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Kauffman Report: Rate of New Entrepreneurs Surges During COVID-19 Pandemic

  • Kauffman Foundation identifies a “substantially higher” rate of new entrepreneurs in 2020 compared to 2019
  • New entrepreneurs are driven more by necessity than by choice due to economic pressures created by COVID-19
  • Startup survival rate falls for the first time since the Great Recession

Summary by Dirk Langeveld

The rate of new entrepreneurs in 2020 was “substantially higher” in 2020 compared to 2020, according to a recent report by the Kauffman Foundation. However, the report also determined that many people were going into business for themselves out of necessity rather than choice, with the foundation’s index on entrepreneurial activity experiencing its largest drop since the Great Recession.

The rate of new entrepreneurs was 0.38 percent, meaning that the average month saw 380 out of 10,000 adults starting an entrepreneurial venture. This share was up from 0.31 in 2019.

Demographic groups with higher new entrepreneur rates included those with less than a high school education (0.59), Latinos (0.52), those between the ages of 45 and 54 (0.49), men (0.48), and those with some college education (0.43). Rates were lowest among women (0.3) and those between the ages of 20 and 34 (0.28). The report also found a major surge in veteran entrepreneurs, with their rate rising from 0.19 in 2019 to 0.32.

At the same time, the opportunity share for new entrepreneurs fell from 86.9 percent in 2019 to a 25-year low of 69.8 percent. The opportunity share reflects the percentage of entrepreneurs who start a business by choice rather than necessity, and the significant decrease suggests that many people turned to entrepreneurial activities for economic engagement due to business closures, layoffs, and other effects of the pandemic. The 17.1 point drop was more than twice the 6.9 point drop observed between 2008 and 2009 due to the Great Recession.

The rate of new entrepreneurs and opportunity share are two factors in the Kauffman Early-Stage Entrepreneurship Index, a summary of entrepreneurial activity. The index also measures startup job creation and startup survival rate.

The startup job creation rate in 2020 was five jobs per capita, indicating that new companies hired five people for every population of 1,000 people. The Kauffman Foundation said the longer-term trend in this rate is concerning, as it has remained essentially flat in recent years, below levels prior to the Great Recession, and about one-third below a 1997 peak of 7.9 startup jobs per capita.

The startup survival rate dropped for the first time since the Great Recession, with 78.1 percent of new companies surviving their first year – down from 79.4 percent in 2019.

The Kauffman Early-Stage Entrpreneurship Index is normalized at zero, and the reading fell from 1.1 in 2019 to negative 0.2 in 2020. This was the largest decrease since 2009 and the lowest index since 2013.

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