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Startups on the rise in San Diego

San Diego entrepreneurs created 412 new startup companies and 1,200 jobs last year, despite a drop in venture capital funding for the region’s young firms.

City and business leaders highlighted these numbers on Monday from the semiannual Connect Innovation Report as evidence that San Diego remains a hub for startups.

“There is a lot happening in San Diego that we tend to lose track of,” said Greg McKee, chief executive of Connect, a nonprofit focused on helping entrepreneurs. “We are always getting beaten up a little bit vis-à-vis Boston and San Francisco. But when you look at the information, there is a lot of activity here.”

Of the 412 startups that opened their doors last year, 233 were software firms. “We are beginning to see an absolute boom in software across the region,” said Mayor Kevin Faulconer at a news conference.

San Diego’s software industry was stung this year when two well-known companies — Websense and Active Network – moved their headquarters to Texas, taking advantage of that state’s relocation grants. The moves eliminated hundreds of local jobs.

Faulconer said he would hold a series of round-table meetings with business leaders on topics including cyber security, access to capital, research institutions, genomics and talent retention. “The Connect Innovation Report shows that our innovative economy represents a tremendous opportunity to globally showcase our talent,” he said.

The report tracks the technology, life sciences and recreational sporting goods industries. There are 6,646 such firms in the county employing 143,000 workers.

The average annual wage in the tech sector last year was $109,000, according to the report, which is more than twice the average wage for all workers countywide.

Among the startups highlighted by Connect was Everyone Counts, which makes digital voting systems to replace old, paper-based systems. Chief Executive Lori Steele said the 50-employee firm has powered online voting for elections in several states, as well as private-sector contests like the Oscar and Emmy Awards. Its technology is typically used as a supplement to paper-based balloting. But Everyone Counts was recently named a finalist to supply a statewide digital voting system in Colorado, where it’s competing with two other firms. Steele thinks the company is well positioned as more governments transition to digital voting.

Another featured company was Innovega, which makes eyewear akin to Google Glass with a twist. The 10-employee firm uses bifocal contact lenses to let users see augmented reality displays in a pair of slightly modified sunglasses. Today, augmented reality headsets tend to be bulky. The company is running pilots now, said Chief Executive Steve Willey. It is aiming for FDA approval next year, with a commercial launch in 2016.

Finding capital for young companies remains a hurdle. Venture capital investments in San Diego companies dropped from $1.15 billion in 2012 to $758 million last year – a 34 percent decline.

“It is certainty unfortunate we don’t have more venture capitalists here,” said McKee. “We’re trying to help the VCs that are currently here find and get access to more companies.”

However, San Diego leads California in National Institutes of Health grants, which rose to $960 million last year compared with $870 million in 2012. The county also saw National Science Foundation grants rise to $233 million last year from $165 million in 2012.

Angel investors also have been active in funding young companies to backfill the void in venture capital, said McKee.

“Ultimately if we can create really good companies, the VCs will come back,” he said.

Connect Innovation

412: The number of new technology/life sciences/sports equipment start ups that were established in San Diego County last year. It’s the highest number since 2007.

$758 million: Total venture capital funds that flowed into local companies in 2013. That’s down from $1.15 billion in 2012.

$960 million: Total amount in National Institutes of Health grants that were awarded to San Diego County research and academic institutions last year, the highest of any county in California.

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