How Can Governments Help Entrepreneurs?

Are governments wasting their time and money with all of their efforts to promote entrepreneurial growth in their communities and countries? Not quite, but they could certainly be spending their resources more wisely.

A new report from the Kauffman Foundation argues “despite billions of dollars in government research expenditures, the presence of research universities and patents are not associated with higher rates of entrepreneurship” and “the public sector can affect few significant factors to encourage entrepreneurship.”

One specific example is a relatively recent rush to create state venture funds. The paper, "Beyond Metropolitan Startup Rates: Regional Factors Associated with Startup Growth," shows that regions that enjoy substantial venture capital and other financial investments do not necessarily generate a higher ratio of startups. Consequently, creating public venture funds holds little promise of generating more startups or establishing a startup culture.

The news isn’t all negative, however. Thiel Fellowship be damned, improving education appears to be the most significant role for the public sector.

Metropolitan areas with more college graduates will produce more startups. The same can be said for high schools -- a higher high school completion rate will further increase the area's startup rate.

The report is based on entrepreneurship activity in 356 U.S. metros as examined from three angles: the startup rate for all industries, the startup rate for high-tech sectors and the rate for high-growth firms.

Other findings include:

  • High-tech sectors are hotbeds for high-tech startups, but not for all kinds of startups. Thus, promoting high-tech entrepreneurship does not necessarily elevate the overall economy.
  • Larger metros, not surprisingly, tend to have higher entrepreneurial rates, possibly because their economies are more diverse and resilient than those of smaller cities.
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