimmers of hope.”  Last month, the University of Maryland’s business school and Network Solutions introduced the Small Business Success Index.  According to its respondents, 67 percent were planning to invest in their businesses this year, bucking the recession; moreover, the small business owners in this survey tended to be optimistic, with nearly half suggesting that the economy will remain unchanged or improve in 2009.

            This finding is also in the American Express Open Small Business Monitor, which finds that four out of ten entrepreneurs are both optimistic about the economy this year and feel that the economy provides opportunities for their businesses.  That is not to suggest that there have not been hardships.  Sizable portions of its respondents have had to take drastic steps such as instituting pay and hiring freezes and other ways of cutting costs.

            However, despite the cautiousness in the down economy, there is also cautious optimism.  I was personally struck by this finding in the American Express survey; 37 percent said that the economy had presented them with opportunities.  Moreover, nearly “all of these glass-half-full entrepreneurs (92%) say that managing through the recession has made them a better business owner, compared to 77% overall.”  

            That is an impressive finding, and one that suggests that even in tough times, entrepreneurs are able to adjust to make the current environment work for them.  That should give us all hope for our future.

– Chad Moutray, Chief Economist

            As the “Venture Capital (VC) guy” for the Office of Advocacy, I have been frequently asked whether venture capitalists are truly jumping into green technologies with both feet or are tentatively dipping a toe into the water.  The answer is more complicated than those questions suggest, but many VCs are going long and strong into this sector.

            In fact, according to the National Venture Capital Association, clean technology investments have increased from 90 deals worth over $550 million in 2005 to 277 deals worth over $4 billion in 2008.  Last year, three of the five biggest IPO’s were in the solar industry.

            Why is this important?  Venture capital investment is one of the clearest signs of a technology’s potential acceptance into the marketplace.  Without it, many technological breakthroughs would not make it to the market.  According to a 2007 Global Insight study, venture-backed companies accounted for 10.4 million jobs and $2.4 trillion in revenue in the U.S. in 2006.  

            The issues come down to diversification and the ability of the industry to produce a VC exit strategy.  Most VCs have a diverse portfolio of investments, which could include biotech, computers, financial services, medical devices, or other industry sectors.  This diversification is important for the longevity of a VC fund and the ultimate positive outcome.  As is the case with biotech investment, VCs started small but have become very active in the market in recent years.  In fact, many VCs are raising or have raised money specifically to invest in a diversified portfolio of green technologies. 

            The second issue concerns viability of green industries.  For years, the country has pushed toward cleaner and greener technologies, but cost obstacles have limited the success of this effort.  With the government’s push into making these technologies cost efficient, from tax credits and funds included in the recently passed American Recovery and Reinvestment Act (ARRA) to requirements for utilities to provide a percentage of their power through clean technologies, the commitment to clean and green will make more and more VCs jump into the market.   

            The green technology push has already had a tremendous affect on the cost of solar.  One company based in Arizona has recently announced that it has reduced manufacturing cost for solar modules to 98 cents per watt, breaking the $1 per watt price barrier.  From 2004 through today, the firm’s manufacturing costs have declined two-thirds from over $3 per watt to less than $1 per watt.  As these types of breakthroughs become more pronounced, the ability of the market to stand on its own without government subsidies improves.  As we get closer to this reality, you will find many VCs actively investing at least a portion of their portfolio into green technologies.

            Additional data and information on VCs and green technologies is located at:

www.nvca.org

www.businessweek.com/smallbiz/content/jun2006/sb20060620_080126.htm

www.globalinsight.com

www.cleanedge.com

– Michael Hull – Regional Advocate

            Troubled times are often the fuel of entrepreneurial spirit.  In a recent article in Entrepreneur magazine, Stimulus Package Has Green for Clean Energy, written by Glenn Croston, he notes the importance of supporting green businesses.  He quotes Byron Kennard, Executive Director of the Washington, D.C.-based Center for Small Business and the Environment as saying “[w]e’re calling on small businesses to lead the recovery and do it with green jobs and clean energy innovation.”  He goes on to say that “targeting the recovery with green businesses is the most practical way to get the economy going.”

            With $80 billion for renewables and other energy projects, small business will play a major role in innovation and economic efforts to move forward.  Programs are growing at the national level, and states have now begun to form education and networking forums where small businesses can get advice on the best practices and opportunities in the new green frontier.  

– Chris Monica, Director of Regional Affairs