Nation’s Startup Activity Reverses Five-Year Downward Trend, Annual Kauffman Index Reports

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Year-over-year increases are the largest in the past two decades, but startup activity is still below historic norms; Interactive data of entrepreneurial indicators since 1996 are available at http://www.kauffmanindex.org

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This rebound in entrepreneurial activity lines up with the strength we’ve seen in other economic indicators, and should generate hope for further economic expansion.

Reversing a downward cycle that began in 2010, U.S. startup activity ascended last year, according to the 2015 Kauffman Index: Startup Activity. National business creation findings were released today, and state and metropolitan data will be released June 4.

Over the past two decades, the Startup Activity Index generally has risen or fallen in tandem with the business cycle – up in the 1990s expansionary period and plummeting as the Great Recession took hold. The entrepreneurial activity increase in the 2015 Index represents the largest year-over-year increase in the last two decades, giving rise to hope for a revival of entrepreneurship; however, the return remains tepid and well below historical trends.

In the 2015 Index, 310 out of 100,000 adults, or 0.31 percent, started new businesses each month, on average. In the 2014 Index, the average was 0.28 percent of the adult population.

“This rebound in entrepreneurial activity lines up with the strength we’ve seen in other economic indicators, and should generate hope for further economic expansion,” said Dane Stangler, vice president of Research and Policy at the Kauffman Foundation. “But, it’s important to view this short-term uptick in context of the bigger picture – we are still in a long-term decline of activity, which affects job creation, innovation and economic growth.”

Most new entrepreneurs – 63.2 percent – were men. The 36.8 percent of females who became entrepreneurs in the 2015 Index is close to the two-decade low of 36.3 percent in the 2008 Kauffman Index. The rate of new entrepreneurs grew for all age groups except those aged 45 to 54, which experienced no change in the 2015 Index.

All racial and ethnic groups – particularly Latinos – experienced increases in the rate of new entrepreneurs between the 2014 Index and the 2015 Index. The Latino share of all new entrepreneurs rose from 10.0 percent in 1996 to 22.1 percent in 2014. The Asian share also rose substantially during this period. The share of white entrepreneurs declined over the past 18 years, and the black share increased slightly. A growing immigrant population and the high likelihood of immigrants becoming entrepreneurs contributed to a rising share of new immigrant entrepreneurs: 28.5 percent of all new entrepreneurs are immigrants in the 2015 Index, compared to 13.3 percent in the 1997 Index.

Opportunity entrepreneurs, those who were not unemployed and not looking for a job before they started their new ventures, was 79.6 percent of the total number of new entrepreneurs. This number represented an increase over the 2014 Index, and was substantially higher than in the 2010 Index, when the number of opportunity entrepreneurs was at the lowest rate since the Kauffman Foundation began collecting this data in 1996.

“Entrepreneurs starting new businesses because they saw market opportunities is back to historical norms,” said Arnobio Morelix, research analyst at the Kauffman Foundation, and one of the study’s authors. “When broad-based entrepreneurial opportunity improves at this pace, it’s an indication that the labor market is slowly recovering.”

Startup density, or the number of new employer businesses by total population, increased from 128.8, or 128.8 for every 100,000 people, to 130.6 in the Startup Activity calculations from 2014 to 2015. Though startup density is climbing, it remains well below typical historical rates.

“Leaders from across the United States have rallied to foster entrepreneurship. Still, the challenge of consistently measuring and benchmarking startup activity has been largely unanswered,” said Rob Fairlie, professor and chair of economics at the University of California, Santa Cruz, and one of the study’s authors. “The Kauffman Index helps fill this data gap, and provides policymakers and entrepreneurs a tool for better decision-making.”

The Kauffman Index of Entrepreneurship is the first and largest index tracking entrepreneurship across city, state and national levels for the United States, and also presents demographic characteristics of the business owners. The Kauffman Index: Startup Activity is the first of three reports to be released under the umbrella of the new Kauffman Index of Entrepreneurship. Future topics include “main street” businesses and growth ventures. The 2015 data allow for an update to annual reports dating back to 1996. Interactive data spanning all 18 years is available at http://www.kauffmanindex.org.

Follow the conversation on Twitter at #KauffmanIndex.

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About the Kauffman Foundation
The Ewing Marion Kauffman Foundation is a private, nonpartisan foundation that aims to foster economic independence by advancing educational achievement and entrepreneurial success. Founded by late entrepreneur and philanthropist Ewing Marion Kauffman, the Foundation is based in Kansas City, Mo., and has approximately $2 billion in assets. For more information, visit http://www.kauffman.org, and follow the Foundation on http://www.twitter.com/kauffmanfdn and http://www.facebook.com/kauffmanfdn.

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