Venture Capital & Principal Trading in the USFebruary 2014 1

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Slow and steady: Investors move forward

cautiously in the wake of turbulent revenue

IBISWorld Industry Report 52391

Venture Capital & Principal

Trading in the US
February 2014

Leah Goddard

2 About this Industry

16 International Trade

29 Key Statistics

Industry Definition

17 Business Locations

29 Industry Data

Main Activities

Similar Industries

19 Competitive Landscape

Additional Resources

19 Market Share Concentration

29 Annual Change

19 Key Success Factors

3 Industry at a Glance

29 Key Ratios

30 Jargon & Glossary

19 Cost Structure Benchmarks

21 Basis of Competition

4 Industry Performance

21 Barriers to Entry

Executive Summary

22 Industry Globalization

Key External Drivers

Current Performance

Industry Outlook

10 Industry Life Cycle

23 Major Companies
25 Operating Conditions
25 Capital Intensity

12 Products & Markets

26 Technology & Systems

12 Supply Chain

26 Revenue Volatility

12 Products & Services

27 Regulation & Policy

14 Demand Determinants

28 Industry Assistance

15 Major Markets

www.ibisworld.com | 1-800-330-3772 | info @ibisworld.com

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About this Industry

Industry Definition

The Venture Capital and Principal

Trading industry comprises
establishments and individuals acting as
principals in the buying or selling of
financial contracts. Principals are

Main Activities

The primary activities of this industry are

investors who buy or sell for their own

accounts, rather than on behalf of clients.
It excludes investment bankers, securities
dealers and commodity contracts dealers
trading as principals.

Investing in financial contracts on own account

Participating in investment clubs (group of people who pool their money to make investments)
Mineral royalties or leases dealing (as principal in dealing to investors)
Oil royalty dealing (as principal in dealing to investors)
Viatical settlement (purchasing life insurance policy at a discount to later collect the death benefit)
Venture capital (investing in startups and small businesses with long-term growth potential)

The major products and services in this industry are

Traders and dealers in financial products
Venture capitalists
Other investors

Similar Industries

52311 Investment Banking & Securities Dealing in the US

This industry includes principals who buy or sell securities, such as securities dealers or stock option dealers.
52312 Securities Brokering in the US
This industry is comprised of agents who arrange transactions between buyers and sellers of securities.
52315 Commodity Dealing and Brokerage in the US
This industry is comprised of principals who buy or sell spot or futures contracts or options in commodity
markets.
52599 Private Equity, Hedge Funds & Investment Vehicles in the US
Private equity funds pool and invest capital into the securities of private companies like venture capital
funds.

Additional Resources

For additional information on this industry

www.ici.org
Investment Company Institute
www.nvca.org
National Venture Capital Association
www.census.gov
US Census Bureau

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Venture Capital & Principal Trading in the US February 2014

Industry at a Glance
Venture Capital & Principal Trading in 2014

Key Statistics
Snapshot

Revenue

Annual Growth 09-14

Annual Growth 14-19

Profit

Wages

Businesses

$30.2bn 6.3%
$7.5bn

$5.5bn
S&p 500

Revenue vs. employment growth

Market Share

There are no
Major Players in
this industry

20

2100
1800

Index

% change

10

10
20

40

1500
1200

30

Year 06

3.9%
7,403

08

10

Revenue

12

14

16

18

20

900

Year 05

07

09

11

13

15

17

19

Employment
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p. 23

Products and services segmentation (2014)

16%

Key External Drivers

Traders and dealers

in nancial products

S&P 500

Investor uncertainty
Yield on 10-year
Treasury note
Regulation for the
Investment Management
industries

50%

Venture capitalists

Personal savings rate

34%

Other investors

p. 4
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Industry Structure

Life Cycle Stage

Revenue Volatility
Capital Intensity

Growth

Regulation Level

High

Technology Change

Low

Barriers to Entry

Industry Assistance

None

Concentration Level

Low

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 29

Industry Globalization
Competition Level

Heavy
High
Low
Medium
High

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Industry Performance

Executive Summary | Key External Drivers | Current Performance

Industry Outlook | Life Cycle Stage
Executive
Summary

The Venture Capital and Principal

Trading industry comprises companies
and individuals that invest in various
financial contracts to earn a profit.
Participants include venture capitalists,
day traders, investment clubs and dealers
of mineral royalties or leases, oil royalties
and tax liens. The industry also includes
viatical settlement companies that
purchase life insurance policies at
discounted prices to later collect the
benefits. Collectively, this group of
companies and individuals has benefited
from rising security prices and increasing
merger and acquisition activity in the five

U

 nable to exit investments, venture capitalists
have struggled to remain profitable
years to 2014. As a result, industry
revenue is expected to grow over the
period at an annualized rate of 6.3%,
from a recessionary base of $22.2 billion
in 2009, to $30.2 billion in 2014.
Revenue dropped 23.0% in 2009 as the
financial crisis and subsequent recession
caused stock markets and business activity
to dramatically contract. The severity of
resulting losses on investments led to
declines in the number of enterprises and
investors participating in the industry.
Venture capitalists, in particular, struggled
over the past five years, as volatile

Key External Drivers

S&P 500
The S&P 500 index is a broad indicator
of financial market performance.
Industry participants benefit from
fluctuating but generally rising securities
prices that enable them to sell securities
at a higher price than they paid.
Additionally, venture capitalists earn
more on investments when stock
markets are rising through higher-valued
initial public offerings or sales to

financial market conditions prevented

them from profitably exiting investments,
either through a portfolio companys
initial public offering or by selling to a
larger organization.
Industry traders were able to realize
higher revenue and profit from buying
and selling securities due to widening
pricing spreads as a result of financial
market volatility and rebounds in
securities prices driven by government
intervention. Revenue rebounded 14.7%
in 2010 as the stock market recovered.
After an impressive 2013, when revenue
increased an estimated 11.5%, growth is
projected to slow to 2.9% in 2014 due to
subdued business and trading activity
and higher capital gains taxes.
Over the five years to 2019, industry
revenue is projected to rise at an
annualized rate of 3.9% to $36.6 billion.
Financial markets will continue trending
upward, which will boost trading and
business activity. Venture capital will
rebound as investors can more easily exit
investments through initial public
offerings or acquisitions. However, higher
interest rates and increased capital gains
taxes will hinder industry growth; rising
interest rates increase investor uncertainty
and borrowing costs, while capital gains
taxes decrease the pool of attractive
investment opportunities depending on
their potential to place investors in higher
tax brackets.

acquiring companies. Consequently, a

rise in the S&P 500 index generally leads
to higher industry revenue and profit.
The S&P 500 index is expected to
increase in 2014, presenting a potential
opportunity for the industry.
Investor uncertainty
When investors are more confident in the
market they are more likely to invest
capital in higher risk and return equity

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Industry Performance

investments, rather than in lower risk

and return bonds or other interestbearing assets. Funding availability for
contract dealers is also likely to be high
when investor uncertainty is low,
enabling them to earn higher revenue
and profit. Investor uncertainty is
expected to increase in 2014 as the
Federal Reserve gradually increases
interest rates, posing a potential threat to
the industry.
Yield on 10-year Treasury note
A rise in long-term interest rates will
affect investors investment mix. Higher
long-term rates will make investments
into fixed-interest securities more
attractive relative to equity investments,
reducing initial public offering earnings.
By contrast, low interest rates make
money cheaper to borrow, which spurs
the merger and acquisition activity that
venture capitalists rely on to sell
businesses that they invest in. Low
interest rates also make deal financing

easier, which spurs more venture capital

investments. Interest rates are expected
to increase in 2014.
Regulation for the Investment
Management industries
Regulations raise the cost of participating
in the Venture Capital and Principal
Trading industry. Restrictive compliance
requirements and changes to taxation
arrangements can deter securities trading
activity and venture investment in small
and start-up enterprises. Regulation for
the Investment Management industries is
expected to increase in 2014.
Personal savings rate
Changes in the unemployment rate,
disposable income levels, consumer
expenditures and taxes influence the
levels of national savings. Higher
household savings generally result in
more capital available for investment.
The personal savings rate is expected to
increase in 2014.
Investor uncertainty

S&P 500
2100

35
30

1800

25
1500

Index

Key External Drivers

continued

20
1200
900

Year 05

15

07

09

11

13

15

17

19

10

Year 05

07

09

11

13

15

17

19

SOURCE: WWW.IBISWORLD.COM

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Industry Performance

Current
Performance

This industry includes individuals who

buy and sell various financial contracts
on their own behalf and on a spread
basis. Spread trading is a strategy by
which investors sell a cheaper contract
and buy a more expensive contract,
hoping the price difference will widen or
narrow, depending on the goal of the
investor. Venture capital firms, private
individual investors such as venture
capitalists and angel investors, daytraders, investment clubs, mineral
royalties or leases dealers, oil royalty
dealers and viatical settlement
companies participate in this
industry. Public and private equity
securities are the most widely traded
by the industry, but options, fixedincome, derivatives and commodities
contracts trading activity has increased
in recent years. Investors seeking
higher returns and portfolio
diversification have expanded into a
broad range of asset classes, which
enables companies and individuals to

Volatile financial
markets boost
revenue

Over the five years to 2014, industry

revenue is anticipated to increase at an
annualized rate of 6.3% from a
recessionary base of $22.2 billion in
2009, to $30.2 billion in 2014. Revenue
growth has been underpinned by
generally rising security prices and
widening spreads resulting from volatile
market conditions. Additionally, the S&P
500 index, a broad indicator of financial
market performance, has skyrocketed
since 2009, rising at an average annual
rate of 12.8%. Industry participants
profited from tremendous fluctuations,
with the S&P 500 plummeting 22.0% in
2009 and rebounding 19.2% and 13.3% in
2010 and 2011, respectively. Investors
also earned significantly higher revenue
from trading oil and mineral contracts on
a spread basis over the past five years.
The world price of crude oil swung from

earn more revenue and increase

profit margins.
Industry performance is subject to a
high degree of volatility. Investors trade
securities and contracts whose pricing is
set in or influenced by financial markets
and subject to buyer demand, market
supply, pricing spreads and expectations
on future performance. When financial
markets are performing strongly or when
they are volatile, companies and
individuals are able to profit from buying
securities and contracts and selling them
at higher prices. As a result, industry
performance largely mirrors the
performance of financial markets.
Broader economic trends, including the
size and growth of the US economy and
merger and acquisition activity among
businesses, also spurs venture capital
investment and returns. Furthermore,
the industry benefits from socioeconomic
factors such as the entrepreneurial spirit
and research and development culture in
the United States.

T

 he financial crisis caused
industry revenue to fall as
security prices plummeted
an average of $61.80 per barrel in 2009
to reach a record average of $105.00 per
barrel in 2012. Similarly, the price of gold
increased from an average of $972.10 per
ounce in 2009 to climb to a record
average of $1668.50 per ounce in 2012.
Wider spreads also boosted profit
margins from 18.4% of revenue in 2009
to 24.9% in 2014.
The severity of the financial crisis and
depth of the recession caused industry
revenue to plunge 23.0% in 2009, as
security prices plummeted while business
activity contracted. However, federal
government intervention prevented the

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Industry Performance

Volatile financial
markets boost
revenue
continued

collapse of the financial system, restarted

economic growth and slowly restored
access to capital. Interest rate cuts, market
interventions and asset purchases by the
Federal Reserve also drove up security
prices. Consequently, industry revenue
rebounded 14.7% in 2010. Industry
growth slowed as security prices stabilized
and pricing spreads began to narrow in

Challenges and
downsizing

Venture capital firms and individuals, in

particular, saw their profit margins drop
over the past five years as they struggled
to profitably exit their existing
investments and raise capital for new
investments. According to the National
Venture Capital Association (NVCA), the
number of initial public offerings (IPOs)
and sales of venture-backed companies
are below prerecession levels and at half
the 2000-era peak of the venture capital
bubble. In recent years, there has been a
trend toward fewer but larger IPOs, such
as those for Facebook and Twitter. These
high-profile IPOs prevent many smaller
companies from being able to go public.
In addition, after two years of growth, the
acquisition market weakened again in
2012, with a decline in the number of
sales of venture-backed companies.
Despite these challenges, venture capital
firms still account for about 50.0% of
industry revenue, with the majority of
venture capital currently being raised by
larger specialty firms.
In response to volatile market
conditions and lower demand for

2011 and 2012, reflecting the overall

sluggishness of the recovery. Following an
upswing in 2013, with the S&P 500
posting one of its best years on record,
revenue growth is expected to slow to
2.9% in 2014. This is primarily the result
of rising interest rates, which increase
borrowing costs and impact security
prices, and higher taxes on capital gains.

L

 ow M&A activity made
it difficult for venture
capitalists to exit
investments
financing, the Venture Capital and
Principal Trading industry
downsized during the recession. The
number of companies decreased 5.8%
in 2009 while employment dropped
13.5%. These declines continued
through 2011, despite revenue growth.
However, as investor uncertainty
continued to abate and as revenue
and profit increased, more companies
and principals began to participate in
the industry. In the five years to 2014,
the number of enterprises is expected
to grow at an annualized rate of 0.5%
to 7,403, boosted by recent entries in
to the industry. Likewise,
employment is expected to increase at
an average annual rate of 1.3% to
35,415 professionals.

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Industry Performance

Financial markets
underpin growth

As the economy continues to grow

robustly, security prices will continue to
trend upward and small and start-up
businesses will be more likely to succeed.
Venture capitalists will profit from highervalued initial public offerings (IPOs) and
greater demand from companies that can
afford to acquire new businesses.
Declining unemployment and rising
disposable income will also infuse the
industry with new funds. Furthermore, low
barriers to entry will enable new
companies and individuals to enter the
industry, thereby expanding its investment
capacity. Consequently, industry revenue
is forecast to grow at an annualized rate of
3.9% to $36.6 billion in 2019, with a 3.8%
increase in 2015 due to higher security
prices, successful IPOs, sales of venturebacked companies and the number of new
entrants to the industry.
At the same time, higher interest rates
and capital gains taxes will result in
slower revenue growth compared with
the past five years. Rising interest rates
have many implications for the industry,

including higher investor uncertainty and

borrowing costs. Venture capitalists
could be negatively impacted, as fixedinterest securities become more attractive
than equity investments, affecting IPO
valuations. In addition, higher capital
gains taxes will reduce profitability and
potentially deter companies and
individuals from investments that would
bump them up to the next bracket.

The S&P 500 index, a broad indicator of

financial market performance, is
anticipated to rise at an annualized rate
of 3.8% over the five years to 2019. Rising
security prices will help private individual
investors and day traders earn higher
revenue and profit. Trading volumes will
remain stronger than overall economic
growth, as these are primarily driven by
institutional traders and high net-worth
individuals, a segment of the population
that has recovered from the recession
much faster than the general US
consumer base. Investor demands and
continued development of new
technologies for generating, routing and
executing securities trading orders will
further boost the speed and volume of
worldwide securities trading and expand
investor access to multiple asset classes.

In turn, new trading platforms and asset

classes will help improve industry
performance and reduce revenue
volatility by increasing investment
diversification and allowing for greater
mobility of capital.
Furthermore, strong financial market
performance will also lead to a higher
number of IPOs and acquisitions. This
will enable venture capital firms and
individual venture capitalists to earn
higher revenue and profit from greater
sales volumes. However, certain sectors
are expected to offer venture capitalists
more profitable investment
opportunities than others. For instance,
government incentives to increase US
energy independence and decrease
negative environmental impacts are
expected to boost venture capital

Industry revenue
20
10

% change

Industry
Outlook

0
10
20
30
40

Year 06

08

10

12

14

16

18

20

SOURCE: WWW.IBISWORLD.COM

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Industry Performance

Financial markets
underpin growth
continued

investment in clean energy technologies

over the next five years.
Recovering financial markets and
increasing returns on investments will
also incentivize companies and individuals
to reenter the industry. Over the five-year
period, the number of enterprises is

Higher returns, higher

taxes

Participants in the Venture Capital and

Principal Trading industry will have to
adjust to higher capital gains taxes that will
dampen industry growth and reduce profit
margins. In 2013, the US Congress raised
the top tax rate on long-term capital gains
from 15.0% to 20.0% for high-income
earners as part of a broader plan to close
the federal budget gap and rein in the
countrys burgeoning national debt.
Additionally, the Patient Protection and
Affordable Care Act, passed in 2010,
included a 3.8% investment tax to help pay
for the reforms to the US healthcare
system. Combined, these governmental
actions effectively raised capital gains
taxes from 15.0% to 23.8% over the period.

forecast to increase at an average annual

rate of 2.0% to 8,173 in 2019. As
companies hire more investors to expand
their capital bases and financial contract
knowledge, employment is expected to
rise at a faster annualized rate of 2.9% to
40,810 professionals in 2019.

H

 igher capital gains taxes
and competition will put
pressure on profit margins
Higher tax rates will decrease the
pool of potentially profitable
investments and lower investors profit
on investments over the five years to
2019. In addition to higher taxes,
increased competition from new
entrants to the industry will also put
pressure on profit margins. As a result,
the average industry profit margin is
forecast to fall from 24.9% of revenue in
2014 to 23.7% in 2019.

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Industry Performance
The industry is growing faster than GDP

Life Cycle Stage

New competitors are entering the industry

% Growth in share of economy

Companies are hiring more investors

20

Maturity

Quality Growth

Company
consolidation;
level of economic
importance stable

High growth in economic

importance; weaker companies
close down; developed
technology and markets

15

Key Features of a Growth Industry

Revenue grows faster than the economy
Many new companies enter the market
Rapid technology & process change
Growing customer acceptance of product
Rapid introduction of products & brands

10

Quantity Growth

Many new companies;

minor growth in economic
importance; substantial
technology change

Stock & Commodity

Exchanges

Venture Capital & Principal Trading

-5

Securities Brokering

Investment Banking & Securities Dealing

Wind Turbine Manufacturing

Decline

Shrinking economic
importance

-10
-10

Solar Panel Manufacturing

-5

10

15

20

% Growth in number of establishments

SOURCE: WWW.IBISWORLD.COM

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Industry Performance

Industry Life Cycle

T
 his industry
is Growing


The Venture Capital and Principal

Trading industry is growing faster than
most industries in the financial services
sector. In the 10 years to 2019, industry
value added, a measure of the industrys
contribution to the overall economy,
increased at a 5.2% annualized rate.
Comparatively, US GDP is forecast to
grow at an average annual rate of 2.7%
over the period. Lower demand for
venture capital financing and investment
losses during the recession caused a
number of companies and individuals to
exit the industry in the early part of the
period. However, many participants have
returned and new entrants are expected
over the five years to 2019.
As securities prices rise and business
activity increases, venture capital will
benefit from a better investing

environment. At the same time, rapid

technological change will continue
boosting the speed and volume of
worldwide securities trading. Investors will
benefit from new trading platforms and
asset classes that will improve portfolio
diversification and the mobility of capital.
The industry is entering an extended
period where profitability is expected to
be lower than it has historically been.
Higher interest rates will end the era of
easy borrowing. Higher capital gains
taxes are expected to slow industry
revenue and profit growth. As a result,
industry traders will earn less profit from
trades and venture capitalists will realize
less profit upon exiting their investments.
However, profit is not expected to decline
dramatically, and margins will remain
fairly stable.

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Products & Markets

Supply Chain | Products & Services | Demand Determinants

Major Markets | International Trade | Business Locations

Supply Chain

KEY BUYING INDUSTRIES

33361b

Wind Turbine Manufacturing in the US

Venture capitalists invest in alternative energy sources, such as wind power.

33441c

Solar Panel Manufacturing in the US

Venture capitalists invest in alternative energy sources, such as solar power.

33451b

Medical Device Manufacturing in the US

Venture capitalists invest in medical device development companies.

51121

Software Publishing in the US

Venture capitalists invest in software development companies.

NN001

Biotechnology in the US
Venture capitalist invest in biotechnology companies.

KEY SELLING INDUSTRIES

52311
52312

Securities Brokering in the US

Some financial contracts traders have seats on most of the US exchanges. However, due to the
expense and limited availability of seats, a significant part of financial contracts dealing is
performed through securities brokers.

52315

Commodity Dealing and Brokerage in the US

Financial contracts dealers utilize commodities contracts brokerages to gain access to all of
the commodity exchanges in the US.

52321

Stock & Commodity Exchanges in the US

Trading on a spread basis is facilitated through securities and commodity exchanges.

52393

Products & Services

Investment Banking & Securities Dealing in the US

Financial contracts traders buy and sell securities that investment banks underwrite.

Financial Planning & Advice in the US

Venture capital firms and other principal financial contracts dealers may seek professional
investment advice.

Venture capitalists
Venture capitalists are expected to
generate about 50.0% of industry
revenue. Comparatively, this segment of
the industry generated over 80.0% of
revenue before the recession. Venture
capitalists are individuals and enterprises
engaged in providing capital to start-up
companies, and these investors can take a
number of different forms.
Angel investors are individual investors
who provide their own funds to invest in
start-up companies and often also mentor
and provide expertise to help develop
these companies. Angel investors are
typically high net worth individuals with
management expertise or retired
businesspeople. Corporate venturing or

direct investing involves investment

vehicles or subsidiaries of non-financial
corporations. These vehicles use parent
company funds to invest in companies
that are aligned with the parent companys
operations and may provide synergies or
cost savings for the parent company.
Corporate venturing programs normally
involve investing on the basis of corporate
strategic objectives, rather than on the
basis of maximizing financial returns.
Venture capital firms are typically
organized as a limited partnership that
invests in companies that present the
opportunity for a high rate of return
within five to seven years. Firms included
in this industry are those where the funds
invested belong to the firm, the most

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Products & Markets

Products & Services

continued

Products and services segmentation (2014)

16%

Traders and dealers

in nancial products

50%

Venture capitalists

34%

Other investors

Total $30.2bn
common of which are independent
venture firms that have no affiliations
with any other financial institution. These
are called private independent firms.
Firms involved in investing pooled funds
from outside investors in venture capital
activities are included in IBISWorld
report 52599, Private Equity, Hedge
Fund and Investment Vehicles in the US.
Venture capitalists generally finance
new and rapidly growing companies,
purchase equity securities and assist in
the development of new products or
services. Through their active
involvement in the company they attempt
to add value. They often have a long-term
investment outlook and may take on
higher risk investments in the
expectation of higher returns.
Venture capitalists invest in companies
at various stages of the business cycle.
Seed capitalists may invest before there is
a real product or company organized,
while early-stage venture capitalists
provide capital to start up a company in
its first or second stages of development.
Most angel investors invest in the seed or
early stage. Venture capital firms tend to
be more involved in companies at the
expansion or later stage. Later-stage
investing may involve providing
financing to help a company grow to a

SOURCE: WWW.IBISWORLD.COM

critical mass to attract public financing

through an initial public offering, or
attract a merger or acquisition with
another company.
Traders in financial products
Investors in this category are those
acting as principals in buying and
selling financial contracts on their own
account, generally on a spread basis,
and who are not elsewhere classified.
Investors who trade on a spread basis
purchase securities that are expected to
be sold at a higher price in the
immediate or intermediate future.
Investment clubs and day traders are
also included in this sector of the
industry. The financial contracts traded
by investors in the category include
equity and debt securities, derivatives
and foreign exchange.
Investors in this category tend to hold
securities for only a short period,
engaging in a rapid turnover of securities
and often using leveraging to maximize
returns. This is in contrast to households
engaged in longer-term investing in
securities. The proportion of shares held
directly by households compared to the
proportion of other assets held by
households such as mutual funds, bonds
and bank deposits has been declining.

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Products & Markets

Products & Services

continued

Other investors
The category of other investors covers
investors acting as principals (trading for
themselves) in a wide range of more
unusual financial products. Mineral and
oil royalty traders generate revenue from
the trading and management of royalty
interests. A royalty trust is a financial
vehicle used to purchase royalty interests
in natural resource properties. The trust
sells trust units to investors to acquire
capital for the trust. It then uses this
capital to purchase natural resource
royalty interests. The royalty income
received is then distributed to investors
(unit holders), less a management fee. A
trustee, typically a bank, is appointed to
provide administrative services. The
trustee is entitled to receive a fee for the
administrative services provided to the
trust. These fees are typically about
one-twentieth of 1.0% of the first $100.0
million of the annual gross revenue of the

trust. Revenue from this sector has

increased with the rise in commodity
prices, particularly when demand peaked
in 2012.
A viatical settlement allows an investor
to purchase another persons life
insurance policy, or part of it. The policy
is purchased at a price that is less than
the death benefit of the policy. When the
owner of the policy dies, the investor
collects the death benefit. Most viatical
settlement providers pay a lump sum
from 50.0% to 85.0% of the face value of
the policy. The buying and selling of
viatical settlements normally occurs
through viatical and life settlement
companies. The return for investors on a
viatical settlement depends on when the
seller of the policy dies, as opposed to
their life expectancy when the policy is
sold. Revenue generated by investors in
this category is often in the form of fees
or interest income.

Demand
Determinants

Demand determinants for the services of

this industry vary depending on the
nature of the different investment
activities. Favorable economic and
financial market conditions are often
characterized by rapidly rising stock
market prices. The significant growth in
both income and wealth in such periods
has strong flow-on effects on the amount
of capital available for financial securities
investment. An increase in the pool of
funds available for investment purposes
provides further fuel to a rising stock
market, as the demand for equity
securities rises. A rising stock market
normally supports a strong IPO market,
providing venture capitalists with the
opportunity to maximize returns when
exiting an investment in this manner.
Higher real after-tax investment
returns relative to alternate investments
make participation in this industry more
desirable. Investors have been attracted to

venture capital investments by the

prospects of high returns, as well as a
potential diversification benefit. Investors
in mineral and oil royalties are attracted
by the increasing returns by this industry
during periods of rising commodity prices.
The emergence of new technology is
often a signal for the formation of new
companies seeking capital and other
assistance to successfully expand. In the
late 1990s, the emergence of the internet
led to the rapid growth of dot-com
start-up companies and an increase in
venture capital to meet the needs of
these companies. There is currently an
increase in the share of venture capital
invested in healthcare-related
industries. Clean energy technology is
another possible area of growing
demand for venture capital.
The demand for the services of oil and
mineral royalty traders is impacted by
commodity prices. An increase in

Venture Capital & Principal Trading in the USFebruary 2014 15

WWW.IBISWORLD.COM

Products & Markets

Demand
Determinants
continued

Major Markets

commodity prices results in an increase

in the exploration and development of
sites to increase production of these
commodities, particularly oil and gas in
the US. Operators purchasing in full or

part royalty interests provide capital and,

in many cases, professional expertise to
assist in site development. Oil and
mineral royalties can provide a low-risk
exposure to commodities.

Major market segmentation (2014)

4.2%

Consumer products
and services

7.7%

Medical devices
and equipment

5.9%

Industrial/energy

8.9%

38.1%

IT Services

Software

11.3%

Media and
entertainment

Total $30.2bn

11.8%

Biotechnology

Since participants in this industry do not

serve clients but rather invest for their
own profit, market segmentation is based
on capital provided venture-backed
companies. The current breakdown is
based on the number of exited
investments in each market as reported
by the National Venture Capital
Association (NVCA). More than 50.0% of
deals were sales of early stage companies,
a share that has increased from about
30.0% in 2009. Meanwhile, only 5.5% of
deals were sales of seed companies, a
share that has decreased from 12.0% in
2009. Sales of expansion and later stage
companies declined as well to 24.5% and
20.0%, respectively.
Venture capitalist firms invest in a
range of industries. In 2013, the most
exited investments were in software
(38.1%), biotechnology (11.8%), media
and entertainment (11.3%), IT Services

12.1%
Other

SOURCE: WWW.IBISWORLD.COM

(8.9%), medical devices and equipment

(7.7%) and industrial/energy (5.9%).
Sales of software companies have
exploded from 26.4% in 2009. Sales of
businesses in media and entertainment
and IT services have also increased.
In contrast, deals involving
biotechnology and medical devices and
equipment companies have declined
from 14.7% and 10.9%, respectively, in
2009. Life sciences venture capitalists
have gravitated toward more mature
opportunities that carry less risk,
especially as federal funding for
research and development programs is
cut and implications from the
healthcare overhaul remain unclear.
Sales of industrial/energy companies
has also declined, likely due to the shale
oil and gas boom that has turned
attention away from alternative
energy sources.

Venture Capital & Principal Trading in the USFebruary 2014 16

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Products & Markets

International Trade

The Venture Capital and Principal

Trading industry is service-based and
does not engage in the international trade
of physical goods and services. Financial
contract traders do invest in foreign
securities, commodities and currencies
that trade on securities and commodity

exchanges worldwide. At the same time,

venture capitalists invest in businesses
abroad, and foreign investors also
commit capital to small and start-up
enterprises in the United States. See the
Globalization section of this report for
more information.

Venture Capital & Principal Trading in the USFebruary 2014 17

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Products & Markets

Business Locations 2014

West
New
England

AK
0.3

Great
Lakes
WA

ND

MT

2.1

Rocky
Mountains
ID

OR
1.2

West NV
2.7

1.4

SD
0.2

WY

0.4

MN

0.7

0.4

Plains

CO

0.9

KY

0.9

OK
3.4

NC
1.2

TN

AZ

NM

1.6

0.6

Southwest
TX
15.5

HI
0.4

Additional States (as marked on map)

1 VT

2 NH

3 MA

SC

Southeast

5 CT

6 NJ

7 DE

8 MD

1.5

0.3

2.1

2.4

2.0

0.3

1.1

0.9

MS

AL
1.0

0.7

GA
2.1

1.0

LA
1.7

FL
7.9

Establishments (%)

4 RI

0.1

AR

0.5

1.0

12.3

WV VA
1.4

0.8

1.2

CA

West

1.6

MO

KS

3.6

OH

0.7

4.1

1.9

IN

IL

0.5

UT

PA

1.5

0.5

0.2

1 2
3
NY
7.8
5 4

MI

0.7

IA

NE

0.4

WI

ME

MidAtlantic

9 DC
0.4

Less than 3%
3% to less than 10%
10% to less than 20%
20% or more
SOURCE: WWW.IBISWORLD.COM

Venture Capital & Principal Trading in the USFebruary 2014 18

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Products & Markets

Distribution of establishments vs. population

30

20

10

Southwest

Southeast

Rocky Mountains

Plains

New England

Mid-Atlantic

Great Lakes

0
West

Most industry establishments are

concentrated in the Southwest, Southeast,
West and Mid-Atlantic regions. The
Southwest region accounts for about 21.0%
of industry establishments. About 15.5%
are located in Texas due to the presence of
oil royalty companies and oil royalty
traders and, more recently, tech companies
in the state. The Southeast region accounts
for about 20.2% of industry
establishments. After Texas and California,
Florida has the third largest share of
industry establishments with 7.9%. This is
due to the concentration of oil royalty
companies, oil traders and viaticial
settlement companies in the region.
While the West houses 19.0% of
industry establishments, California
attracts 53.0% of venture capital
investments and 41.0% of venture capital
companies in the country, according to
the NVCA. The clustering of technologybased start-up companies in the Silicon
Valley region (mainly Menlo Park) is
largely responsible for the high level of
venture capital investment in the state.
The Mid-Atlantic region accounts for
about 15.3% of industry establishments.

Business Locations

Establishments
Population
SOURCE: WWW.IBISWORLD.COM

The majority are located in New York,

which has a high share of venture
capitalists and other investors that
participate in this industry due to the
concentration of start-up businesses,
securities exchanges and financial
markets in the region.

WWW.IBISWORLD.COM

Venture Capital & Principal Trading in the US February 2014

19

Competitive Landscape

Market Share Concentration | Key Success Factors | Cost Structure Benchmarks

Basis of Competition | Barriers to Entry | Industry Globalization

Level

Concentration

in
this industry is Low


Key Success Factors

I
 BISWorld identifies
250 Key Success
Factors for a
business. The most
important for this
industry are:

Cost Structure
Benchmarks

The nature of the industry is highly

fragmented, which implies that industry
concentration is quite low. Institutional
venture capital firms that employ teams
of financial professionals, executives and
industry experts account for just a small
percentage of employment and
enterprises in the industry. There are no
participants in this industry that have a
market share greater than 1% as volatile
market conditions have forced

institutional firms to be more selective in

making investments. IBISWorld
estimates that concentration will remain
low over the outlook period as well, due
to the nature of the industry. The
industry is primarily comprised of a large
number of non-employers such as day
traders, angel investors, and traders in oil
and mineral royalties and other more
unusual financial instruments than
securities and commodities.

Ability to effectively manage risk

Dealers must manage risk in all aspects
of the investment process, from
confirmation of trends to the optimal
exposure in a given market.

Market research and understanding

Industry participants must possess the
ability to provide quality research as well
as a thorough understanding of
investment markets.

Having an effective performance

monitoring system
Dealers must monitor investments and
financial markets closely to ensure
compliance with investment objectives
and strategies. They are required to be
experts on market movements and
underlying securities and commodities.

Superior financial management

and debt management
Industry players must maintain
manageable gearing levels for financial
investors who have raised debt to fund
financial assets, in view of the inherent
volatility of investment returns produced
by leveraged assets.

Management of a high
quality assets portfolio
Industry participants must construct and
manage an asset portfolio that is well
diversified in order to reduce market and
credit risks.

Market Share
Concentration

Highly trained workforce

The investor, their teams and their
outsource suppliers must have a
sound understanding of financial
markets, institutions, products
and instruments.

The cost structure of individual

companies and individuals in the Venture
Capital and Principal Trading industry
varies significantly depending upon
investors investment activities and type
and size of asset classes.

got a boost from wider securities spreads

over the past five years due to fluctuating
but generally rising securities prices.
Higher interest rates, capital gains taxes
and industry competition are expected to
pressure the average industry profit
margin down to 23.7% of revenue in 2019.

Profit
Profit margins have increased over the
past five years from 18.4% of revenue in
2009 to 24.9% in 2014. Industry profit

Wages
Wages are estimated to consume 18.4%
of revenue in 2014. Total wages have

WWW.IBISWORLD.COM

Venture Capital & Principal Trading in the US February 2014

20

Competitive Landscape

increased at an average annual rate of

2.2% since 2009 and are forecast to grow
at an annualized rate of 3.5% in the five
years to 2019. The average industry wage
has increased from $149,500.0 in 2009
to $156,600.0 in 2014, and it is projected
to rise to $161,250.0 in 2019.
Industry players undertaking principal
trading are required to employ and retain
highly skilled workers that perform
research and analysis. These employees
often require above-average
compensation. In line with most
securities and commodity contract
brokers and dealers, employees are often
awarded a base salary with a bonus
scheme connected to it. This policy tends
to raise industry wages even further
above sector averages, particularly when
returns are higher and financial and
investment conditions are stronger.
Likewise, venture capital firms employ

well-paid professionals with experience

in areas such as management, planning
and accounting.
There are a large number of operators
in this industry who are self-employed.
These are predominantly individual
traders and angel investors. Because
these individuals do not receive a wage,
the share of wages in this industry is
lower than for other comparable financial
service industries, where wages as a share
of revenue can be up to 50.0%.
In addition to possessing highly trained
and experienced investment professionals,
industry players use external investment
advisers, legal experts, accountants and
administration professionals. Most
venture capitalist exit their investment in
a company either through an initial
public offering or by selling the company.
This normally requires the services of
external professionals.

Sector vs. Industry Costs

Average Costs of
all Industries in
sector (2014)

Industry Costs
(2014)

100

17.2
80

Percentage of revenue

Cost Structure
Benchmarks
continued

24.9

12.0

60

Profit
Wages
Purchases
Depreciation
Marketing
Rent & Utilities
Other

23.0
1.4

40

20

2.6
42.0

18.4
1.9

1.4
2.0

2.3

1.3

49.7

0
SOURCE: WWW.IBISWORLD.COM

WWW.IBISWORLD.COM

Venture Capital & Principal Trading in the US February 2014

21

Competitive Landscape

Cost Structure
Benchmarks
continued

Other costs
Other costs collectively represent about
56.7% of industry revenue and vary
significantly among individual operators
depending upon the varying investment
activities they choose to engage in. For
example, contract and royalties traders
have trading costs, while venture
capitals might have write-downs

associated with failed investments.

Depreciation accounts for 2.3% of
industry revenue. Depreciable items
include computers, trading software,
licenses and fixtures and fittings.
Generally, most industry participants
rent or lease premises; as a result, it is
estimated that occupancy expenses
consume 2.0% of industry revenue.

Basis of Competition

Venture capitalists compete for

investment opportunities. They compete
with other venture capitalists, private
equity firms, investment banks and
specialty finance companies. They
compete on the basis of access to
funding and the cost of funding.
Venture capitalists also compete on the
basis of the managerial and marketing
resources they can provide to start-up
companies. While venture capitalists
compete for investment opportunities
with private equity firms and
investment banks, they also depend on
them for referrals of investment
opportunities. Firms that have strong
relationships with other financial

institutions are in a better position to be

informed of investment opportunities
and grow their investment portfolio.
Individuals and financial institutions
trading as principals compete for trading
opportunities that provide above-average
market returns. The more traders seeking
above-average returns or chasing arbitrage
opportunities, the harder these
opportunities are to find. Competition
among mineral and oil royalty traders has
also grown as operators increasingly
compete to acquire royalty interests. The
size of purchases of royalty interests is also
becoming larger, increasing the difficulty
of smaller and less well-capitalized
operators in obtaining new royalties.

Level & Trend


Competition

in
this industry is
H
 ighand the trend
is Increasing


Barriers to Entry
Level & Trend

Barriers to Entry

in this industry are

L
 owand Steady


Venture capitalists have low barriers to

entry for seed and start-up investments.
For many investors in this industry,
whether they are venture capitalists,
angel investors or day traders, access to
capital is an important determinant of
entry to this industry. Expansion and
later stage investments may require
larger capital outlays, but often
investment is over a shorter time period.
For larger investments, angel investors
may join forces and invest as a group in a
new company. Angel and venture capital
investment works best when the skills
and experience of the investors match the
requirements of the company. Investors
who have a broad range of skills or

Barriers to Entry checklist

Competition
Concentration
Life Cycle Stage
Capital Intensity
Technology Change
Regulation & Policy
Industry Assistance

Level
High
Low
Growth
Low
High
Heavy
None
SOURCE: WWW.IBISWORLD.COM

specialist expertise to offer, as well as

access to capital, will experience lower
barriers to entry.
For traders in financial products such
as securities, debt, derivatives and foreign

WWW.IBISWORLD.COM

Venture Capital & Principal Trading in the US February 2014

22

Competitive Landscape

Barriers to Entry
continued

exchange, barriers to entry are low and

declining. Technology changes are
continually improving access to markets
and market data. This includes fast and
cheap access to markets via electronic
trading networks (ECNs). Barriers to

trading include the cost of information

and technology systems. Areas where
barriers to entry have increased since the
advent of the global financial crisis
include the ability of access funding and
the ability to trade profitably.

Industry
Globalization

The trading of financial instruments is

highly globalized. Trading, whether on
an exchange or on an over-the-counter
market, can take place between buyers
and sellers around the world. The large
number of cross-border mergers and
acquisitions between exchanges is
facilitating the increasing level of
cross-border trading. Most of the large
US financial institutions that provide
services to investors also operate around

the globe. The level of globalization of

venture capital investment is also
increasing. US venture capitalists are
seeking business opportunities abroad,
while foreign firms often invest in
domestic start-ups and small
enterprises. Angel capitalists in the US
are more likely to invest domestically,
given they often contribute not only
capital but also their personal expertise
to assist start-up companies.

Level & Trend


Globalization

in
this industry is
M
 ediumand the
trend is Increasing


Venture Capital & Principal Trading in the USFebruary 2014 23

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Major Companies

There are no Major Players in this industry | Other Companies

Other Companies

The Venture Capital and Principal

Trading industry is highly fragmented
and comprises 7,403 enterprises that
generate $30.2 billion in revenue. About
99.0% of industry establishments employ
less than 50 people, while 96.5%
maintain a staff smaller than 20 and
80.5% employ less than four. Low
barriers to entry and exit and constantly
shifting investor preferences for portfolio
diversification keep industry
concentration low. Consequently, there
are no industry establishments that
generate over 1.0% of industry revenue.

Advantage Capital Partners

Estimated market share: Less than 1.0%

Advantage Capital Partners is venture
capital firm that has raised more than
$1.7 billion in capital to date. The
company uses public-private
partnerships and innovative structured
finance solutions to channel funds into
small businesses in communities that are
underserved by traditional sources of
capital. For instance, BizCapital,
Advantage Capitals nondepository
financial institution, is licensed by the
federal government to make SBA and
USDA-guaranteed loans in select states.
Since its inception in 1999, BizCapital has
made more than $300 million in loans.
Founded in 1992, Advanced Capital
has grown to include offices in Missouri,
Louisiana, New York, Texas, California,
Illinois, Florida, Mississippi and
Washington, D.C., with co-managers in
Alabama, Colorado, Connecticut and
Wisconsin. Over the past two decades,
Advantage Capital has invested in more
than 500 portfolio companies in a range
of industries, including communication,
information technology, life science,
business services, manufacturing and
energy. The firm employs about 45
professionals and generated an estimated
$37.5 million in revenue in 2013.

Draper Fisher Jurvetson

Estimated market share: Less than 1.0%

The Draper Fisher Jurvetson (DFJ) is a
venture capital firm founded in 1985. By
1990, the DFJ Network had expanded to
16 independent venture capital funds
operating on four continents. Members
raise their own capital and manage
investments independently while
cooperating on investment diligence,
marketing intelligence, corporate
relationships and co-investments.
More than $7.0 billion has been
committed to DFJ funds. With this
capital, DFJ has backed more than 400
companies across many sectors,
including successes such as Hotmail
(acquired by Microsoft); Baidu; Skype
(acquired by eBay); United Online;
Overture (acquired by Yahoo);
Athenahealth; EnerNoc; TicketsNow
(acquired by TicketMaster); Feedburner
(acquired by Google); Interwoven; Four11
(acquired by Yahoo); Parametric; and
Digidesign (acquired by Avid). The firm
employs about 30 professionals and
generated an estimated $25.0 million in
revenue in 2013.

Rustic Canyon Partners

Estimated market share: Less than 1.0%

Rustic Canyon Partners is an early-stage
venture capital firm founded in 1999 and
located in Santa Monica, CA. The
company has since established an office
in San Francisco, becoming a significant
presence in the San Francisco Bay Area.
It is also one of the largest venture capital
firms in Los Angeles. The company
focuses on clean-tech energy, and
internet and digital media.
Rustic Canyon Partners assists clients
with the entire process of venture
capital, including active board
involvement, access to potential
customers and strategic partners. The
firm also aides in the building of

WWW.IBISWORLD.COM

Other Companies
continued

Venture Capital & Principal Trading in the USFebruary 2014 24

management teams, provides assistance

with subsequent financings and
optimizes exit strategies. Rustic Canyon

Partners employs about 10 professionals

and generated an estimated $8.5 million
in revenue in 2013.

Venture Capital & Principal Trading in the USFebruary 2014 25

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Operating Conditions

Capital Intensity | Technology & Systems | Revenue Volatility

Regulation & Policy | Industry Assistance
Capital Intensity
Level

The level

of capital
intensity is Low


The industrys low capital intensity is due

to the low level of physical assets, such as
equipment and buildings, required to
operate in this industry. The majority of
costs associated with this industry are
wages, management and other
professional fees. Wages account for
18.4% of industry revenue. Conversely,
depreciation only accounts for about
2.3% of industry revenue. There is a high
level of administrative work involved,
such as the processing of investment
activities that require more labor inputs
than capital inputs. Consequently, for
every dollar spent on labor, only about
$0.13 is spent on capital.
However, some industry participants,
mainly securities, commodities and royalty
traders, use automated trading, clearing

Capital intensity

Capital units per labor unit

0.5
0.4
0.3
0.2
0.1
0.0

Economy

Finance and
Insurance

Venture Capital
& Principal
Trading

Dotted line shows a high level of capital intensity

SOURCE: WWW.IBISWORLD.COM

and settlement systems. Technological

advancements have resulted in rapid
adoption by many finance contract dealers,

Tools of the Trade: Growth Strategies for Success

Investment Economy

Recreation, Personal Services,

Health and Education. Firms
benefit from personal wealth so
stable macroeconomic conditions
are imperative. Brand awareness
and niche labor skills are key to
product differentiation.

Information, Communications,
Mining, Finance and Real
Estate. To increase revenue
firms need superior debt
management, a stable
macroeconomic environment
and a sound investment plan.

Investment Banking
& Securities Dealing

Traditional Service Economy

Wholesale and Retail. Reliant
on labor rather than capital to
sell goods. Functions cannot
be outsourced therefore firms
must use new technology
or improve staff training to
increase revenue growth.

Venture Capital & Principal Trading

Capital Intensive

Labor Intensive

New Age Economy

Stock & Commodity Exchanges

Old Economy
Wind Turbine Manufacturing
Securities Brokering
Agriculture and Manufacturing.
Solar Panel Manufacturing
Traded goods can be produced
using cheap labor abroad.
To expand firms must merge
or acquire others to exploit
economies of scale, or specialize
in niche, high-value products.

Change in Share of the Economy

SOURCE: WWW.IBISWORLD.COM

Venture Capital & Principal Trading in the USFebruary 2014 26

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Operating Conditions

Capital Intensity
continued

who have been encouraged to adopt new

technology through systems developments
at the various exchanges. The internet has
contributed significantly to the growth in

investment clubs and individual trading

activity by providing low-cost trading,
market and corporate data and easy
communication among investors.

Technology
& Systems

Most industry participants utilize

technology in order to reduce costs and
manage risk. Sophisticated investment
portfolio systems that allow for daily
valuation of all financial instruments,
effective exposure modeling, risk
assessments and other counter-party
reporting are used by most industry
players. The technology advances over the
past decade have led to improvements in

the trading features available to day

traders. These include improvements in
the speed, quality and accuracy of trade
executions and the data available to
traders. Brokers also provide services,
data and research particularly tailored to
day traders. Traders also now have
direct-access trading, which provides
direct access to exchange markets, as well
as automated trading services.

Revenue is highly volatile due to the

industrys dependency on fluctuating
securities prices and the unpredictable
nature of venture capital investments.
The value of financial contracts traded
can vary significantly from one year to
the next. The level of transactions of
financial contracts traded is based on
the volatility of the underlying
markets, projected interest rates and
general economic conditions. Revenue
from mineral and oil royalties varies

with commodity prices, which are also

highly volatile.
The amount of revenue generated by
venture capitalist can vary from one year
to the next, depending on the number
and value of venture capital backed
companies that are either listed or sold.
The illiquid nature of these investments
and level of risk involved can result in
volatile returns. Strong financial markets
provide greater initial public offering
(IPO) returns for venture capitalists

of
Technology
Change is High


Revenue Volatility
Level

The level

of
Volatility is High


A higher level of revenue

volatility implies greater
industry risk. Volatility can
negatively affect long-term
strategic decisions, such as
the time frame for capital
investment.
When a firm makes poor
investment decisions it
may face underutilized
capacity if demand
suddenly falls, or capacity
constraints if it rises
quickly.

Volatility vs Growth
1000

Revenue volatility* (%)

Level

The level

Hazardous

Rollercoaster

100

Venture Capital &

Principal Trading

10
1
0.1

Stagnant
30

10

Blue Chip
10

30

50

70

Five year annualized revenue growth (%)

* Axis is in logarithmic scale
SOURCE: WWW.IBISWORLD.COM

Venture Capital & Principal Trading in the USFebruary 2014 27

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Operating Conditions

Revenue Volatility
continued

exiting an investment. Likewise, strong

business activity can lead to higher
selling prices for venture-backed

companies. Changes in the number and

value of such IPOs and sales can produce
large annual swings in revenue.

Regulation & Policy

The securities industry is regulated

predominantly by the Securities Act of
1933. The role of the Securities and
Exchange Commission (SEC) is to protect
investors and maintain the integrity of
the securities markets. SEC oversees key
participants in the securities world,
including stock exchanges, brokerdealers, investment advisors, mutual
funds and public utility holding
companies. It is the primary regulator of
the US security markets.
Investment advisers who manage $25
million or more in client assets must
register with the SEC. If they manage
less than $25 million, they must register
with the state securities agency in the
state where they have their principal
place of business. Angel investors are
normally considered high net worth
individuals, and so are accredited
investors as defined in Regulation D
under the Securities Act of 1933 or SEC
Rule 501. Viatical settlement and life
settlement companies may be required
to be licensed by the State Insurance
Commission depending on their state of
incorporation or operation.

fundamentally change how financial

institutions and markets operate. Over
the past five years, the most significant
piece of legislation was the 2010 DoddFrank Wall Street Reform and Consumer
Protection Act. Once fully implemented,
it will impact the entire Financial
Services Sector by changing which firms
can engage in certain activities, how firms
approach risk management, and the level
of oversight they must comply with.
Higher compliance costs will continue to
hurt industry profit, and investment
activity limitations will hurt the revenue
of some financial institutions.
The Venture Capital & Principal
Trading industry in the US will be
largely unaffected by the law other than
more reporting requirements. Several
provisions of the law exempt venture
capital firms and investment advisors
that manage private funds (i.e. their
own) from registration requirements.
However, structural changes in the
overall financial system may slow the
growth of credit in the US, making it
more difficult for venture capitalists to
access debt markets to take on larger
and riskier deals that produce higher
returns for them. Overall, this regulation
is projected to streamline industry
revenue but have little impact on
industry profit.

Level & Trend


The level of

Regulation is
H
 eavyand the
trend is Steady


Dodd-Frank Wall Street Reform and

Consumer Protection Act 2010
Regulation stemming from the subprime
mortgage crisis has and will continue to

Venture Capital & Principal Trading in the USFebruary 2014 28

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Operating Conditions

Industry Assistance
Level & Trend

The level of

Industry Assistance
is Noneand the

trend is Steady


The industry does not enjoy any

form assistance from the government
in the form of tariff protection. In the
United States, the industry benefits

from strong enforcement of

land and intellectual property
rights through federal and state
legal systems.

Venture Capital & Principal Trading in the USFebruary 2014 29

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Key Statistics
Industry Data
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Sector Rank
Economy Rank

Revenue
($m)
32,353.6
36,677.3
43,018.1
28,848.7
22,215.9
25,471.2
25,559.5
26,321.6
29,360.1
30,213.3
31,359.9
32,693.2
34,290.0
35,236.1
36,633.2
29/65
305/1303

Annual Change
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Sector Rank
Economy Rank

Revenue
(%)
13.4
17.3
-32.9
-23.0
14.7
0.3
3.0
11.5
2.9
3.8
4.3
4.9
2.8
4.0
35/65
694/1303

Key Ratios
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Sector Rank
Economy Rank

IVA/Revenue
(%)
49.69
54.17
51.11
39.52
43.77
43.57
43.54
43.76
46.19
45.59
42.65
43.81
43.72
44.05
43.97
15/65
338/1303

Industry
Value Added
($m)
16,078.0
19,866.6
21,988.2
11,400.8
9,724.7
11,097.7
11,127.5
11,518.6
13,562.7
13,774.5
13,375.6
14,322.5
14,992.9
15,521.1
16,106.8
25/65
202/1303

Establishments
6,197
6,501
6,645
7,895
7,445
7,127
6,986
7,193
7,463
7,682
7,766
8,036
8,170
8,408
8,529
27/65
414/1302

Enterprises Employment
6,004
32,309
6,027
34,404
6,425
33,468
7,649
38,458
7,208
33,258
6,898
31,520
6,773
31,265
6,967
32,155
7,198
34,445
7,403
35,415
7,476
36,203
7,726
37,557
7,842
38,715
8,066
39,785
8,173
40,810
17/65
34/65
363/1302
616/1303

Exports
---------------N/A
N/A

Industry
Value Added
(%)
23.6
10.7
-48.2
-14.7
14.1
0.3
3.5
17.7
1.6
-2.9
7.1
4.7
3.5
3.8
49/65
908/1303

Establishments
(%)
4.9
2.2
18.8
-5.7
-4.3
-2.0
3.0
3.8
2.9
1.1
3.5
1.7
2.9
1.4
18/65
328/1302

Enterprises Employment
(%)
(%)
0.4
6.5
6.6
-2.7
19.1
14.9
-5.8
-13.5
-4.3
-5.2
-1.8
-0.8
2.9
2.8
3.3
7.1
2.8
2.8
1.0
2.2
3.3
3.7
1.5
3.1
2.9
2.8
1.3
2.6
17/65
21/65
313/1302
385/1303

Exports
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

Imports/
Demand
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

Figures are inflation-adjusted 2014 dollars. Rank refers to 2014 data.

Exports/
Revenue
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

Revenue per
Employee
($000)
1,001.38
1,066.08
1,285.35
750.14
667.99
808.10
817.51
818.58
852.38
853.12
866.22
870.50
885.70
885.66
897.65
22/65
153/1303

Wages/Revenue
(%)
16.36
15.50
13.50
19.13
22.38
18.83
18.68
18.72
18.32
18.36
18.20
18.21
18.04
18.09
17.96
26/65
624/1303

Imports
---------------N/A
N/A

Wages
($m)
5,294.0
5,683.8
5,805.7
5,519.5
4,971.2
4,795.7
4,775.3
4,927.0
5,378.3
5,546.3
5,708.1
5,951.8
6,185.7
6,373.8
6,580.8
23/65
274/1303

Domestic
Demand
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

S&P 500
index
(Index)
1,207.8
1,318.3
1,478.1
1,215.2
948.5
1,130.7
1,280.8
1,386.5
1,647.7
1,729.1
1,805.4
1,887.9
2,005.0
2,059.1
2,151.6
N/A
N/A

Imports
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

Wages
(%)
7.4
2.1
-4.9
-9.9
-3.5
-0.4
3.2
9.2
3.1
2.9
4.3
3.9
3.0
3.2
34/65
522/1303

Domestic
Demand
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

S&P 500
index
(%)
9.1
12.1
-17.8
-21.9
19.2
13.3
8.3
18.8
4.9
4.4
4.6
6.2
2.7
4.5
N/A
N/A

Employees
per Est.
5.21
5.29
5.04
4.87
4.47
4.42
4.48
4.47
4.62
4.61
4.66
4.67
4.74
4.73
4.78
50/65
998/1302

Average Wage
($)
163,855.27
165,207.53
173,470.18
143,520.20
149,473.81
152,147.84
152,736.29
153,226.56
156,141.68
156,608.78
157,669.25
158,473.79
159,775.28
160,206.11
161,254.59
9/65
13/1303

Share of the
Economy
(%)
0.11
0.14
0.15
0.08
0.07
0.08
0.07
0.07
0.09
0.09
0.08
0.08
0.08
0.08
0.09
25/65
202/1303

SOURCE: WWW.IBISWORLD.COM

Venture Capital & Principal Trading in the USFebruary 2014 30

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Jargon & Glossary

Industry Jargon

FINANCIAL ASSETA nonphysical asset such as shares,

bonds, notes and bank balances.
HEDGE FUNDA fund that uses advanced investment
strategies such as leveraged, long, short and derivative
positions in both domestic and international markets
with the goal of generating high returns.

POOLED FUNDA vehicle used to pool the funds of a

number of investors for investment by one manager,
including hedge funds and private-equity funds.
VIATICAL SETTLEMENTA sale of life insurance policy
by the policy owner before the it matures.

INITIAL PUBLIC OFFERING (IPO)The first sale of

stock by a private company to the public

IBISWorld Glossary

BARRIERS TO ENTRYHigh barriers to entry mean that

new companies struggle to enter an industry, while low
barriers mean it is easy for new companies to enter an
industry.
CAPITAL INTENSITYCompares the amount of money
spent on capital (plant, machinery and equipment) with
that spent on labor. IBISWorld uses the ratio of
depreciation to wages as a proxy for capital intensity.
High capital intensity is more than $0.333 of capital to
$1 of labor; medium is $0.125 to $0.333 of capital to $1
of labor; low is less than $0.125 of capital for every $1 of
labor.
CONSTANT PRICESThe dollar figures in the Key
Statistics table, including forecasts, are adjusted for
inflation using the current year (i.e. year published) as
the base year. This removes the impact of changes in
the purchasing power of the dollar, leaving only the
real growth or decline in industry metrics. The inflation
adjustments in IBISWorlds reports are made using the
US Bureau of Economic Analysis implicit GDP price
deflator.
DOMESTIC DEMANDSpending on industry goods and
services within the United States, regardless of their
country of origin. It is derived by adding imports to
industry revenue, and then subtracting exports.
EMPLOYMENTThe number of permanent, part-time,
temporary and seasonal employees, working proprietors,
partners, managers and executives within the industry.
ENTERPRISEA division that is separately managed and
keeps management accounts. Each enterprise consists
of one or more establishments that are under common
ownership or control.
ESTABLISHMENTThe smallest type of accounting unit
within an enterprise, an establishment is a single
physical location where business is conducted or where
services or industrial operations are performed. Multiple
establishments under common control make up an
enterprise.
EXPORTSTotal value of industry goods and services sold
by US companies to customers abroad.
IMPORTSTotal value of industry goods and services
brought in from foreign countries to be sold in the
United States.

INDUSTRY CONCENTRATIONAn indicator of the

dominance of the top four players in an industry.
Concentration is considered high if the top players
account for more than 70% of industry revenue.
Medium is 40% to 70% of industry revenue. Low is less
than 40%.
INDUSTRY REVENUEThe total sales of industry goods
and services (exclusive of excise and sales tax); subsidies
on production; all other operating income from outside
the firm (such as commission income, repair and service
income, and rent, leasing and hiring income); and
capital work done by rental or lease. Receipts from
interest royalties, dividends and the sale of fixed
tangible assets are excluded.
INDUSTRY VALUE ADDED (IVA)The market value of
goods and services produced by the industry minus the
cost of goods and services used in production. IVA is
also described as the industrys contribution to GDP, or
profit plus wages and depreciation.
INTERNATIONAL TRADEThe level of international
trade is determined by ratios of exports to revenue and
imports to domestic demand. For exports/revenue: low is
less than 5%, medium is 5% to 20%, and high is more
than 20%. Imports/domestic demand: low is less than
5%, medium is 5% to 35%, and high is more than
35%.
LIFE CYCLEAll industries go through periods of growth,
maturity and decline. IBISWorld determines an
industrys life cycle by considering its growth rate
(measured by IVA) compared with GDP; the growth rate
of the number of establishments; the amount of change
the industrys products are undergoing; the rate of
technological change; and the level of customer
acceptance of industry products and services.
NONEMPLOYING ESTABLISHMENTBusinesses with
no paid employment or payroll, also known as
nonemployers. These are mostly set up by self-employed
individuals.
PROFITIBISWorld uses earnings before interest and tax
(EBIT) as an indicator of a companys profitability. It is
calculated as revenue minus expenses, excluding
interest and tax.

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Jargon & Glossary

IBISWorld Glossary
continued

VOLATILITYThe level of volatility is determined by

averaging the absolute change in revenue in each of the
past five years. Volatility levels: very high is more than
20%; high volatility is 10% to 20%; moderate
volatility is 3% to 10%; and low volatility is less than
3%.

WAGESThe gross total wages and salaries of all

employees in the industry. The cost of benefits is also
included in this figure.

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