Study: Startup Fever At All-Time High

Infographic provided by GEM Report

Infographic provided by GEM Report

WOMEN MAKING GAINS?

At first glance, the report for women entrepreneurs is encouraging. In 2014, 11% of women owned an early stage venture, which is an increase from the 10% rate in 2013 and continued improvement from 7% in 2010. The number also represents a higher rate than any other country in the developed world. But at second glance, the gender gap of early stage ventures continues to increase. In 2010, the early stage startup rates for men was 8% for men and 7% for women. Today, the rates are 17% for men and 11% for women.

The report states that “gender gaps in perceived capabilities, fear of failure, and perceived opportunities” are potential reasons for the discrepancy. The difference in fear of failure is substantial with only 26% of men fearing failure versus 34% for women. Differences in perceived capabilities is also large with only 46% of women believing they are capable for a startup compared to 61% of men. However, the gap in perceived opportunities decreased from 2013. Perceived opportunity rates in women jumped from 44% to 49% from 2013 to 2014 and 50% to 53% for men during the same period.

“We might think of young males and the representation of entrepreneurship in the United States, but what we’d like to see is a more diverse representation of entrepreneurs and more visibility around women and other groups that tend to not be viewed as the typical entrepreneur,” Kelley says.

THE STEREOTYPICAL ENTREPRENEUR IS NOT WHAT YOU THINK

While reports of entrepreneurial gains are positive, they come with some hesitancy. It also raises the question of survival and when, if ever, will there be an overpopulation of startups competing for the same resources, potentially setting up a venture collapse akin to Easter Island. Kelley says it’s difficult to tell what the optimal level of early stage startups in an economy is, but one way of looking at it is the amount of early stage ventures compared to mature and well-established businesses.

“You don’t want to have too many entrepreneurs because then it’s too much startup activity,” she says. “What we’d like to think is on the whole, more people are starting high quality businesses that can grow and employ others. At the same time, we have to allow people to start, try it and fail.”

And failure could be something many young entrepreneurs face. According to New York Times reports on research released earlier this summer from the University of California-Berkeley Haas School of Business, the average tech entrepreneur isn’t the 20-something computer programming nerd idolized by popular culture and media. The majority of tech startup founders who have actually raised venture capital backing are 38 years old with 16 years of work experience and a master’s degree, the report says.

The Berkeley-Haas research, led by Toby Stuart, the school’s famed professor of entrepreneurship, and PhD candidate, Weiyi Ng, examined tech companies founded in the Bay Area and New York City since 2005. Among other things, they found 38% of venture capital-backed startups have founders over 40 years old and only 53% of them have technology backgrounds. However, the research found the best predictor for someone founding a venture capital-backed tech startup is previous experience at a company that has raised venture capital money.

U.S. VENTURES LACKING GLOBAL RELEVANCE

Kelley said one concern she had from the results of the GEM report was the low rate of international sales. “It makes sense because the United States is a big market and we have very sophisticated customers who are willing to try new things and entrepreneurs know the U.S. market and can trust the legal system. So operating a business in the U.S. is more predictable and familiar,” Kelley explains.

Only 15% of American entrepreneurs claim that 25% or more of their customers come from outside of the U.S.—significantly lower than the 21% average of the other 28 innovation-driven countries.

“What I’d like to see is U.S. entrepreneurs becoming more globally relevant so that they are creating products that are globally competitive and they are exchanging and sharing ideas with people around the world,” Kelley says. “Eventually we will be an attractive market around the world to other people and we could see our competitiveness threatened by entrepreneurs from other countries coming into our market who are globally competitive.”

Interestingly, while the report shows the United States having higher startup rates compared to other developed nations, the U.S. also has a higher discontinuance rate. “It’s a high level of dynamism in which people venture into it thinking there isn’t going to be a large amount of failure,” Kelley says. Despite higher discontinuance rates, Kelley thinks the heightened dynamism represents a willingness to try something new, which is a good thing. “In countries where people might only try the sure things, there might be less failure but they might also miss out on the best ideas,” Kelley claims.

“It’s a culture of enabling people to try their ideas,” she adds. “And whether that’s a startup, or within a company, or a family business, or franchise, that’s certainly something to be encouraged. Enabling people to create jobs when they need to and to pursue opportunities when they see them, that’s part of American society and is something we should encourage.”

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