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Motivations for Entrepreneurship

Take a closer look at what motivates an individual to become an entrepreneur, and how it can reflect the broader economic environment as well as influence the nature and direction of the business activity itself.

Featured highlights:

  • In 2018, the opportunity share of new entrepreneurs was 86.2%, indicating that nearly 9 out of 10 new entrepreneurs were pursuing a business opportunity and about 1 in every 10 new entrepreneurs likely lacked other options in the labor market.
  • Fewer women became new entrepreneurs than men. When they did, women were more likely to be pursuing a business opportunity than their male counterparts.
  • Employer businesses are the subset of businesses that hire employees. In 2016, among employer business owners, the most common reasons for starting a business were pursuing a greater income (55.5% said this was very important) and wanting to be their own boss (55.4% said this was very important). Being their own boss was very important to 60.3% of men compared to 44.2% of women employer business owners.

Demand for Business Advice or Mentoring Among Entrepreneurs

This brief presents a breakdown of the reasons entrepreneurs seek business advice or mentoring, as well as the sources of mentoring, drawing from the 2016 Annual Survey of Entrepreneurs. The trends explained here are based on the perceptions of the entrepreneurs themselves, which provide insight into how they think about and navigate the process of obtaining business advice or mentoring.

Highlights:

  • Half of employer business owners did not seek business advice or mentoring.
  • The most common reason to seek business advice or mentoring was related to taxes and accounting (33.9%), followed by legal (15%), and increasing sales (13.8%).
  • The most common sources of business advice or mentoring were legal and professional advisors, colleagues, and family. This was the case for employer business owners regardless of business age (66.2%, 48%, and 22.3%, respectively), and for owners of businesses less than 2 years old (61.8%, 51.6%, and 30.4%).

How Quickly do New Employer Businesses Hire?

Entrepreneurship is often heralded as important to the economy because of its job creation effects. These jobs come from new employer businesses, a small but important subset of entrepreneurial activity in the United States.

New employer business velocity reflects the average amount of time it takes for a new business to become an employer, given that they reach this milestone within eight quarters. New businesses are considered to become employers when they make a first payroll. This is measured in quarters, which range from 90 to 92 days.

Learn more about the national and state trends of new employer business velocity:

Educational Attainment of Business Owners

This brief explores trends in educational attainment among entrepreneurs who start employer businesses (firms with paid employees) in the United States. In this brief, entrepreneurs are defined as employer business owners with at least 51% stock or equity in the business.

Highlights include:

  • Approximately half (51.4%) of all entrepreneurs held at least a bachelor’s degree.
  • Educational attainment of entrepreneurs varied little by gender.
  • The portion of entrepreneurs with a bachelor’s degree was highest among Asian entrepreneurs (29.6%).

Annual Receipts Among Employer Businesses in the United States

This brief explores trends in annual receipts among entrepreneurs who start employer businesses in the United States. In this brief, entrepreneurs are defined as employer business owners with at least 51% stock or equity in the business. Receipts are defined as the total sales, shipments, receipts, revenue, or business done by establishments with paid employees.

Highlights include:

  • The majority of employer firms (more than 80%) had receipts in excess of $100,000 in annual value.
  • Male entrepreneurs (28.6%) were more than one-and-a-half times more likely to own firms with receipts greater than $1,000,000 than female entrepreneurs (17.8%).
  • White entrepreneurs (26.1%) were more than one-and-a-half times more likely than African American entrepreneurs (15.0%) to own a business with receipts greater than $1,000,000.

Measuring Accelerator Performance

Understanding the performance of accelerators is important to a wide range of individuals and organizations: participating startups, accelerator managers and staff, investors, partners, donors, funders, and policymakers.

Each of these stakeholders may have different priorities and objectives in their efforts to measure accelerators’ performance and impact. Startups, for example, may be most interested in participating companies’ survival rates, revenues, and growth. By contrast, an accelerator manager’s top concern may be average returns from a cohort. An investor may be most interested in deal-making efficiency, and a policymaker may prioritize startup job creation or an accelerators’ impact on local industries.

Learn more about the “4Cs” of Accelerator Measurement: Consistency, Coordination, Comparison, and Continuation.

Accelerators: The Basics

Accelerators are entrepreneurship support programs primarily aimed at helping participating startups scale-up and access early customers.

Popular since the mid-2000s, accelerators are cohort-based programs that provide access to supportive services like mentorship and trainings. Accelerator programs run for a fixed-term, usually several months, after which participating startups “graduate.” Graduation events are often “demo days” where startups pitch to selected groups of investors, media, and other stakeholders.

Do accelerators matter…

…for raising funds?

…for reaching key milestones?

…for all entrepreneurs?

…for the broader regional community?

Access to Capital for Entrepreneurs: Removing Barriers

The Ewing Marion Kauffman Foundation recognizes this significance of new businesses and believes every entrepreneur who has the potential to succeed should have the supportive conditions necessary to start and grow a business. The Foundation seeks a nation of “Zero Barriers” to entrepreneurship.

Access to Capital for Entrepreneurs: Removing Barriers, Capital Landscape Report, Kauffman Foundation

Barriers can affect the trends and outcomes associated with entrepreneurship. They can prevent people from ever becoming entrepreneurs, or they can slow the decision to start up and impede business success. There have been persistent gaps in entrepreneurial activity in the United States. Data from 1996 to 2017 show that men are consistently more likely to start businesses each month than women, and 2017 was the first year in which the rate of black and white new entrepreneurs was the same.

Lack of access to capital is often cited as one of the primary barriers facing entrepreneurship. This report surveys the current knowledge landscape regarding access to capital with an eye towards innovative concepts for improvement to capital access systems.

The knowledge landscape

Access to capital plays an important role in entrepreneurship, both in direct and indirect ways. External private institutional capital – in other words, bank lending and venture capital – dominates the research and public discourse. Yet, at least 83 percent of entrepreneurs do not access bank loans or venture capital at the time of startup. Almost 65 percent rely on personal and family savings for startup capital, and close to 10 percent carry balances on their personal credit cards.

In fact, entrepreneurs face geographic, demographic, and wealth barriers, exacerbated by a capital market structure that does not effectively find and support the majority of entrepreneurs. There is significant unmet demand for financing.

Efforts to help entrepreneurs access capital

Most efforts to expand access to capital and increase new business creation and success have focused on supporting small business lending and venture capital, direct efforts to provide capital to entrepreneurs. Few of these efforts have created systemic change.

This report identifies barriers entrepreneurs face in accessing capital, surveys efforts to break down these barriers, and identifies possible responses.

Rather than creating and growing specific investment vehicles to invest directly in entrepreneurs, organizations with influence – such as large institutions, foundations, and governments – could instead build up market infrastructure to enable the marketplace of entrepreneurs and capital mechanisms to solve problems.

There are, however, new, innovative strategies that work at the system level or offer alternatives to bank loans and venture capital. An emerging group of people – known as “capital entrepreneurs” – is advancing new vehicles to reduce the barriers entrepreneurs face in accessing capital. They are building more flexible models of capital formation, driving innovation within equity and debt structures, and piloting and developing new ways to source entrepreneurs and deploy capital. These include revenue-based investing, entrepreneur redemption, online lending, crowdfunding, and blockchain.

These capital entrepreneurs would benefit from:

  1. new industry standards, categories, and technologies to mitigate the friction that limits the flow of capital to entrepreneurs,
  2. professional communities of practice to help organize and clarify goals and objectives related to increasing access to capital, and
  3. new strategies for capital aggregation to help increase the flow of capital and close market gaps.

Emerging solutions

Building capital markets infrastructure represents one opportunity for improving entrepreneurs’ access to capital. Rather than creating and growing specific investment vehicles to invest directly in entrepreneurs, organizations with influence – such as large institutions, foundations, and governments – could instead build up market infrastructure to enable the marketplace of entrepreneurs and capital mechanisms to solve problems.

The Kauffman Foundation has identified five types of infrastructure that show promise:

Capital infrastructure. Greater diversity of investment vehicles and intermediary financial institutions can be developed to bridge the gap between money centers and the spectrum of entrepreneurs seeking capital.

People infrastructure. Capital entrepreneurs have the opportunity to develop new investment vehicles that provide access to the 83 percent of entrepreneurs who are not served by private institutional capital.

Information infrastructure. Enhanced data and technology can create stronger infrastructure and clearer standards for effective market operations, speeding the flow of capital to a greater number of entrepreneurs.

Knowledge infrastructure. More targeted research can better inform efforts to improve capital access for entrepreneurs, providing insight regarding the origins of capital market gaps and the effects of capital constraints on firms.

Policy infrastructure. Entrepreneurs and capital entrepreneurs can be at the table to assert their voices when lawmakers and regulators are forming policies that affect the functioning of capital markets for entrepreneurs.

In an effort to push thinking on this topic forward and to focus future work on increasing access to capital for entrepreneurs, we close this report with questions for governments, foundations, entrepreneurial support organizations, ecosystem builders, and others within each of these five broad categories.

Trends in Venture Capital, Angel Investments, and Crowdfunding across the Fifty Largest U.S. Metropolitan Areas

Annual Survey of Entrepreneurs Data Briefing Series

Using new data from the 2014 Annual Survey of Entrepreneurs (ASE), this data briefing looks across the largest fifty metropolitan statistical areas (MSAs) to see how entrepreneurs have fared in their quests to secure money from venture capitalists, angel investors, and online crowds. 

Venture Capital Received when Starting a Business:
While 10.3 percent of entrepreneurs report using personal credit cards when starting their business, nationally, only 0.6 percent initially received venture capital.

• The metros with the highest percentage of firms receiving venture capital funding when starting include: San Jose, CA (2.4%), San Francisco, CA (1.5%), Salt Lake City, UT (1.3%), Austin, TX (1.2%), Baltimore (1.1%), Birmingham, AL (1.1%), and Nashville, TN (1.1%).

• The metros at the bottom include: Chicago, IL (0.4%), Detroit, MI (0.4%), Jacksonville, FL (0.4%), New Orleans, LA (0.4%), Orlando, FL (0.4%), Washington, D.C. (0.4), Virginia Beach, VA (0.3%), and Cleveland, OH (0.2%).

Venture Capital Investment Trends across MSAs:
In 2014, roughly $68 billion was invested in venture capital deals in the United States and, 7,878 employer businesses reported receiving VC funds. Thirty percent of those recipients were located in just four metro areas: New York, Los Angeles, San Francisco, and Boston. The national average was 0.2%.

• Metro areas that rank highly in terms of those venture funding success rates include: San Francisco, CA (0.8%), San Jose, CA (0.8%), Boston, MA (0.5%), Hartford, CT (0.5%), Memphis, TN (0.4%), Minneapolis, MN (0.4%), Philadelphia, PA, (0.4%), Richmond, VA (0.4%), Washington, D.C. (0.4%).

• At 0.1 percent, the lowest ranked metros include: Baltimore. MD, Denver.CO, Jacksonville, FL, Las Vegas, NV, Orlando, FL, Riverside, CA, Tampa, FL.

Angel Investment Trends across MSAs:
Nationally, 8,900 firms (0.2%) received angel investments in 2014. Among firms that received the full amount they sought from angel investors, again, 30 percent were in just four MSAs.

• Metropolitan areas with the highest success rates of firms receiving the full amount of angel investments they sought include: San Jose, CA (1.0%), San Francisco, CA (0.7%), Boston, MA (0.5%), Los Angeles, CA (0.4%), Austin, TX (0.4%), and Charlotte, NC (0.4%). Metros at the bottom include Detroit, Cleveland, and Chicago.

• The metros at the bottom include: Chicago, IL, Cleveland, OH, Detroit, MI. Fifteen other metros have a rate of 0.2%.

Crowdfunding Investment Trends across MSAs:
With a national average rate of 0.1 percent, crowdfunding success rates, were lower than that for VC and angel funds. Again, four MSAs—New York, Los Angeles, San Francisco, and Washington, D.C.—accounted for 28 percent of firms that received all the money they sought from crowdfunding sources.

• At 0.3%, the top MSAs for crowdfunding success in 2014 are: San Francisco, CA, San Jose, CA, Washington, D.C., Charlotte, NC, Las Vegas, CA, Memphis, TN, Minneapolis, MN, Oklahoma City, OK, and Raleigh, NC.

• At 0.1 percent, the metros at the bottom include: San Diego, CA, Riverside, CA, Pittsburgh, PA, Orlando, FL, Kansas City, MO-KS, and Chicago, IL.