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<!–:en–>SURVEY SHOWS SILICON VALLEY START-UPS HAVE HIGH JOB LOSSES & LOW SURVIVAL RATE<!–:–>

October 6, 2011

Fewer than one in five Silicon Valley high-tech firms that were launched at the height of the dot.com bubble in 2000 remained in business in 2009, according to an analysis released Sept. 30 by the Department of Labor’s Bureau of Labor Statistics (BLS).

At the same time, the number of workers employed by this group of high-tech companies fell by 66 percent to 9,200 in 2009, about one-third of the 27,200 employees in their first year of business, BLS researchers said in an article in the September issue of Monthly Labor Review.

Despite that bleak picture, the survival rate of the California region’s millennial year startups is the same as that of other U.S. high-tech companies born during 1991-2008, after taking industry mix differences into account, the researchers said.

“One unique characteristic, however, was the 2000 cohort’s abnormally high employment growth in the first year of business,” Tian Luo and Amar Mann, economists in BLS’s San Francisco regional office, said.

The first-year gain of 7,500 jobs, or 37 percent, from about 27,000 initially to a peak of nearly 34,500 jobs in 2001, may have been related to “the mammoth amounts of venture capital investment in Silicon Valley during and around the year 2000,” Luo and Mann said. Investors pumped $32.3 billion into the region in a single year.

After the dot.com bubble burst, the Silicon Valley firms born in 2000 suffered their heaviest business casualties of any year in 2002 and shed 11,500 workers.

“Dot-com-era startups are often associated with having high ‘burn rates,’ ” quickly using up their investors’ capital reserves before becoming profitable, if ever, Luo and Mann said.

Changes in employment in the Silicon Valley startups of 2000 varied widely among high-tech industries, the BLS analysis found.

The largest 10-year job loss occurred in computer systems design and related services (6,977 or 71 percent), although it remains the biggest employer among the 2000 startups.

The internet, telecommunications, and data processing sector shed the second-most number of jobs (5,884 or 84 percent), and was, more than any other high-tech industry, “home to many of the e-commerce startups that came to symbolize the excesses of the dot-com boom,” the authors said.

Businesses that operated in multiple high-tech industries showed the only job gain between 2000 and 2009 (61 percent to 1,927 workers). “These businesses tended to be slightly larger than businesses operating in only a single industry, a factor that could help explain their higher employment growth,” the researchers said.

By contrast, all 231 of the original jobs in communications equipment manufacturing were wiped out.

Based on industry unemployment insurance records covering 98 percent of employees, the researchers tracked about 2,600 firms born in 2000 for 10 years spanning the dot.com bubble and the 2001 and 2007 recessions. The names of companies were kept anonymous.

 “Regarded as the global center of technological innovation, Silicon Valley received prodigious amounts of venture capital investment in the late 1990s and 2000, giving rise to thousands of new businesses in the area,” according to the article.

Given the large amounts of venture capital financing available in Silicon Valley during their startup period, “it is somewhat surprising” that the high-tech firms born in 2000 did not fare considerably better than the typical group of startups during 1991-2008, the researchers said.

“The majority of high-tech businesses born in 2000 did not survive past 2003,” they said.

Firms that survived beyond two years showed consistent employment growth. By 2009, the remaining Silicon Valley startups employed an average of about 20 workers, roughly double the average in 2000 among the region’s firms born that year.

Of the 2,600 original startups, almost two-thirds (63.8 percent) began with four or fewer employees but accounted for the smallest share of total first-year employment (11.4 percent).

By contrast, firms with 50 or more employees made up the smallest group of firms (3.9 percent) but employed about half of all workers (49.6 percent). The remaining firms (32.3 percent) accounted for the next-largest share of employment (39.0 percent). However, small firms that survived showed faster employment growth over the 10 years than larger companies. 10-06-2011. Bureau of National Affairs.