Technology, Innovation, and Growth in Colorado

Technology, Innovation, and Economic Growth in Colorado


1999 State of the State
Technology Readiness Report

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"Technology, Innovation and Economic Growth in Colorado" was prepared in June of 1999 by the CU Business Advancement Center to present a snapshot of technology industry and the factors contributing to technology growth in the state. The report includes a summary of data from other government and private sources to show trends over time and compare Colorado performance to the United States and other states. In addition, survey responses from industry provide growth projections and perceived critical barriers to that growth.

This study was funded in part by the Colorado Advanced Technology Institute, an agency of the state of Colorado. CATI promotes advanced technology education and research at universities in Colorado for the purposes of academic and economic development.

Additional funds were provided by the U.S. Department of Commerce, Economic Development Administration. The statements, findings, conclusions, recommendations and other data in this report are solely those of the author(s) and do not necessarily reflect the views of the Economic Development Administration or the Colorado Advanced Technology Institute.

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Within recent years, Colorado has gained a reputation at home, and abroad, as a high-technology growth center and a leader in technologies of the future, including information technologies, photonics, advanced materials, electronics, and environmental and biotechnologies.

This report presents a snapshot of the Colorado technological industry based on a mail survey of industry organizations conducted in early 1999. The survey provides current information and industry projections on firms' growth factors, research activity, workforce requirements and early stage development of selected niche technologies. In addition, the report presents trend and comparison data on some of the key indicators of technology-based economic growth: technical education, basic and applied research, innovation and availability of capital.

The study was initiated by the Colorado Advanced Technology Institute, which served as the state science and technology agency from 1984 to June 30, 1999. During this 15-year period, state funds were leveraged to match federal and corporate support for targeted university/industry collaborative research, including information sciences, advanced materials, biotechnology, software and optics/photonics. These research collaborations brought university researchers from various campuses together to address an industry research agenda. While corporate sponsor/members were located across the country, as well as Colorado, the presence of these industry-focused research centers fed the Colorado economy with spin-off firms, local expertise and graduates with the technical capability to support local industry. In addition, special efforts were made to foster Colorado economic impact by including small in-state firms through seed grant funding, joint research projects, student internships and other mechanisms.

This document is intended to serve as a capsule report on the state of the state's technology readiness as Colorado prepares for the challenges and opportunities of the new millennium.





Executive Summary

Economic Growth

Innovation Indicators
Patents Issued in Colorado
Small Business Innovation Research Awards

Workforce Indicators
Math Achievement in Colorado Public Schools
Colorado Graduates
Science and Engineering Indicators

Financial Indicators
R&D Financing and Performance
Federal R&D Financing
Colorado Venture Capital Investments



While many national indicators point to a high level of economic growth driven by technology industries, a new "innovation index" released by the Council on Competitiveness warns that the declining U.S. investment in innovation infrastructure threatens our nation's ability to sustain long-term competitiveness.

The Colorado economy is currently enjoying extremely high levels of employment, personal income and productivity levels. Many innovation indices summarized in this report point to a state well positioned to support further technology-based growth. Now is the time to assess and renew the investment of human and capital resources necessary to ensure that Colorado provides a strong supportive environment to expand its share of the technology economy.

The international competition for technology-based industry stems from the benefits that accrue to the local and national economy. Several studies, cited in a July 1998 brief by the Division of Science Resources, report these economic impacts:

What are the factors that drive a technology-based economy? Current studies of regional economies with high growth in technology sectors support the idea that clusters of companies and institutions are required for optimal industry growth. The Council on Competitiveness reinforces these concepts in its 1999 innovation index that compares the U.S. innovative performance to that of other countries.

This index identifies three primary contributors to overall innovative performance: "the common innovation infrastructure that supports innovation in the economy as a whole (e.g. investment in basic science); the cluster-specific conditions that support innovation in particular groups of interconnected industries (e.g. automotive, information technology); and the strength of the linkages among them (e.g. the ability to connect basic research to companies and the contribution of corporate efforts to the overall pool of technology and skilled personnel)." 2

"In measuring U.S. innovation as a benchmark of potential to sustain productivity growth and competitiveness in the long term, the innovation index looks at total R&D personnel, total R&D investment, the percentage of R&D funded by private industry, the percentage of R&D performed by the university sector, spending on higher education, the strength of intellectual property protection, openness to international competition, and finally, a nation's per capita GDP." 2

"The index indicates that the United States may be living off historical assets that are not being renewed. Investment in the fundamentals of innovative capacity reached a peak in 1985 and then fell." 2

The index identifies challenges to a national innovation strategy as:

    1. Emerging shortages in the national talent pool: "The number of R&D workers as a percentage of the total workforce has been declining since the late 1980s, when it should be rising. Graduate school populations in engineering and the physical sciences, even in computer sciences, are also static or declining. An increasing proportion of graduates are international students, and an increasing proportion of them are returning to their home country on completion of their studies." 2
    2. Current investment in research and development (R&D): "Current investment in R&D is lower as a percentage of national wealth than it was in the early 1980s. These declines are partly the result of disinvestment by the Federal government, which is only partially compensated for by the private sector. Private research shows clear signs of becoming much shorter term."2
    3. Policy: "Overall, the U.S. regulatory and legal environment inflicts substantial, unnecessary costs on industry, and is ranked poorly relative to other countries." 2

In examining science and technology (S&E) indicators, the National Science Foundation identifies the major trend to be the globalization of technology economic factors. "S&T students and personnel are internationally mobile. Collaboration and alliances are increasing in both academia and industry. The most effective form of S&T transfer is 'people embodied,' but technological know-how is also transferred through direct investment, patenting activity, the sale of intellectual property, and trade in technology-embodied products."3

Obviously, national policy and investment affect technology development in all states; however, state policy, investment and distribution of resources can help create regional cluster conditions that support innovation and technical capability in its own economy.

Citing reports by the State Science and Technology Institute 1999 and Congressional Research Service 1998, the National Science Foundation summarizes the state government's role in expanding regional economic growth through science and technology. Common factors in state S&T strategic plans are:

Compared to other states in support for R&D and R&D plant, Colorado ranks 24th in terms of dollars invested and 33rd based on dollars invested per capita (1995). 5

This report provides an overview of technology and innovation in the Colorado economy based on many of the indices of innovation used in similar studies.


 1 "High Tech Industries Drive Global Economic Activity," National Science Foundation, Division of Science Resources Studies, page 1.

2 "The New Challenge to America's Prosperity: Findings from the Innovation Index," Council on Competitiveness, authors Michael Porter, C. Roland Christensen, Scott Stern; Executive Summary.

3 "Science and Technology in Transition to the 21st Century," S&E Indicators 1998: Overview, National Science Foundation.

4 "What is the State Government Role in the R&D Enterprise?" National Science Foundation Report nsf99348.

5 "Science and Engineering Indicators - 1998," Support for R&D and R&D plant from state government sources, Appendix table 4-54, National Science Foundation.


Executive Summary

Technology crosses many industries and means different things to different people. For the past 11 years the state of Colorado has enjoyed positive job growth and much of that growth has occurred in technology-related companies operating in the state. Because it is difficult to track and monitor exactly what technology is, it is also difficult to determine whether technology is a benefactor of the strong Colorado economy or if it is the driving force behind it. Since technology has had a strong impact on our national and state economy, this paper evaluates four groups of indicators (economic growth, innovation, workforce, and financial) that will impact technology-based companies in Colorado.

Economic Growth

For the purposes of this study, Colorado ES202 data were evaluated from 1992 to 1997 using 88 four-digit SIC Codes to define technology. Based on this definition of high technology, there were 360,518 technology employees in Colorado during 1997. During this five-year period, the number of technology employees increased by 36%, or almost 95,500 jobs. These jobs represent slightly more than 25% of the increase in jobs during this period. In 1992 technology jobs represented slightly less than 16% of the jobs in Colorado. In 1997 the total number of technology jobs exceeded 17% of total employment.

In 1992, Colorado technology firms employed an average of 56 employees. In 1997, the average technology company size was 44 employees. This decrease is most likely a direct result of downsizing, outsourcing, mergers and acquisitions, and an increase in the number of start-up and spin-off companies.

In the spring of 1999, the University of Colorado Business Advancement Center completed a technology industry survey that determined the 1998 average annual wages for a technology employee were $52,111. It is estimated that technology wages represent about 29% of the state's 1998 wages. Growth beyond 1999 may be impacted by the ability of companies to find trained workers.

According to the American Electronics Association's "Cyberstates 3.0" report, Colorado high-tech exports more than doubled between 1990 and 1998, reaching $4.1 billion. High-tech exports comprise 71% of all exports from the state, the third highest concentration nationally. Export sales, however, represent a small percentage of current market for most Colorado technology firms. Responses to the 1999 survey indicate a mean percent of sales in international markets to be 7.8%, with 42.0% of sales in Colorado and 50.3% in other U.S. states.



Nationally, the number of patents issued to U.S. residents has been steadily increasing since 1990, with a sharp increase in 1998. Patent issuance in Colorado has exceeded the national level since the mid-eighties. In 1998, Colorado received about 2% of patents issued to U.S. residents and ranked 14th among states.

The number of awards received by Colorado companies participating in the SBIR/STTR programs has been increasing since 1995. Colorado firms ranked fifth in the nation during 1997 for the number of SBIR grants received. Colorado firms ranked seventh in the competition for STTR awards that requires companies to partner with university, nonprofit research institutions, or contractor-operated federal laboratories.


The percentage of Colorado fourth and eighth graders achieving math proficiency levels is closely equivalent to that of the nation.

In 1996, Colorado ranked eighth among states in college enrollment as a percentage of total population. In 1995, Colorado ranked 26th among the states in higher education current fund expenditures. In 1994-95, Colorado institutions of higher education awarded 35,645 degrees in all categories. A total of 10.6% of bachelor's degrees and 16.7% of master's degrees were in computer science and engineering.

The American Electronics Association's "Cyberstates 3.0" report, released in June 1999, indicates that Colorado has the second highest concentration of high-tech workers in the country, with 80 high-tech workers per 1,000 private sector workers. According to the report, Colorado ranked 12th among states in high-tech employment, with 131,900 high-tech workers in 1997.

According to 1995 statistics, the state's labor force includes 9,261 doctoral scientists and 1,945 doctoral engineers. In 1996, Colorado awarded 545 science and engineering doctoral degrees, ranking 17th among states.

R&D Financing

The degree to which Colorado industry and institutions conduct research is an indicator of the capacity of the state to support technical growth and innovation. Research performed by Colorado industry is funded internally, or by government contracts. Research performed by Colorado universities and colleges is funded through a combination of federal, state and local government, by industry, by universities and colleges, and by nonprofits. In 1995, Colorado industry provided 62% of R&D financing, while the federal government funded 34%. During this same year, industry performed 72% of research activity as measured by expenditures of $1.9 billion.

Universities and colleges accounted for 15% of R&D activity, with a total of $393 million in expenditures. This percentage is slightly higher than the national average of 12%. The majority of this amount is federally funded at $260,247,000.

Based on the 1995 expenditure amount, the federal government conducted only 6% of research in the state, federally funded research and development centers (FFRDCs) performed 5%, and not-for-profits 2%.

Technical product and process development was a critical factor in the future growth of almost 50% of respondents. Finding financing for R&D activities was identified as an important factor in future success by almost 40% of responding firms and represented a potential barrier to growth for almost half of these companies.

Nationally, federal R&D obligations show a small but steady increase since 1992. In contrast, federal funding in Colorado evidenced a sharp decline in 1992 and 1995. Now, over the last couple of years it is slowly increasing. In 1990 Colorado received $1,888 million in federal funds, moving to a high in 1991 of $2,694 million and a low of $951 million in 1995. In 1997, federal research funding in Colorado was $1.3 billion, with $608 million supporting research performed by industry and $269 million supporting research at colleges and universities.

A total of $1.3 million in federal funds were obligated to Colorado-based R&D activities in 1996. The primary Colorado recipients of federal R&D funds were industrial firms. Universities and colleges were the next major recipients, with 17.7%, followed by intramural activities at 14% and federally funded research and development centers with 13.9%. Not-for-profit institutions received only 4%.

Nationally, the distribution of federal R&D funds varied slightly in 1996. Industrial firms still received the largest share of funding at 45.7% and universities and colleges received 17.8%. However, intramural activities received 24.1%, and not-for-profits received 4.1%. Federally funded research and development centers received 8%. State and local governments received 0.3%.


Venture Capital Investment

Venture capital sources carefully select and invest in companies with high growth and revenue potential. Nationally, of the $14.3 billion invested in 2,860 deals in 1998, technology-intensive companies received about 84% of the invested dollars, of which e-commerce and enterprise software companies were major beneficiaries. Venture capital investments are a measure of the state's competitive position as viewed by the investment community.

As with national statistics, the majority of Colorado investments were in technology fields, led by communications, and software/information industries. In 1998, venture capital investments in Colorado totaled $518 million or 3.6% of the national total. Technology-based investments far exceeded other industries both in the total dollars invested and in the number of investments. A total of 46% of 1998 investments were in the communications industry.