Spotlight

Startups: On the Rise and Increasingly Diverse

Locavesting Staff | August 5, 2016

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Startup activity in the U.S. is on the rise again. Three-hundred and thirty out of every 100,000 adults became an entrepreneur last year—translating to 550,000 new businesses a month. A growing number of them were women and Latinos, and most started a new venture to seize an opportunity, rather than out of necessity.

These are some of the findings of the Kauffman Foundation’s 2016 Startup Activity Index, released on Thursday. The annual index rose for the second year in a row, suggesting a reversal of a long term slide in startup activity, which hit a 20-year low just two years ago. The index measures a broad range of startup activity and is considered an early indicator of new business creation.

While the overall trend was positive, startup activity is still below the levels seen before the Great Recession, 
and later-stage startups with employees saw a slight drop.

Kauffman index

Among the most encouraging signs were the increase in the diversity of entrepreneurs, in terms of gender, race and other factors.

The gender gap persists, with men representing nearly 60% of all entrepreneurs. But women have been gaining at a faster pace. The percent of women becoming entrepreneurs in a given month rose from 0.22 percent (220 out of 100,000) to 0.26 percent (260 out of 100,000) from 2014 to 2015—the biggest increase in almost 20 years (see above).

Kauffman Foundation

In addition, 40% of new entrepreneurs were African American, Latino, Asian, or other non-white entrepreneurs in the 2016 Index. Latinos, in particular, are opening new businesses in droves.

Kaufman Entrepreneur Race

 

Immigrants continue to be a vital source of entrepreneurial activity.

Kaufman Entrepreneur Nativity

 

And, in contrast to the popular image of the 20-something entrepreneurs, older Americans continue to drive a good portion of new business activity, with the sharpest increases seen in the 35-44 age group.

Kaufman Entrepreneur Age

Is it a new dawn for entrepreneurship? Time will tell. But the Kauffman study indicates that more new entrepreneurs are being driven by opportunity, rather than necessity—for example, because they were previously unemployed.  That measure of opportunistic startup activity is 10% higher than in 2009 at the height of the Great Recession.

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