The U.S. startup rate has been falling for decades. The Kauffman
Foundation, citing its own research and drawing on U.S. Census data,
concluded that the number of companies less than a year old had declined
as a share of all businesses by nearly 44 percent between 1978 and
2012. And those declines swept across industries, including tech.
Meanwhile, the Brookings Institution, also using Census data,
established that the number of new businesses is down across the country
and that more businesses are dying than are being born. John Dearie
is executive vice president for policy at the Financial Services Forum.
He said, “I would say, as a policy person, this is nothing short of a
national emergency.” In his book Where the Jobs Are: Entrepreneurship and the Soul of the American Economy,
Dearie and his co-author interviewed more than 200 founders about the
challenges of building businesses. Their subjects cited five:
insufficient access to capital; difficulty finding people with the right
skills; immigration policies that keep talent out; onerous taxes and
regulations; and economic uncertainty.
Starting a business is generally a young person's game but that drive and innovative urge can be challenged by risk. According to the Global Entrepreneurship Monitor (GEM), a consortium of academic teams in more than 70 countries, until last year 25-to-34-year-olds were significantly more worried about failure than 35-to-54-year-olds. But there’s a hopeful sign for startup rates: In the past year, young people have begun to display more confidence. In 2014, just 34 percent of 25-to-34-year-olds said fear of failure would prevent them from starting a business, down from 41 percent a year earlier.
And there is a shrinking, modern market as the population ages. On the demand side, a slowing population means less demand for new products.
Research by Mattermark, which tracks startup data, shows that between 2005 and 2014 the size of seed investments made by VCs stayed flat. The size of C, D, and E rounds, by contrast, roughly doubled. The number of small seed rounds has recently dropped, according to PitchBook, with investments below $500,000 declining 61 percent between the first quarter of 2013 and the fourth quarter of 2014. Below the VC level, angels and seed funds have proliferated as startup costs have decreased. But even angels’ interest in fledglings is down.
But even where capital is becoming more accessible, other forms of support may not be. The number of accelerators and incubators continues to expand. But LaPan says too many of those programs target companies with proven customer demand, validated business models, and savvy management teams. In addition, the large number of industry-specific programs doesn’t necessarily reflect the interests of far-flung entrepreneurs.
In terms of employees, the average startup was a third smaller in 2011 than in 2001, according to research by Gary Kunkle, an economist and founder of research firm Outlier. Many of these businesses lack resources or ambitions to grow. But some stay small by choice, because technology makes it possible and the rewards of being nimble make it desirable.
One possible positive: Ten years from now, we’ll have more people in their 30s than ever before in history.
Starting a business is generally a young person's game but that drive and innovative urge can be challenged by risk. According to the Global Entrepreneurship Monitor (GEM), a consortium of academic teams in more than 70 countries, until last year 25-to-34-year-olds were significantly more worried about failure than 35-to-54-year-olds. But there’s a hopeful sign for startup rates: In the past year, young people have begun to display more confidence. In 2014, just 34 percent of 25-to-34-year-olds said fear of failure would prevent them from starting a business, down from 41 percent a year earlier.
And there is a shrinking, modern market as the population ages. On the demand side, a slowing population means less demand for new products.
Research by Mattermark, which tracks startup data, shows that between 2005 and 2014 the size of seed investments made by VCs stayed flat. The size of C, D, and E rounds, by contrast, roughly doubled. The number of small seed rounds has recently dropped, according to PitchBook, with investments below $500,000 declining 61 percent between the first quarter of 2013 and the fourth quarter of 2014. Below the VC level, angels and seed funds have proliferated as startup costs have decreased. But even angels’ interest in fledglings is down.
But even where capital is becoming more accessible, other forms of support may not be. The number of accelerators and incubators continues to expand. But LaPan says too many of those programs target companies with proven customer demand, validated business models, and savvy management teams. In addition, the large number of industry-specific programs doesn’t necessarily reflect the interests of far-flung entrepreneurs.
In terms of employees, the average startup was a third smaller in 2011 than in 2001, according to research by Gary Kunkle, an economist and founder of research firm Outlier. Many of these businesses lack resources or ambitions to grow. But some stay small by choice, because technology makes it possible and the rewards of being nimble make it desirable.
One possible positive: Ten years from now, we’ll have more people in their 30s than ever before in history.
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