You asked how Connecticut Innovations, Inc. (CII) determined the economic impacts of its investments.

CII is the state's quasi-public venture capital agency. In 2003, it retained Nexus Associates, Inc. to study, among other things, how CII's investments benefited the Connecticut economy from 1995-2002 (www. nexus-associates. com). (CII recently issued a request for proposals to update this analysis, its legislative analyst, Chelsey Sarnecky stated. )

During the study's seven-year period, CII invested $ 105 million in 55 companies (Nexus, The Economic Impact of Connecticut Innovations' Equity Investments, December 16, 2003). Nexus estimated that this investment directly and indirectly created 5,590 year-long, full-time jobs (i. e. , “job years”) and added $ 510 million to Connecticut's gross state product (GSP), a statistical indicator commonly used to measure economic growth. Nexus based these estimates on:

1. the nature of CII's investments,

2. data the companies provided on the additional jobs and sales revenue they attributed to these investments, and

3. a widely used model for determining the economic impact of government policies and programs.

Nexus' analyzed the 55 companies in CII's investment portfolio, which seems to suggest that the economic impact of CII's investments could vary depending on the portfolio's make up. The portfolio mostly consisted of relatively young firms (60% were less than two years old) and those with little previous experience managing venture capital funds (almost 60%). Most (80%) were in the information technology or bioscience sectors.

CII also tended to make multiple investments in these firms mainly to gain higher return rates, protect its financial interests, or because companies could not raise enough additional capital in the private market.

Nexus then determined how this portfolio affected the state's economy. It retained an independent company to survey the 55 firms that received CI investments in FYs 1995-2002. Over 87% responded. Among other things, the survey asked the firms to estimate the additional jobs and sales revenue that resulted from CII's investments (and technical services). In total, the firms reported creating 2, 716 additional job-years and generating $ 185 million in additional revenue because of these investments.

Nexus plugged these numbers into the Regional Economic Model (commonly know as the REMI model), which is based on assumptions about the ripple effects of government policies and programs. It expresses these effects as mathematical equations whose outcomes vary depending on the numbers assigned to their variables.

REMI's Connecticut's economic forecast for 1995-2002 already incorporated CII's investments, but did not isolate their impact. Consequently, Nexus isolated that impact by preparing a second forecast that did not include the reported additional jobs and revenue and their ripple effects. Nexus compared the difference between the two forecasts and attributed the difference to CII's investments. It multiplied this difference by the ratio of state tax returns to GSP to calculate the additional tax revenue resulting from CII's portfolio investments in each year during the study period.

JR: ts