Startup Activity Swings Upward for Third Consecutive Year, Annual Kauffman Index Reports

More people are starting businesses out of opportunity than out of necessity; the percentage of immigrant entrepreneurs is at a two-decade high. However, new businesses are creating fewer jobs than they did a generation ago.

State- and metro-specific interactive data available at www.KauffmanIndex.org

(KANSAS CITY, Mo.) May 18, 2017 – Business startup activity trudged slightly upward in 2016, continuing a three-year ascension and reaching pre-Recession levels, according to the 2017 Kauffman Index of Startup Activity, released today by the Ewing Marion Kauffman Foundation.

While the findings are heartening, the report notes, startup activity remains in a long-term decline when compared to activity levels in the 1980s.

"A three-year upward trend in new business formation is a promising sign for the economy," said Victor Hwang, vice president of Entrepreneurship at the Kauffman Foundation. "Recent research demonstrates that more startups lead to higher productivity, wage growth and quality of life. Growing startups not only support individual entrepreneurs but lift surrounding communities. We need to identify and remove barriers and contribute to a new model of economic development that infuses more entrepreneurship into the economy."

The Startup Activity Index, an early indicator of new entrepreneurship in the United States, inched up in 2016, after sharp increases two years in a row. The share of new entrepreneurs who started businesses to pursue opportunity rather than from necessity reached 86.3 percent, more than 12 percentage points higher than in 2009 at the height of the Great Recession.

First-generation immigrants now make up nearly 30 percent of all new U.S. entrepreneurs. The percentage of immigrant entrepreneurs reached its highest level for just the second time in 20 years, climbing steadily from 13.3 percent in 1996.

"Immigrants are twice as likely as native-born to start new businesses, and this is good news for new business activity and the economy," said Arnobio Morelix, senior research analyst at the Kauffman Foundation. "For generations, immigrants have been a key part of America's innovation DNA – from Alexander Graham Bell inventing the telephone to Sergey Brin starting Google. Today more than 40 percent of Fortune 500 companies were founded by immigrants or their children, and over half of America's billion-dollar unicorns have an immigrant founder."

The rate of new entrepreneurs decreased in 2016 to 0.31 percent, or 310 out of every 100,000 adults starting new businesses each month. This business-creation rate translates into roughly 540,000 adults switching to self-employed business ownership in each month during the year. In 2015, 330 out of every 100,000 people, or 0.33 percent, started businesses each month.

In addition to national Startup Activity trends, the Startup Index looks at activity in all 50 states and the 40 largest U.S. metropolitan areas.

Among the largest states, these five had the highest startup activity in 2017: California, Texas, Florida, Arizona and Colorado.

Among the 25 smaller states, these five had the highest startup activity in 2017: Oklahoma, Wyoming, Alaska, Montana and Nevada.

The five metropolitan areas with the highest startup activity were, in order: Miami, Austin, Los Angeles, San Diego and Las Vegas.

"While some types of entrepreneurial activity, such as venture capital, seem to be concentrated in places like Silicon Valley and New York, we are seeing growing broad-based startup activity nationwide," said Philip Gaskin, director of Entrepreneurial Communities at the Kauffman Foundation.

The Kauffman Index of Startup Activity relies on three indicators to evaluate new business creation: the Rate of New Entrepreneurs in the economy, calculated as the percentage of adults becoming entrepreneurs in a given month; the Opportunity Share of New Entrepreneurs, calculated as the percentage of new entrepreneurs driven primarily by opportunity vs. necessity; Startup Density, the number of new employer businesses divided by the total population of existing employer businesses.

About the Kauffman Index of Startup Activity

The Kauffman Foundation's annual study of startup activity is a comprehensive indicator of new business creation in the United States, integrating several high-quality sources of timely entrepreneurship information into one composite indicator of startup activity.

The Index covers approximately 5 million companies, capturing business activity in all industries. It is based on both a nationally representative sample size of more than a half-million observations each year and on the universe of all employer businesses in the United States.