The implementation of new ideas in the form of products or processes with real-world applications is what separates innovations from inventions. Access to financing is an essential component of the translation of new knowledge into innovations. This section presents a range of indicators of innovation output, starting with data on the funding of innovation through federal programs and through private venture capital. Often, these two kinds of funding work together, with federal funding providing the earlier stage of financial capital.

High rates of innovation activity in the business sector indicate a dynamic economy, whether at the local, regional, or national level (Hall and Jaffe 2018). A key indicator of business innovation activity is the proportion of companies within an industry that introduce new or significantly improved products and processes. Self-reported industry-level data for the United States are provided on the introduction of new or significantly improved products and processes by U.S. businesses, from a joint NCSES and Census Bureau survey.

Trademark registrations from the USPTO “capture the moment at which products or services are introduced into the market, turning inventions into innovations” (von Graevenitz, Graham, and Myers 2022:227–28). Thus, trademarks represent another direct measure of innovative output by firms. Compared with patenting, trademarking is easier and less costly, and it does not have the same requirements regarding novelty (Millot 2009); consequently, small and new businesses apply for trademarks more frequently than they apply for patents (Greenhalgh et al. 2011; Seip, Castaldi, and Flikkema 2019). Therefore, trademarks can reveal service, marketing, and organizational innovation that would not otherwise be captured because the source of innovation is not always tied to technological advances (Castaldi, Block, and Flikkema 2020).

The central role of the business sector in innovation activity has shaped the available data, and most indicators of innovation address the private sector. Notwithstanding the availability of data, however, a diverse set of actors that span the economic sectors of the economy contributes to the creation of innovative output, including universities, government agencies, and public scientists.

One type of federal government support is the Small Business Innovation Research (SBIR) program. SBIR was established in legislation by the Small Business Innovation Development Act of 1982 (P.L. 97-219) to increase the participation of small firms in federally funded R&D. Federal agencies with over $100 million per year in extramural research spending must establish an agency-specific SBIR program, under the framework and guidelines set by the Small Business Administration (SBA). Over time, the program’s objectives have expanded to include the promotion of participation by women-owned and socially disadvantaged businesses and to encourage the commercialization of innovations developed with federal R&D funding. In 1992, Congress established a complementary program, the Small Business Technology Transfer (STTR) program, which supports small firms seeking to commercialize technologies developed at universities and other research institutes.

As of FY 2022, each U.S. federal government agency with over $100 million in R&D expenditures is required to spend 3.2% of its extramural research budget on its SBIR program. There are currently 11 agencies operating SBIR programs, and 5 of those agencies also have STTR programs. Agencies with over $1 billion in R&D spending per year must also operate an STTR program, with funding set at 0.45% of that agency’s extramural budget (SBA 2023b).

SBIR funds are awarded at two levels. From the perspective of funding innovation, Phase II awards provide more direct assistance to firms seeking to get new products and services to market. Through these Phase II SBIR awards, federal agencies that fund R&D provide direct support for technology development and commercialization to over 1,000 firms per year. The number of firms receiving Phase II SBIR and STTR awards each year rose from 1,171 in 2012 to 1,870 in 2022 (Figure INV-17). At the agency and department level, the largest share of awardees was funded by DOD (50%) (Figure INV-18).

Venture capital is a particularly important indicator of innovation because venture investors tend to invest in companies with products that they believe have a significant likelihood of achieving market success. Venture capital-backed firms that become publicly traded are more likely to have recorded R&D expenditures compared to publicly traded firms that were not originally venture backed (Lerner and Nanda 2020). In this regard, data on venture capital investment trends can be viewed as leading indicators of the innovative output expected from startups because those funds are used to create innovations.

Venture capital investment primarily funds high-risk and early stage firms. The funding for venture capital flows from large institutional investors, called limited partners (e.g., pension funds, university endowments, private equity funds, and foundations), to venture investors, who then select the firms to support. Early stage firms give up equity ownership shares in exchange for these investments. These equity shares are not easily traded, so the venture investors (and their limited partners) only receive compensation when the early stage firm has a public stock offering or is acquired by a larger firm. Since early stage firms have a high rate of failure, venture investors deploy capital across a portfolio of these firms, expecting that one successful investment will compensate for the many that yield no returns.  

Worldwide, venture capital investments ranged between $300 billion and $400 billion between 2018 and 2020. In 2021, however, these investments experienced an unprecedented boom. Global venture investments almost doubled between 2020 and 2021, reaching an all-time high of more than $740 billion. This historic increase in 2021 was followed by a decrease to about $540 billion in 2022, a decline of 27% (Table SINV-31).

Venture capital investments within the United States followed a similar pattern, with about $350 billion invested in 2021, followed by a 28% decline to $250 billion in 2022. About $150 billion of venture capital invested in U.S. firms in 2022 involved later-stage funding, a 38% decline from the 2021 peak of $240 billion in 2021 (Figure INV-19). Later-stage investment capital accounted for over 60% of U.S. venture capital funding in 2022 (Figure INV-19). Although a smaller share of overall venture capital, seed funding increased 30% between 2021 and 2022, reflecting strength in early stage companies.

Geographically, firms in the western United States continued to account for the largest share of firms receiving venture capital funding in 2021 and 2022 (45% and 43%, respectively), followed by firms in the Northeast (26% and 26%, respectively) (Figure INV-20). The rapid increase in venture investment activity in the United States did not affect the overall geographic concentration of that activity.

At the industry level, software firms have accounted for the largest share of firms receiving venture capital investments each year since 2013. These firms accounted for 43% of firms receiving venture capital investment in 2022, representing an increase in share of 2.4 percentage points compared to 2013 (Figure INV-21). Health care and biomedical firms were the next highest in terms of share for 2021 and 2022. Overall, the distribution of firms receiving venture capital funding each year by industry remained roughly similar from 2013 to 2022.

Products receiving trademark protection provide an indication of industries with high innovation activity. Trademarking allows firms that engage in R&D and patenting to appropriate greater returns from their innovations, suggesting a useful and separate innovation indicator from patenting (Dinlersoz et al. 2018; Castaldi, Block, and Flikkema 2020). In 2022, the USPTO registered 333,000 trademarks to owners across the world, including 172,000 to U.S. owners (Table SINV-35). Along with other types of invention and innovation, in the pandemic year of 2020 the number of USPTO trademarks registered dropped 9% from the year before, rebounding in 2021 (Table SINV-35). Across product types, knowledge-intensive products and services account for high numbers of trademarks; of the 172,000 U.S. registered trademarks in 2022, the highest numbers are in the categories of leisure, education, and training; scientific research, information, and communication technology; and management, communications, real estate, and financial services (Figure INV-22). Table SINV-34 through Table SINV-48 provide product level detail. A supplemental workbook released with this report provides annual county-level data (File USPTO trademarks, by county and product).

Trademark activity is unevenly spread across the United States, with more intensive activity along the coasts, the Rocky Mountain region, parts of Texas, and the Great Lakes region (Figure INV-23). In 2022, almost 75% of all counties had at least one trademark issued, making trademark activity more geographically disbursed across the interior of the United States compared with the regional patenting described in this thematic report’s section Invention Indicators: Protecting Useful Ideas, in which 64% of counties had at least one patent. The top three counties in 2022 for trademark intensity are Sheridan County in Wyoming, followed by Teton County, also in Wyoming, and then by New York County in New York State.