A new Silicon Valley Bank report on the medical device tax has more bright spots than you would expect. Executives from device companies seem to feel optimistic, even though they expect the tax to delay profitability.
As part of the Startup Outlook 2013, the bank asked executives from startups around the country about hiring plans and the 2013 outlook. The spin on a new report on the medical device tax is gloom and doom but the actual numbers seem to reflect the same slow recovery that the rest of the economy is making.
Most companies have figured out how the tax will affect their companies (75%). Thirty percent plan to deal with it by passing along most or all of the increased cost.
77% of device companies are planning to hire this year, compared to 91% in other sectors. Yes, there won’t be as many new jobs in the device sector as other sectors, but the majority of firms are hiring.
The same is true with the 2013 outlook. Respondents from other sectors were more optimistic (78%) but 60% of device company leaders said that 2013 would be better than 2012.
The one worry that does seem to be coming true is manufacturing moving overseas, although this trend predates the tax. When SVB asked how companies were going to deal with the tax, the top two answers were expanding overseas instead of domestically (25%). Also, among respondents who plan to start manufacturing in the next 18 months, only 50% plan to manufacture mostly in the US. Among companies currently manufacturing, 93% manufacture mostly in the US.
SVB surveyed 750 startups and there were 98 device executives among them. Most of the respondents were the CEO or the CFO. Sixty-one percent of the respondents were not yet earning revenues, and among those who were making money, 56% earned less than $5 million in 2012 and 95% earned less than $25 million. Fewer than one in 10 expected to be profitable in 2012.
This comment from one of the participant sums up the most realistic hope — and the most needed changes — the sector has for changes to the tax.
I would not tax companies on revenues but on profits and would also not tax companies with less than $10M in revenues because those companies need more support so they can innovate and create jobs and skills that will impact America longer term.