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Entrepreneurship: Bottom's Up
Study: Slump in U.S business starts levels off
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Business New Haven
08/18/2003
By: BNH
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Entrepreneurial activity in the U.S. held steady in 2002 after a sharp drop in 2001, according to the "Global Entrepreneurship Monitor" (GEM), an annual study of entrepreneurship conducted by Babson (Mass.) College and funded by the Kauffman Foundation of Kansas City, Mo.
In 2002, one in ten Americans created or grew new businesses. That’s a level of entrepreneurial activity 50 percent higher than just five years before, according to the GEM report. In what researchers characterized as another good sign, the number of Americans who were optimistic in 2002 about the climate for starting a new business held steady from the previous year at 37 percent.
"The good news here is that the 2001 slump in entrepreneurship bottomed out in 2002 and may have set the stage for a return to new growth this year," said Kauffman Foundation President and CEO Carl Schramm. "This report makes a powerful case for stepping up the best efforts of the Kauffman Foundation and others to get more new entrepreneurs into the pipeline.
"It is vitally important to have a thriving entrepreneurial class today, but we also have to think ahead and work harder to groom new generations of entrepreneurs who will continue to innovate, create jobs and contribute to a more prosperous national economy," Schramm added.
Added GEM report author Heidi Neck, an assistant professor of entrepreneurship at Babson College: "Entrepreneurship in the U.S. continues to thrive at a very high level, even in the wake of world economic decline. Though U.S.
entrepreneurial activity peaked in the year 2000, the level reported for 2002 may simply reflect an ongoing post-boom retrenchment rather than a structural decline."
Another key finding of the study is that "informal" capital in may cases holds the key to business creation. Indeed, "informal investment" in the U.S. is holding up better than venture capital.
Venture-capital funding for entrepreneurial ventures slumped 59.6 percent in 2001, while "informal investment" declined only 19.5 percent the following year.
Informal investment topped VC investment in the U.S. in 2002; nearly one in 20 (4.6 percent) adults reported investing money in entrepreneurial firms, with 50 percent of those proceeds going to companies owned by investors’ relatives.
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