52391 venture capital & principal trading in the us industry report

8/12/2019 52391 Venture Capital & Principal Trading in the US Industry Report

1/32

WWW.IBISWORLD.COM Venture Capital & Principal Trading in the US February 2014 1

IBISWorld Industry Report 52391Venture Capital & PrincipalTrading in the USFebruary 2014 Leah Goddard

Slow and steady:Investors move forwardcautiously in the wake of turbulent revenue

2 About this Industry

2 Industry Definition

2 Main Activities

2 Similar Industries

2 Additional Resources

3 Industry at a Glance

4 Industry Performance

4 Executive Summary

4 Key External Drivers

6 Current Performance

8 Industry Outlook

10 Industry Life Cycle

12 Products & Markets

12 Supply Chain

12 Products & Services

14 Demand Determinants

15 Major Markets

16 International Trade

17 Business Locations

19 Competitive Landscape

19 Market Share Concentration

19 Key Success Factors

19 Cost Structure Benchmarks

21 Basis of Competition

21 Barriers to Entry

22 Industry Globalization

23 Major Companies

25 Operating Conditions

25 Capital Intensity

26 Technology & Systems

26 Revenue Volatility

27 Regulation & Policy

28 Industry Assistance

29 Key Statistics

29 Industry Data

29 Annual Change

29 Key Ratios

30 Jargon & Glossary

www.ibisworld.com | 1-800-330-3772 | [email protected]


2/32


The Venture Capital and PrincipalTrading industry comprisesestablishments and individuals acting asprincipals in the buying or selling ofnancial contracts. Principals are

investors who buy or sell for their ownaccounts, rather than on behalf of clients.It excludes investment bankers, securitiesdealers and commodity contracts dealerstrading as principals.

The primary activities of this industry are

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)

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 commoditymarkets.

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 capitalfunds.

Industry Definition

Main Activities

Similar Industries

Additional Resources

About this Industry

For additional information on this industry

www.ici.orgInvestment Company Institute

www.nvca.orgNational Venture Capital Association

www.census.govUS Census Bureau

The major products and services in this industry are

Traders and dealers in financial products

Venture capitalists

Other investors


3/32


Index

2100

900

1200

1500

1800

1905 07 09 11 13 15 17Year

S&p 500

SOURCE: WWW.IBISWORLD.COM

%c

hange

20

40

30

20

10

0

10

2006 08 10 12 14 16 18Year

Revenue Employment

Revenue vs. employment growth

Products and services segmentation (2014)

50%Venture capitalists

34%Other investors

16%Traders and dealersin financial products


Key StatisticsSnapshot

Industry at a GlanceVenture Capital & Principal Trading in 2014

Industry Structure Life Cycle Stage GrowthRevenue Volatility High

Capital Intensity Low

Industry Assistance None

Concentration Level Low

Regulation Level Heavy

Technology Change High

Barriers to Entry Low

Industry Globalization Medium

Competition Level High

Revenue

$30.2bnProfit

$7.5bnWages

$5.5bnBusinesses

7,403

Annual Growth 14-19

3.9%Annual Growth 09-14

6.3%

Key External DriversS&P 500

Investor uncertainty

Yield on 10-yearTreasury note

Regulation for theInvestment Managementindustries

Personal savings rate

Market Share

There are noMajor Players in

this industry

p. 23

p. 4

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



4/32


Key External DriversS&P 500The S&P 500 index is a broad indicatorof nancial market performance.Industry participants benet fromuctuating but generally rising securitiesprices that enable them to sell securitiesat a higher price than they paid.

Additionally, venture capitalists earnmore on investments when stockmarkets are rising through higher-valuedinitial public oerings or sales to

acquiring companies. Consequently, arise in the S&P 500 index generally leadsto higher industry revenue and prot.The S&P 500 index is expected toincrease in 2014, presenting a potentialopportunity for the industry.

Investor uncertaintyWhen investors are more condent in themarket they are more likely to investcapital in higher risk and return equity

ExecutiveSummaryThe Venture Capital and PrincipalTrading industry comprises companiesand individuals that invest in variousnancial contracts to earn a prot.Participants include venture capitalists,day traders, investment clubs and dealersof mineral royalties or leases, oil royaltiesand tax liens. The industry also includes

viatical settlement companies thatpurchase life insurance policies atdiscounted prices to later collect the

benets. Collectively, this group ofcompanies and individuals has beneted

from rising security prices and increasingmerger and acquisition activity in the ve

years to 2014. As a result, industryrevenue is expected to grow over theperiod at an annualized rate of 6.3%,from a recessionary base of $22.2 billionin 2009, to $30.2 billion in 2014.

Revenue dropped 23.0% in 2009 as thenancial crisis and subsequent recessioncaused stock markets and business activityto dramatically contract. The severity ofresulting losses on investments led todeclines in the number of enterprises andinvestors participating in the industry.

Venture capitalists, in particular, struggledover the past ve years, as volatile

nancial market conditions preventedthem from protably exiting investments,either through a portfolio companysinitial public oering or by selling to alarger organization.

Industry traders were able to realizehigher revenue and prot from buyingand selling securities due to wideningpricing spreads as a result of nancialmarket volatility and rebounds insecurities prices driven by governmentintervention. Revenue rebounded 14.7%in 2010 as the stock market recovered.

After an impressive 2013, when revenueincreased an estimated 11.5%, growth isprojected to slow to 2.9% in 2014 due tosubdued business and trading activityand higher capital gains taxes.

Over the ve years to 2019, industryrevenue is projected to rise at anannualized rate of 3.9% to $36.6 billion.Financial markets will continue trendingupward, which will boost trading and

business activity. Venture capital willrebound as investors can more easily exitinvestments through initial public

oerings or acquisitions. However, higherinterest rates and increased capital gainstaxes will hinder industry growth; risinginterest rates increase investor uncertaintyand borrowing costs, while capital gainstaxes decrease the pool of attractiveinvestment opportunities depending ontheir potential to place investors in highertax brackets.

Industry PerformanceExecutive Summary | Key External Drivers | Current Performance

Industry Outlook | Life Cycle Stage

Unable to exit investments, venture capitalistshave struggled to remain protable


5/32


Industry Performance

Key External Driverscontinuedinvestments, rather than in lower riskand return bonds or other interest-

bearing assets. Funding availability forcontract dealers is also likely to be high

when investor uncertainty is low,enabling them to earn higher revenueand prot. Investor uncertainty isexpected to increase in 2014 as theFederal Reserve gradually increasesinterest rates, posing a potential threat tothe industry.

Yield on 10-year Treasury note

A rise in long-term interest rates willaect investors investment mix. Higherlong-term rates will make investmentsinto xed-interest securities moreattractive relative to equity investments,reducing initial public oering earnings.By contrast, low interest rates makemoney cheaper to borrow, which spursthe merger and acquisition activity that

venture capitalists rely on to sellbusinesses that they invest in. Lowinterest rates also make deal nancing

easier, which spurs more venture capitalinvestments. Interest rates are expectedto increase in 2014.

Regulation for the InvestmentManagement industriesRegulations raise the cost of participatingin the Venture Capital and PrincipalTrading industry. Restrictive compliancerequirements and changes to taxationarrangements can deter securities tradingactivity and venture investment in smalland start-up enterprises. Regulation for

the Investment Management industries isexpected to increase in 2014.

Personal savings rateChanges in the unemployment rate,disposable income levels, consumerexpenditures and taxes inuence thelevels of national savings. Higherhousehold savings generally result inmore capital available for investment.The personal savings rate is expected toincrease in 2014.

%

35

10

15

20

25

30

1905 07 09 11 13 15 17Year

Investor uncertainty


Index

2100

900

1200

1500

1800

1905 07 09 11 13 15 17Year

S&P 500


6/32



Volatile financialmarkets boostrevenue

Over the ve years to 2014, industryrevenue is anticipated to increase at anannualized rate of 6.3% from arecessionary base of $22.2 billion in2009, to $30.2 billion in 2014. Revenuegrowth has been underpinned bygenerally rising security prices and

widening spreads resulting from volatilemarket conditions. Additionally, the S&P500 index, a broad indicator of nancialmarket performance, has skyrocketedsince 2009, rising at an average annualrate of 12.8%. Industry participantsproted from tremendous uctuations,

with the S&P 500 plummeting 22.0% in2009 and rebounding 19.2% and 13.3% in2010 and 2011, respectively. Investorsalso earned signicantly higher revenuefrom trading oil and mineral contracts ona spread basis over the past ve years.The world price of crude oil swung from

an average of $61.80 per barrel in 2009to reach a record average of $105.00 per

barrel in 2012. Similarly, the price of goldincreased from an average of $972.10 perounce in 2009 to climb to a recordaverage of $1668.50 per ounce in 2012.

Wider spreads also boosted protmargins from 18.4% of revenue in 2009to 24.9% in 2014.

The severity of the nancial crisis anddepth of the recession caused industryrevenue to plunge 23.0% in 2009, assecurity prices plummeted while businessactivity contracted. However, federalgovernment intervention prevented the

This industry includes individuals whobuy and sell various nancial contractson their own behalf and on a spread

basis. Spread trading is a strategy bywhich investors sell a cheaper contractand buy a more expensive contract,hoping the price dierence will widen ornarrow, depending on the goal of theinvestor. Venture capital rms, privateindividual investors such as venturecapitalists and angel investors, day-traders, investment clubs, mineralroyalties or leases dealers, oil royalty

dealers and viatical settlementcompanies participate in thisindustry. Public and private equitysecurities are the most widely traded

by the industry, but options, xed-income, derivatives and commoditiescontracts trading activity has increasedin recent years. Investors seekinghigher returns and portfoliodiversication have expanded into a

broad range of asset classes, whichenables companies and individuals to

earn more revenue and increaseprot margins.Industry performance is subject to a

high degree of volatility. Investors tradesecurities and contracts whose pricing isset in or inuenced by nancial marketsand subject to buyer demand, marketsupply, pricing spreads and expectationson future performance. When nancialmarkets are performing strongly or whenthey are volatile, companies andindividuals are able to prot from buyingsecurities and contracts and selling them

at higher prices. As a result, industryperformance largely mirrors theperformance of nancial markets.Broader economic trends, including thesize and growth of the US economy andmerger and acquisition activity among

businesses, also spurs venture capitalinvestment and returns. Furthermore,the industry benets from socioeconomicfactors such as the entrepreneurial spiritand research and development culture inthe United States.

CurrentPerformance

The nancial crisis causedindustry revenue to fall assecurity prices plummeted


7/32



Volatile financialmarkets boostrevenuecontinued

collapse of the nancial system, restartedeconomic growth and slowly restoredaccess to capital. Interest rate cuts, marketinterventions and asset purchases by theFederal Reserve also drove up securityprices. Consequently, industry revenuerebounded 14.7% in 2010. Industrygrowth slowed as security prices stabilizedand pricing spreads began to narrow in

2011 and 2012, reecting the overallsluggishness of the recovery. Following anupswing in 2013, with the S&P 500posting one of its best years on record,revenue growth is expected to slow to2.9% in 2014. This is primarily the resultof rising interest rates, which increase

borrowing costs and impact securityprices, and higher taxes on capital gains.

Challenges and

downsizing

Venture capital rms and individuals, in

particular, saw their prot margins dropover the past ve years as they struggledto protably exit their existinginvestments and raise capital for newinvestments. According to the National

Venture Capital Association (NVCA), thenumber of initial public oerings (IPOs)and sales of venture-backed companiesare below prerecession levels and at halfthe 2000-era peak of the venture capital

bubble. In recent years, there has been atrend toward fewer but larger IPOs, suchas those for Facebook and Twitter. These

high-prole IPOs prevent many smallercompanies from being able to go public.In addition, after two years of growth, theacquisition market weakened again in2012, with a decline in the number ofsales of venture-backed companies.Despite these challenges, venture capitalrms still account for about 50.0% ofindustry revenue, with the majority of

venture capital currently being raised bylarger specialty rms.

In response to volatile marketconditions and lower demand for

nancing, the Venture Capital andPrincipal Trading industrydownsized during the recession. Thenumber of companies decreased 5.8%in 2009 while employment dropped13.5%. These declines continued

through 2011, despite revenue growth.However, as investor uncertaintycontinued to abate and as revenueand prot increased, more companiesand principals began to participate inthe industry. In the ve years to 2014,the number of enterprises is expectedto grow at an annualized rate of 0.5%to 7,403, boosted by recent entries into the industry. Likewise,employment is expected to increase atan average annual rate of 1.3% to35,415 professionals.

Low M&A activity madeit dicult for venturecapitalists to exitinvestments


8/32



Financial marketsunderpin growth

The S&P 500 index, a broad indicator ofnancial market performance, isanticipated to rise at an annualized rateof 3.8% over the ve years to 2019. Risingsecurity prices will help private individualinvestors and day traders earn higherrevenue and prot. Trading volumes willremain stronger than overall economicgrowth, as these are primarily driven byinstitutional traders and high net-worthindividuals, a segment of the populationthat has recovered from the recessionmuch faster than the general USconsumer base. Investor demands andcontinued development of newtechnologies for generating, routing andexecuting securities trading orders willfurther boost the speed and volume of

worldwide securities trading and expandinvestor access to multiple asset classes.

In turn, new trading platforms and assetclasses will help improve industryperformance and reduce revenue

volatility by increasing investmentdiversication and allowing for greatermobility of capital.

Furthermore, strong nancial marketperformance will also lead to a highernumber of IPOs and acquisitions. This

will enable venture capital rms andindividual venture capitalists to earnhigher revenue and prot from greatersales volumes. However, certain sectorsare expected to oer venture capitalistsmore protable investmentopportunities than others. For instance,government incentives to increase USenergy independence and decreasenegative environmental impacts areexpected to boost venture capital

As the economy continues to growrobustly, security prices will continue totrend upward and small and start-up

businesses will be more likely to succeed.Venture capitalists will prot from higher-valued initial public oerings (IPOs) andgreater demand from companies that canaord to acquire new businesses.Declining unemployment and risingdisposable income will also infuse theindustry with new funds. Furthermore, low

barriers to entry will enable newcompanies and individuals to enter the

industry, thereby expanding its investmentcapacity. Consequently, industry revenueis forecast to grow at an annualized rate of3.9% to $36.6 billion in 2019, with a 3.8%increase in 2015 due to higher securityprices, successful IPOs, sales of venture-

backed companies and the number of newentrants to the industry.

At the same time, higher interest ratesand capital gains taxes will result inslower revenue growth compared withthe past ve years. Rising interest rateshave many implications for the industry,

including higher investor uncertainty andborrowing costs. Venture capitalistscould be negatively impacted, as xed-interest securities become more attractivethan equity investments, aecting IPO

valuations. In addition, higher capitalgains taxes will reduce protability andpotentially deter companies andindividuals from investments that would

bump them up to the next bracket.

IndustryOutlook

%c

hange

20

40

30

20

10

0

10

2006 08 10 12 14 16 18Year

Industry revenue



9/32



investment in clean energy technologiesover the next ve years.Recovering nancial markets and

increasing returns on investments willalso incentivize companies and individualsto reenter the industry. Over the ve-yearperiod, the number of enterprises is

forecast to increase at an average annualrate of 2.0% to 8,173 in 2019. Ascompanies hire more investors to expandtheir capital bases and nancial contractknowledge, employment is expected torise at a faster annualized rate of 2.9% to40,810 professionals in 2019.

Financial marketsunderpin growthcontinued

Participants in the Venture Capital andPrincipal Trading industry will have toadjust to higher capital gains taxes that will

dampen industry growth and reduce protmargins. In 2013, the US Congress raisedthe top tax rate on long-term capital gainsfrom 15.0% to 20.0% for high-incomeearners as part of a broader plan to closethe federal budget gap and rein in thecountrys burgeoning national debt.

Additionally, the Patient Protection andAordable Care Act, passed in 2010,included a 3.8% investment tax to help payfor the reforms to the US healthcaresystem. Combined, these governmentalactions eectively raised capital gains

taxes from 15.0% to 23.8% over the period.

Higher tax rates will decrease thepool of potentially protableinvestments and lower investors proton investments over the ve years to2019. In addition to higher taxes,increased competition from newentrants to the industry will also putpressure on prot margins. As a result,the average industry prot margin isforecast to fall from 24.9% of revenue in

2014 to 23.7% in 2019.

Higher returns, highertaxes Higher capital gains taxes

and competition will putpressure on prot margins


10/32


Industry PerformanceThe industry is growing faster than GDP

New competitors are entering the industry

Companies are hiring more investors

Life Cycle Stage


20

15

10

5

0

-5

-10

%Growthinshareofeconomy

% Growth in number of establishments

-10 -5 0 5 10 15 20

DeclineShrinking economic

importance

Quality GrowthHigh growth in economicimportance; weaker companiesclose down; developedtechnology and markets

MaturityCompanyconsolidation;level of economicimportance stable

Quantity GrowthMany new companies;minor growth in economicimportance; substantialtechnology change

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

Investment Banking & Securities Dealing

Wind Turbine Manufacturing

Stock & CommodityExchanges

Securities Brokering

Solar Panel Manufacturing

Venture Capital & Principal Trading


11/32


12/32


13/32


Products & Markets

Products & Servicescontinued

common of which are independentventure rms that have no aliationswith any other nancial institution. Theseare called private independent rms.Firms involved in investing pooled fundsfrom outside investors in venture capitalactivities are included in IBISWorldreport 52599, Private Equity, HedgeFund and Investment Vehicles in the US.

Venture capitalists generally nancenew and rapidly growing companies,purchase equity securities and assist inthe development of new products orservices. Through their activeinvolvement in the company they attemptto add value. They often have a long-terminvestment outlook and may take onhigher risk investments in theexpectation of higher returns.

Venture capitalists invest in companiesat various stages of the business cycle.Seed capitalists may invest before there isa real product or company organized,

while early-stage venture capitalistsprovide capital to start up a company inits rst or second stages of development.Most angel investors invest in the seed orearly stage. Venture capital rms tend to

be more involved in companies at theexpansion or later stage. Later-stageinvesting may involve providingnancing to help a company grow to a

critical mass to attract public nancingthrough an initial public oering, orattract a merger or acquisition withanother company.

Traders in financial productsInvestors in this category are thoseacting as principals in buying andselling nancial contracts on their own

account, generally on a spread basis,and who are not elsewhere classied.Investors who trade on a spread basispurchase securities that are expected to

be sold at a higher price in theimmediate or intermediate future.Investment clubs and day traders arealso included in this sector of theindustry. The nancial contracts traded

by investors in the category includeequity and debt securities, derivativesand foreign exchange.

Investors in this category tend to holdsecurities for only a short period,engaging in a rapid turnover of securitiesand often using leveraging to maximizereturns. This is in contrast to householdsengaged in longer-term investing insecurities. The proportion of shares helddirectly by households compared to theproportion of other assets held byhouseholds such as mutual funds, bondsand bank deposits has been declining.

Products and services segmentation (2014)

Total $30.2bn

50%Venture capitalists

34%Other investors

16%Traders and dealersin financial products



14/32


Products & Markets

DemandDeterminants

Demand determinants for the services ofthis industry vary depending on thenature of the dierent investmentactivities. Favorable economic andnancial market conditions are oftencharacterized by rapidly rising stockmarket prices. The signicant growth in

both income and wealth in such periodshas strong ow-on eects on the amountof capital available for nancial securitiesinvestment. An increase in the pool offunds available for investment purposesprovides further fuel to a rising stockmarket, as the demand for equitysecurities rises. A rising stock marketnormally supports a strong IPO market,providing venture capitalists with theopportunity to maximize returns whenexiting an investment in this manner.

Higher real after-tax investmentreturns relative to alternate investmentsmake participation in this industry moredesirable. Investors have been attracted to

venture capital investments by theprospects of high returns, as well as apotential diversication benet. Investorsin mineral and oil royalties are attracted

by the increasing returns by this industryduring periods of rising commodity prices.

The emergence of new technology isoften a signal for the formation of newcompanies seeking capital and otherassistance to successfully expand. In thelate 1990s, the emergence of the internetled to the rapid growth of dot-comstart-up companies and an increase in

venture capital to meet the needs ofthese companies. There is currently anincrease in the share of venture capitalinvested in healthcare-relatedindustries. Clean energy technology isanother possible area of growingdemand for venture capital.

The demand for the services of oil andmineral royalty traders is impacted bycommodity prices. An increase in

Products & ServicescontinuedOther investorsThe category of other investors coversinvestors acting as principals (trading forthemselves) in a wide range of moreunusual nancial products. Mineral andoil royalty traders generate revenue fromthe trading and management of royaltyinterests. A royalty trust is a nancial

vehicle used to purchase royalty interestsin natural resource properties. The trustsells trust units to investors to acquirecapital for the trust. It then uses thiscapital to purchase natural resource

royalty interests. The royalty incomereceived is then distributed to investors(unit holders), less a management fee. Atrustee, typically a bank, is appointed toprovide administrative services. Thetrustee is entitled to receive a fee for theadministrative services provided to thetrust. These fees are typically aboutone-twentieth of 1.0% of the rst $100.0million of the annual gross revenue of the

trust. Revenue from this sector hasincreased with the rise in commodityprices, particularly when demand peakedin 2012.

A viatical settlement allows an investorto purchase another persons lifeinsurance policy, or part of it. The policyis purchased at a price that is less thanthe death benet of the policy. When theowner of the policy dies, the investorcollects the death benet. Most viaticalsettlement providers pay a lump sumfrom 50.0% to 85.0% of the face value of

the policy. The buying and selling ofviatical settlements normally occursthrough viatical and life settlementcompanies. The return for investors on a

viatical settlement depends on when theseller of the policy dies, as opposed totheir life expectancy when the policy issold. Revenue generated by investors inthis category is often in the form of feesor interest income.


15/32


Products & Markets

Major Markets

Since participants in this industry do not

serve clients but rather invest for theirown prot, market segmentation is basedon capital provided venture-backedcompanies. The current breakdown is

based on the number of exitedinvestments in each market as reported

by the National Venture CapitalAssociation (NVCA). More than 50.0% ofdeals were sales of early stage companies,a share that has increased from about30.0% in 2009. Meanwhile, only 5.5% ofdeals were sales of seed companies, ashare that has decreased from 12.0% in2009. Sales of expansion and later stagecompanies declined as well to 24.5% and20.0%, respectively.

Venture capitalist rms invest in arange of industries. In 2013, the mostexited investments were in software(38.1%), biotechnology (11.8%), mediaand entertainment (11.3%), IT Services

(8.9%), medical devices and equipment

(7.7%) and industrial/energy (5.9%).Sales of software companies haveexploded from 26.4% in 2009. Sales of

businesses in media and entertainmentand IT services have also increased.

In contrast, deals involvingbiotechnology and medical devices andequipment companies have declinedfrom 14.7% and 10.9%, respectively, in2009. Life sciences venture capitalistshave gravitated toward more matureopportunities that carry less risk,especially as federal funding forresearch and development programs iscut and implications from thehealthcare overhaul remain unclear.Sales of industrial/energy companieshas also declined, likely due to the shaleoil and gas boom that has turnedattention away from alternativeenergy sources.

DemandDeterminantscontinued

commodity prices results in an increasein the exploration and development ofsites to increase production of thesecommodities, particularly oil and gas inthe US. Operators purchasing in full or

part royalty interests provide capital and,in many cases, professional expertise toassist in site development. Oil andmineral royalties can provide a low-riskexposure to commodities.

Major market segmentation (2014)

Total $30.2bn

38.1%Software

7.7%Medical devicesand equipment

12.1%Other

5.9%Industrial/energy

4.2%Consumer products

and services

11.8%Biotechnology

11.3%Media and

entertainment

8.9%IT Services



16/32


Products & Markets

International Trade The Venture Capital and PrincipalTrading industry is service-based anddoes not engage in the international tradeof physical goods and services. Financialcontract traders do invest in foreignsecurities, commodities and currenciesthat trade on securities and commodity

exchanges worldwide. At the same time,venture capitalists invest in businessesabroad, and foreign investors alsocommit capital to small and start-upenterprises in the United States. See theGlobalization section of this report formore information.


17/32


Products & Markets

Business Locations 2014

MO1.2

VT0.1

MA2.4

RI0.3

NJ2.1

DE2.0

NH0.3

CT1.5

MD1.1

DC0.4

1

5

3

7

2

6

4

8 9

Additional States (as marked on map)

AZ1.6

CA12.3

NV2.7

OR1.2

WA2.1

MT0.4

NE0.5

MN1.4

IA0.5

OH1.6

VA1.4

FL7.9

KS0.9

CO3.6UT0.9

ID0.4

TX15.5

OK3.4

NC1.2

AK0.3

WY0.4

TN1.0

KY0.8

GA2.1

IL4.1

ME0.2

ND0.7

WI0.7 MI

1.5PA1.9

WV0.5

SD0.2

NM0.6

AR0.9

MS1.0

AL1.0

SC0.7

LA1.7

HI0.4

IN0.7

NY7.8 5

6

78

321

4

9


Establishments (%)

Less than 3%

3% to less than 10%

10% to less than 20%

20% or more


18/32


Products & Markets

Business Locations Most industry establishments areconcentrated in the Southwest, Southeast,West and Mid-Atlantic regions. TheSouthwest region accounts for about 21.0%of industry establishments. About 15.5%are located in Texas due to the presence ofoil royalty companies and oil royaltytraders and, more recently, tech companiesin the state. The Southeast region accountsfor about 20.2% of industryestablishments. After Texas and California,Florida has the third largest share ofindustry establishments with 7.9%. This is

due to the concentration of oil royaltycompanies, oil traders and viaticialsettlement companies in the region.

While the West houses 19.0% ofindustry establishments, Californiaattracts 53.0% of venture capitalinvestments and 41.0% of venture capitalcompanies in the country, according tothe NVCA. The clustering of technology-

based start-up companies in the SiliconValley region (mainly Menlo Park) islargely responsible for the high level of

venture capital investment in the state.

The Mid-Atlantic region accounts forabout 15.3% of industry establishments.

The majority are located in New York,which has a high share of venturecapitalists and other investors thatparticipate in this industry due to theconcentration of start-up businesses,

securities exchanges and nancialmarkets in the region.

%

30

0

10

20

South

west

West

GreatLakes

Mid-Atlantic

NewEng

land

P

lains

RockyMoun

tains

Southeast

Establishments

Population

Distribution of establishments vs. population



19/32


Cost StructureBenchmarks

The cost structure of individualcompanies and individuals in the VentureCapital and Principal Trading industry

varies signicantly depending uponinvestors investment activities and typeand size of asset classes.

ProfitProt margins have increased over thepast ve years from 18.4% of revenue in2009 to 24.9% in 2014. Industry prot

got a boost from wider securities spreadsover the past ve years due to uctuating

but generally rising securities prices.Higher interest rates, capital gains taxesand industry competition are expected topressure the average industry protmargin down to 23.7% of revenue in 2019.

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

Key Success Factors Ability to effectively manage riskDealers must manage risk in all aspectsof the investment process, fromconrmation of trends to the optimalexposure in a given market.

Having an effective performance

monitoring systemDealers must monitor investments andnancial markets closely to ensurecompliance with investment objectivesand strategies. They are required to be

experts on market movements andunderlying securities and commodities.

Management of a high

quality assets portfolioIndustry participants must construct andmanage an asset portfolio that is welldiversied in order to reduce market andcredit risks.

Market research and understandingIndustry participants must possess theability to provide quality research as wellas a thorough understanding ofinvestment markets.

Superior financial management

and debt managementIndustry players must maintainmanageable gearing levels for nancialinvestors who have raised debt to fundnancial assets, in view of the inherent

volatility of investment returns producedby leveraged assets.

Highly trained workforceThe investor, their teams and theiroutsource suppliers must have asound understanding of nancialmarkets, institutions, productsand instruments.

Market ShareConcentrationThe nature of the industry is highlyfragmented, which implies that industryconcentration is quite low. Institutional

venture capital rms that employ teamsof nancial professionals, executives andindustry experts account for just a smallpercentage of employment andenterprises in the industry. There are noparticipants in this industry that have amarket share greater than 1% as volatilemarket conditions have forced

institutional rms to be more selective inmaking investments. IBISWorldestimates that concentration will remainlow over the outlook period as well, dueto the nature of the industry. Theindustry is primarily comprised of a largenumber of non-employers such as daytraders, angel investors, and traders in oiland mineral royalties and other moreunusual nancial instruments thansecurities and commodities.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure Benchmarks

Basis of Competition | Barriers to Entry | Industry Globalization

Level

Concentration inthis industry is Low

IBISWorld identifies250 Key SuccessFactors for abusiness. The mostimportant for thisindustry are:


20/32


Competitive Landscape

Cost StructureBenchmarkscontinued

increased at an average annual rate of2.2% since 2009 and are forecast to growat an annualized rate of 3.5% in the ve

years to 2019. The average industry wagehas increased from $149,500.0 in 2009to $156,600.0 in 2014, and it is projectedto rise to $161,250.0 in 2019.

Industry players undertaking principaltrading are required to employ and retainhighly skilled workers that performresearch and analysis. These employeesoften require above-averagecompensation. In line with most

securities and commodity contractbrokers and dealers, employees are oftenawarded a base salary with a bonusscheme connected to it. This policy tendsto raise industry wages even furtherabove sector averages, particularly whenreturns are higher and nancial andinvestment conditions are stronger.Likewise, venture capital rms employ

well-paid professionals with experiencein areas such as management, planningand accounting.

There are a large number of operatorsin this industry who are self-employed.These are predominantly individualtraders and angel investors. Becausethese individuals do not receive a wage,the share of wages in this industry islower than for other comparable nancialservice industries, where wages as a shareof revenue can be up to 50.0%.

In addition to possessing highly trained

and experienced investment professionals,industry players use external investmentadvisers, legal experts, accountants andadministration professionals. Most

venture capitalist exit their investment ina company either through an initialpublic oering or by selling the company.This normally requires the services ofexternal professionals.

Sector vs. Industry Costs

Profit

Wages

Purchases

Depreciation

Marketing

Rent & Utilities

Other

Average Costs ofall Industries in

sector (2014)

Industry Costs

(2014)

0

20

40

60

Percentage

ofrevenue

80

100

17.2

42.0

2.6 1.9

1.4

23.0

12.0

24.9

49.7

2.0 1.32.31.4

18.4



21/32



Barriers to Entry Venture capitalists have low barriers toentry for seed and start-up investments.For many investors in this industry,

whether they are venture capitalists,angel investors or day traders, access tocapital is an important determinant ofentry to this industry. Expansion andlater stage investments may requirelarger capital outlays, but ofteninvestment is over a shorter time period.For larger investments, angel investorsmay join forces and invest as a group in anew company. Angel and venture capitalinvestment works best when the skillsand experience of the investors match therequirements of the company. Investors

who have a broad range of skills or

specialist expertise to oer, as well asaccess to capital, will experience lower

barriers to entry.For traders in nancial products such

as securities, debt, derivatives and foreign

Basis of Competition Venture capitalists compete for

investment opportunities. They competewith other venture capitalists, privateequity rms, investment banks andspecialty nance companies. Theycompete on the basis of access tofunding and the cost of funding.

Venture capitalists also compete on thebasis of the managerial and marketingresources they can provide to start-upcompanies. While venture capitalistscompete for investment opportunities

with private equity rms andinvestment banks, they also depend on

them for referrals of investmentopportunities. Firms that have strongrelationships with other nancial

institutions are in a better position to be

informed of investment opportunitiesand grow their investment portfolio.

Individuals and nancial institutionstrading as principals compete for tradingopportunities that provide above-averagemarket returns. The more traders seekingabove-average returns or chasing arbitrageopportunities, the harder theseopportunities are to nd. Competitionamong mineral and oil royalty traders hasalso grown as operators increasinglycompete to acquire royalty interests. Thesize of purchases of royalty interests is also

becoming larger, increasing the dicultyof smaller and less well-capitalizedoperators in obtaining new royalties.

Cost StructureBenchmarkscontinued

Other costsOther costs collectively represent about56.7% of industry revenue and varysignicantly among individual operatorsdepending upon the varying investmentactivities they choose to engage in. Forexample, contract and royalties tradershave trading costs, while venturecapitals might have write-downs

associated with failed investments.Depreciation accounts for 2.3% ofindustry revenue. Depreciable itemsinclude computers, trading software,licenses and xtures and ttings.Generally, most industry participantsrent or lease premises; as a result, it isestimated that occupancy expensesconsume 2.0% of industry revenue.

Level & Trend

Competition inthis industry isHigh and the trendis Increasing

Barriers to Entry checklist Level

Competition High

Concentration Low

Life Cycle Stage Growth

Capital Intensity Low

Technology Change HighRegulation & Policy Heavy

Industry Assistance None


Level & Trend

Barriers to Entryin this industry areLow and Steady


22/32



IndustryGlobalization

The trading of nancial instruments ishighly globalized. Trading, whether onan exchange or on an over-the-countermarket, can take place between buyers

and sellers around the world. The largenumber of cross-border mergers andacquisitions between exchanges isfacilitating the increasing level ofcross-border trading. Most of the largeUS nancial institutions that provideservices to investors also operate around

the globe. The level of globalization ofventure capital investment is alsoincreasing. US venture capitalists areseeking business opportunities abroad,

while foreign rms often invest indomestic start-ups and smallenterprises. Angel capitalists in the USare more likely to invest domestically,given they often contribute not onlycapital but also their personal expertiseto assist start-up companies.

Barriers to Entrycontinuedexchange, barriers to entry are low anddeclining. Technology changes arecontinually improving access to marketsand market data. This includes fast andcheap access to markets via electronictrading networks (ECNs). Barriers to

trading include the cost of informationand technology systems. Areas wherebarriers to entry have increased since theadvent of the global nancial crisisinclude the ability of access funding andthe ability to trade protably.

Level & TrendGlobalization inthis industry isMedium and thetrend is Increasing


23/32


Other Companies The Venture Capital and PrincipalTrading industry is highly fragmentedand comprises 7,403 enterprises thatgenerate $30.2 billion in revenue. About99.0% of industry establishments employless than 50 people, while 96.5%maintain a sta smaller than 20 and80.5% employ less than four. Low

barriers to entry and exit and constantlyshifting investor preferences for portfoliodiversication keep industryconcentration low. Consequently, thereare no industry establishments that

generate over 1.0% of industry revenue.

Advantage Capital PartnersEstimated market share: Less than 1.0%

Advantage Capital Partners is venturecapital rm that has raised more than$1.7 billion in capital to date. Thecompany uses public-privatepartnerships and innovative structurednance solutions to channel funds intosmall businesses in communities that areunderserved by traditional sources ofcapital. For instance, BizCapital,

Advantage Capitals nondepositorynancial institution, is licensed by thefederal government to make SBA andUSDA-guaranteed loans in select states.Since its inception in 1999, BizCapital hasmade more than $300 million in loans.

Founded in 1992, Advanced Capitalhas grown to include oces in Missouri,Louisiana, New York, Texas, California,Illinois, Florida, Mississippi and

Washington, D.C., with co-managers inAlabama, Colorado, Connecticut andWisconsin. Over the past two decades,Advantage Capital has invested in morethan 500 portfolio companies in a rangeof industries, including communication,information technology, life science,

business services, manufacturing andenergy. The rm employs about 45professionals and generated an estimated$37.5 million in revenue in 2013.

Draper Fisher JurvetsonEstimated market share: Less than 1.0%The Draper Fisher Jurvetson (DFJ) is a

venture capital rm founded in 1985. By1990, the DFJ Network had expanded to16 independent venture capital fundsoperating on four continents. Membersraise their own capital and manageinvestments independently whilecooperating on investment diligence,marketing intelligence, corporaterelationships and co-investments.

More than $7.0 billion has been

committed to DFJ funds. With thiscapital, DFJ has backed more than 400companies 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; andDigidesign (acquired by Avid). The rmemploys about 30 professionals and

generated an estimated $25.0 million inrevenue in 2013.

Rustic Canyon PartnersEstimated market share: Less than 1.0%Rustic Canyon Partners is an early-stage

venture capital rm founded in 1999 andlocated in Santa Monica, CA. Thecompany has since established an ocein San Francisco, becoming a signicantpresence in the San Francisco Bay Area.It is also one of the largest venture capitalrms in Los Angeles. The companyfocuses on clean-tech energy, andinternet and digital media.

Rustic Canyon Partners assists clientswith the entire process of venturecapital, including active boardinvolvement, access to potentialcustomers and strategic partners. Therm also aides in the building of

Major CompaniesThere are no Major Players in this industry | Other Companies


24/32


management teams, provides assistancewith subsequent nancings andoptimizes exit strategies. Rustic Canyon

Partners employs about 10 professionalsand generated an estimated $8.5 millionin revenue in 2013.

Other Companiescontinued


25/32


Capital Intensity The industrys low capital intensity is dueto the low level of physical assets, such asequipment and buildings, required tooperate in this industry. The majority ofcosts associated with this industry are

wages, management and otherprofessional fees. Wages account for18.4% of industry revenue. Conversely,depreciation only accounts for about2.3% of industry revenue. There is a highlevel of administrative work involved,such as the processing of investmentactivities that require more labor inputs

than capital inputs. Consequently, forevery dollar spent on labor, only about$0.13 is spent on capital.

However, some industry participants,mainly securities, commodities and royaltytraders, use automated trading, clearing

and settlement systems. Technologicaladvancements have resulted in rapidadoption by many nance contract dealers,

Operating ConditionsCapital Intensity | Technology & Systems | Revenue Volatility

Regulation & Policy | Industry Assistance

Tools of the Trade: Growth Strategies for Success


LaborIntensive

CapitalIntensive

Change in Share of the Economy

New Age Economy

Recreation, Personal Services,Health and Education.Firmsbenefit from personal wealth sostable macroeconomic conditionsare imperative. Brand awarenessand niche labor skills are key toproduct differentiation.

Traditional Service Economy

Wholesale and Retail.Relianton labor rather than capital tosell goods. Functions cannotbe outsourced therefore firmsmust use new technologyor improve staff training toincrease revenue growth.

Old Economy

Agriculture and Manufacturing.Traded goods can be producedusing cheap labor abroad.To expand firms must mergeor acquire others to exploiteconomies of scale, or specializein niche, high-value products.

Investment Economy

Information, Communications,Mining, Finance and RealEstate. To increase revenuefirms need superior debtmanagement, a stablemacroeconomic environmentand a sound investment plan.

Investment Banking

& Securities DealingWind Turbine Manufacturing

Stock & Commodity Exchanges

Securities BrokeringSolar Panel Manufacturing

Venture Capital & Principal Trading

Capital intensity

0.5

0.0

0.1

0.2

0.3

0.4


Dotted line shows a high level of capital intensity

Capital units per labor unit

Venture Capital& Principal

Trading

Finance andInsurance

Economy

Level

The level of capitalintensity is Low


26/32


Operating Conditions

Revenue Volatility Revenue is highly volatile due to theindustrys dependency on uctuatingsecurities prices and the unpredictablenature of venture capital investments.The value of nancial contracts tradedcan vary signicantly from one year to

the next. The level of transactions ofnancial contracts traded is based onthe volatility of the underlyingmarkets, projected interest rates andgeneral economic conditions. Revenuefrom mineral and oil royalties varies

with commodity prices, which are alsohighly volatile.

The amount of revenue generated byventure capitalist can vary from one yearto the next, depending on the numberand value of venture capital backed

companies that are either listed or sold.The illiquid nature of these investmentsand level of risk involved can result in

volatile returns. Strong nancial marketsprovide greater initial public oering(IPO) returns for venture capitalists

Technology& Systems

Most industry participants utilizetechnology in order to reduce costs andmanage risk. Sophisticated investmentportfolio systems that allow for daily

valuation of all nancial instruments,eective exposure modeling, risk

assessments and other counter-partyreporting are used by most industryplayers. The technology advances over thepast decade have led to improvements in

the trading features available to daytraders. These include improvements inthe speed, quality and accuracy of tradeexecutions and the data available totraders. Brokers also provide services,data and research particularly tailored to

day traders. Traders also now havedirect-access trading, which providesdirect access to exchange markets, as wellas automated trading services.

Capital Intensitycontinuedwho have been encouraged to adopt newtechnology through systems developmentsat the various exchanges. The internet hascontributed signicantly to the growth in

investment clubs and individual tradingactivity by providing low-cost trading,market and corporate data and easycommunication among investors.

Level

The level of

TechnologyChange is High


Volatility vs Growth

Revenuevolatility*(%)

1000

100

10

1

0.1

Five year annualized revenue growth (%)

30 10 10 30 50 70

Hazardous

Stagnant

Rollercoaster

Blue Chip

* Axis is in logarithmic scale

Venture Capital &Principal Trading

A higher level of revenuevolatility implies greaterindustry risk. Volatility cannegatively affect long-termstrategic decisions, such as

the time frame for capitalinvestment.

When a firm makes poorinvestment decisions itmay face underutilizedcapacity if demandsuddenly falls, or capacityconstraints if it risesquickly.

Level

The level ofVolatility is High


27/32



Regulation & Policy The securities industry is regulatedpredominantly by the Securities Act of1933. The role of the Securities andExchange Commission (SEC) is to protectinvestors and maintain the integrity ofthe securities markets. SEC oversees keyparticipants in the securities world,

including stock exchanges, broker-dealers, investment advisors, mutualfunds and public utility holdingcompanies. It is the primary regulator ofthe US security markets.

Investment advisers who manage $25million or more in client assets mustregister with the SEC. If they manageless than $25 million, they must register

with the state securities agency in thestate where they have their principalplace of business. Angel investors arenormally considered high net worth

individuals, and so are accreditedinvestors as dened in Regulation Dunder the Securities Act of 1933 or SECRule 501. Viatical settlement and lifesettlement companies may be requiredto be licensed by the State InsuranceCommission depending on their state ofincorporation or operation.

Dodd-Frank Wall Street Reform andConsumer Protection Act 2010Regulation stemming from the subprimemortgage crisis has and will continue to

fundamentally change how nancialinstitutions and markets operate. Overthe past ve years, the most signicantpiece of legislation was the 2010 Dodd-Frank Wall Street Reform and ConsumerProtection Act. Once fully implemented,it will impact the entire Financial

Services Sector by changing which rmscan engage in certain activities, how rmsapproach risk management, and the levelof oversight they must comply with.Higher compliance costs will continue tohurt industry prot, and investmentactivity limitations will hurt the revenueof some nancial institutions.

The Venture Capital & PrincipalTrading industry in the US will belargely unaected by the law other thanmore reporting requirements. Severalprovisions of the law exempt venture

capital rms and investment advisorsthat manage private funds (i.e. theirown) from registration requirements.However, structural changes in theoverall nancial system may slow thegrowth of credit in the US, making itmore dicult for venture capitalists toaccess debt markets to take on largerand riskier deals that produce higherreturns for them. Overall, this regulationis projected to streamline industryrevenue but have little impact onindustry prot.

Revenue Volatilitycontinuedexiting an investment. Likewise, strongbusiness activity can lead to higherselling prices for venture-backed

companies. Changes in the number andvalue of such IPOs and sales can producelarge annual swings in revenue.

Level & Trend

The level ofRegulation isHeavy and the

trend is Steady


28/32



The industry does not enjoy anyform assistance from the governmentin the form of tari protection. In theUnited States, the industry benets

from strong enforcement ofland and intellectual propertyrights through federal and statelegal systems.

Industry Assistance

Level & Trend

The level ofIndustry Assistanceis None and thetrend is Steady


29/32


Key StatisticsRevenue

($m)

IndustryValue Added

($m)Establish-

ments Enterprises Employment Exports ImportsWages($m)

DomesticDemand

S&P 500index

(Index)

2005 32,353.6 16,078.0 6,197 6,004 32,309 -- -- 5,294.0 N/A 1,207.8

2006 36,677.3 19,866.6 6,501 6,027 34,404 -- -- 5,683.8 N/A 1,318.3

2007 43,018.1 21,988.2 6,645 6,425 33,468 -- -- 5,805.7 N/A 1,478.12008 28,848.7 11,400.8 7,895 7,649 38,458 -- -- 5,519.5 N/A 1,215.2

2009 22,215.9 9,724.7 7,445 7,208 33,258 -- -- 4,971.2 N/A 948.5

2010 25,471.2 11,097.7 7,127 6,898 31,520 -- -- 4,795.7 N/A 1,130.7

2011 25,559.5 11,127.5 6,986 6,773 31,265 -- -- 4,775.3 N/A 1,280.8

2012 26,321.6 11,518.6 7,193 6,967 32,155 -- -- 4,927.0 N/A 1,386.5

2013 29,360.1 13,562.7 7,463 7,198 34,445 -- -- 5,378.3 N/A 1,647.7

2014 30,213.3 13,774.5 7,682 7,403 35,415 -- -- 5,546.3 N/A 1,729.1

2015 31,359.9 13,375.6 7,766 7,476 36,203 -- -- 5,708.1 N/A 1,805.4

2016 32,693.2 14,322.5 8,036 7,726 37,557 -- -- 5,951.8 N/A 1,887.9

2017 34,290.0 14,992.9 8,170 7,842 38,715 -- -- 6,185.7 N/A 2,005.0

2018 35,236.1 15,521.1 8,408 8,066 39,785 -- -- 6,373.8 N/A 2,059.1

2019 36,633.2 16,106.8 8,529 8,173 40,810 -- -- 6,580.8 N/A 2,151.6

Sector Rank 29/65 25/65 27/65 17/65 34/65 N/A N/A 23/65 N/A N/A

Economy Rank 305/1303 202/1303 414/1302 363/1302 616/1303 N/A N/A 274/1303 N/A N/A

IVA/Revenue(%)

Imports/Demand

(%)

Exports/Revenue

(%)

Revenue perEmployee

($000)Wages/Revenue

(%)Employees

per Est.Average Wage

($)

Share of theEconomy

(%)

2005 49.69 N/A N/A 1,001.38 16.36 5.21 163,855.27 0.11

2006 54.17 N/A N/A 1,066.08 15.50 5.29 165,207.53 0.14

2007 51.11 N/A N/A 1,285.35 13.50 5.04 173,470.18 0.15

2008 39.52 N/A N/A 750.14 19.13 4.87 143,520.20 0.08

2009 43.77 N/A N/A 667.99 22.38 4.47 149,473.81 0.07

2010 43.57 N/A N/A 808.10 18.83 4.42 152,147.84 0.08

2011 43.54 N/A N/A 817.51 18.68 4.48 152,736.29 0.07

2012 43.76 N/A N/A 818.58 18.72 4.47 153,226.56 0.07

2013 46.19 N/A N/A 852.38 18.32 4.62 156,141.68 0.09

2014 45.59 N/A N/A 853.12 18.36 4.61 156,608.78 0.09

2015 42.65 N/A N/A 866.22 18.20 4.66 157,669.25 0.08

2016 43.81 N/A N/A 870.50 18.21 4.67 158,473.79 0.08

2017 43.72 N/A N/A 885.70 18.04 4.74 159,775.28 0.08

2018 44.05 N/A N/A 885.66 18.09 4.73 160,206.11 0.08

2019 43.97 N/A N/A 897.65 17.96 4.78 161,254.59 0.09

Sector Rank 15/65 N/A N/A 22/65 26/65 50/65 9/65 25/65

Economy Rank 338/1303 N/A N/A 153/1303 624/1303 998/1302 13/1303 202/1303

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

Revenue(%)

IndustryValue Added

(%)

Establish-ments

(%)Enterprises

(%)Employment

(%)Exports

(%)Imports

(%)Wages

(%)

DomesticDemand

(%)

S&P 500index(%)

2006 13.4 23.6 4.9 0.4 6.5 N/A N/A 7.4 N/A 9.1

2007 17.3 10.7 2.2 6.6 -2.7 N/A N/A 2.1 N/A 12.1

2008 -32.9 -48.2 18.8 19.1 14.9 N/A N/A -4.9 N/A -17.8

2009 -23.0 -14.7 -5.7 -5.8 -13.5 N/A N/A -9.9 N/A -21.9

2010 14.7 14.1 -4.3 -4.3 -5.2 N/A N/A -3.5 N/A 19.2

2011 0.3 0.3 -2.0 -1.8 -0.8 N/A N/A -0.4 N/A 13.3

2012 3.0 3.5 3.0 2.9 2.8 N/A N/A 3.2 N/A 8.3

2013 11.5 17.7 3.8 3.3 7.1 N/A N/A 9.2 N/A 18.8

2014 2.9 1.6 2.9 2.8 2.8 N/A N/A 3.1 N/A 4.9

2015 3.8 -2.9 1.1 1.0 2.2 N/A N/A 2.9 N/A 4.4

2016 4.3 7.1 3.5 3.3 3.7 N/A N/A 4.3 N/A 4.6

2017 4.9 4.7 1.7 1.5 3.1 N/A N/A 3.9 N/A 6.2

2018 2.8 3.5 2.9 2.9 2.8 N/A N/A 3.0 N/A 2.72019 4.0 3.8 1.4 1.3 2.6 N/A N/A 3.2 N/A 4.5

Sector Rank 35/65 49/65 18/65 17/65 21/65 N/A N/A 34/65 N/A N/A

Economy Rank 694/1303 908/1303 328/1302 313/1302 385/1303 N/A N/A 522/1303 N/A N/A

Annual Change

Key Ratios

Industry Data



30/32


Jargon & Glossary

BARRIERS TO ENTRY High barriers to entry mean thatnew companies struggle to enter an industry, while lowbarriers mean it is easy for new companies to enter anindustry.

CAPITAL INTENSITY Compares the amount of moneyspent on capital (plant, machinery and equipment) withthat spent on labor. IBISWorld uses the ratio ofdepreciation 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 $1of labor; low is less than $0.125 of capital for every $1 oflabor.

CONSTANT PRICES The dollar figures in the KeyStatistics table, including forecasts, are adjusted forinflation using the current year (i.e. year published) asthe base year. This removes the impact of changes inthe purchasing power of the dollar, leaving only thereal growth or decline in industry metrics. The inflationadjustments in IBISWorlds reports are made using theUS Bureau of Economic Analysis implicit GDP pricedeflator.

DOMESTIC DEMAND Spending on industry goods andservices within the United States, regardless of theircountry of origin. It is derived by adding imports toindustry revenue, and then subtracting exports.

EMPLOYMENT The number of permanent, part-time,temporary and seasonal employees, working proprietors,partners, managers and executives within the industry.

ENTERPRISE A division that is separately managed andkeeps management accounts. Each enterprise consistsof one or more establishments that are under commonownership or control.

ESTABLISHMENT The smallest type of accounting unit

within an enterprise, an establishment is a singlephysical location where business is conducted or whereservices or industrial operations are performed. Multipleestablishments under common control make up anenterprise.

EXPORTS Total value of industry goods and services soldby US companies to customers abroad.

IMPORTS Total value of industry goods and servicesbrought in from foreign countries to be sold in theUnited States.

INDUSTRY CONCENTRATION An indicator of thedominance of the top four players in an industry.Concentration is considered high if the top playersaccount for more than 70% of industry revenue.

Medium is 40% to 70% of industry revenue. Low is lessthan 40%.

INDUSTRY REVENUE The total sales of industry goodsand services (exclusive of excise and sales tax); subsidieson production; all other operating income from outsidethe firm (such as commission income, repair and serviceincome, and rent, leasing and hiring income); andcapital work done by rental or lease. Receipts frominterest royalties, dividends and the sale of fixedtangible assets are excluded.

INDUSTRY VALUE ADDED (IVA) The market value ofgoods and services produced by the industry minus thecost of goods and services used in production. IVA isalso described as the industrys contribution to GDP, orprofit plus wages and depreciation.

INTERNATIONAL TRADE The level of internationaltrade is determined by ratios of exports to revenue andimports to domestic demand. For exports/revenue: low isless than 5%, medium is 5% to 20%, and high is morethan 20%. Imports/domestic demand: low is less than5%, medium is 5% to 35%, and high is more than35%.

LIFE CYCLE All industries go through periods of growth,maturity and decline. IBISWorld determines anindustrys life cycle by considering its growth rate(measured by IVA) compared with GDP; the growth rateof the number of establishments; the amount of changethe industrys products are undergoing; the rate oftechnological change; and the level of customer

acceptance of industry products and services.NONEMPLOYING ESTABLISHMENT Businesses withno paid employment or payroll, also known asnonemployers. These are mostly set up by self-employedindividuals.

PROFIT IBISWorld uses earnings before interest and tax(EBIT) as an indicator of a companys profitability. It iscalculated as revenue minus expenses, excludinginterest and tax.

Industry Jargon

IBISWorld Glossary

FINANCIAL ASSET A nonphysical asset such as shares,bonds, notes and bank balances.

HEDGE FUND A fund that uses advanced investmentstrategies such as leveraged, long, short and derivativepositions in both domestic and international marketswith the goal of generating high returns.

INITIAL PUBLIC OFFERING (IPO) The first sale ofstock by a private company to the public

POOLED FUND A vehicle used to pool the funds of anumber of investors for investment by one manager,including hedge funds and private-equity funds.

VIATICAL SETTLEMENT A sale of life insurance policyby the policy owner before the it matures.


31/32


Jargon & Glossary

VOLATILITY The level of volatility is determined byaveraging the absolute change in revenue in each of thepast five years. Volatility levels: very high is more than20%; high volatility is 10% to 20%; moderatevolatility is 3% to 10%; and low volatility is less than3%.

WAGES The gross total wages and salaries of allemployees in the industry. The cost of benefits is alsoincluded in this figure.

IBISWorld Glossarycontinued


32/32

Disclaimer

This product has been supplied by IBISWorld Inc. (IBISWorld) solely for use

by its authorized licensees strictly in accordance with their license

agreements with IBISWorld. IBISWorld makes no representation to any

other person with regard to the completeness or accuracy of the data or

information contained herein, and it accepts no responsibility and disclaims

all liability (save for liability which cannot be lawfully disclaimed) for loss or

damage whatsoever suffered or incurred by any other person resulting from

the use of, or reliance upon, the data or information contained herein.

Copyright in this publication is owned by IBISWorld Inc. The publication is

sold on the basis that the purchaser agrees not to copy the material

contained within it for other than the purchasers own purposes. In the event

that the purchaser uses or quotes from the material in this publication in

papers, reports, or opinions prepared for any other person it is agreed that

it will be sourced to: IBISWorld Inc.

At IBISWorld we know that industry intelligence

is more than assembling factsIt is combining data with analysis to answer thequestions that successful businesses ask

Identify high growth, emerging & shrinking markets

Arm yourself with the latest industry intelligence

Assess competitive threats from existing & new entrants

Benchmark your performance against the competition

Make speedy market-ready, profit-maximizing decisions

Who is IBISWorld?We are strategists, analysts, researchers, and marketers. We provideanswers to information-hungry, time-poor businesses. Our goal is toprovide real world answers that matter to your business in our 700 USindustry reports. When tough strategic, budget, sales and marketingdecisions need to be made, our suite of Industry and Risk intelligenceproducts give you deeply-researched answers quickly.

IBISWorld MembershipIBISWorld offers tailored membership packages to meet your needs.

www.ibisworld.com | 1-800-330-3772 | [email protected]

52391 venture capital & principal trading in the us industry report

Documents