In a recent article on The Atlantic titled Think We’re the Most Entrepreneurial Country In the World? Not So Fast the author makes the point that while the US is epicenter of Venture Capital, we produce more ‘large’ startups, and our startups have a better chance of surviving at least 2 years – we’re not the leading entrepreneurial country.
The article is correct in highlighting we aren’t alone in focusing on innovation and entrepreneurship. I talked about this in an earlier blog about immigration (click here to read). Other countries like the ones pointed out in the article have made it a priority – and made it easier to attract the best talent.
Where the article is way off base is in the assertion that startups don’t play a large role in job creation in the US. The author cites Kauffman Foundation statistics that new businesses are responsible for only 3 percent of all US jobs. That’s a silly measure. Of course brand new businesses are a small portion of overall jobs – when they are first formed they have very few employees. Deep science companies may take years to get to commercialization and scale.
I see the data from the Kauffman Foundation differently. A 2010 Kauffman study shows startups create around 3 million new jobs a year in the US. While many of those businesses fail, 5 years later when you net the failures and the growth in the ones that succeed, about 75% of those jobs will exist. When you look at companies 25 years old, you find that about 68% of those jobs exist. Meanwhile, companies other than new businesses in all but 7 of the last 35 or so years are net job destroyers. In fact, the 2010 Kauffman Foundation report states:
Startups aren’t everything when it comes to job growth. They’re the only thing.”
As for startups and early stage growth companies overall impact on our economy, the NVCA Venture Impact report cites that 11% of private sector employment is in venture backed companies (11.9 million jobs in 2010). In terms of ROI, the report highlights that venture investment each year is equivalent to less than 0.2% of our GDP – yet 21% of our GDP in 2010 comes from revenue of venture backed companies.
Growing our startup ecosystem is the best long term growth strategy. In 2010 at the height of the recession, San Jose and Austin led the nation in job creation. Why? Developed startup ecosystems. There’s no doubt job creation at scale happens in more mature successful businesses. But you can’t have more butterflies without first having more caterpillars.