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U.S. Startup Formations Up 24 Percent Amid COVID-19 Conditions

  • Report finds significant boost in startup companies in the United States in 2020
  • Trend may be driven by factors such as new opportunities, economic necessity
  • Boost marks a reversal from the pre-pandemic slump in new business formation

While the COVID-19 pandemic has been a stressor on numerous businesses, millions of Americans have decided that the time is right to launch their own company. A recent report from the Peterson Institute for International Economics finds that 4.4 million startups were established in the United States in 2020, up 24 percent from the 3.5 million companies established in 2019.

The strong growth marks a reversal from pre-pandemic years, which saw a slump in new business formation. Between 2007 and the middle of 2019, applications for the formation of businesses likely to hire workers fell by 16 percent.

Crises have historically proved to be incubating grounds for new ideas and strategies, giving entrepreneurs an opportunity to capitalize on shifting market trends and consumer demand. The PIIE report says new business formation is particularly important since small businesses account for the bulk of new job creation and new companies are responsible for establishing most of these positions.

In addition to entrepreneurs pursuing new opportunities, the report suggests that some entrepreneurs have started their own companies out of necessity after losing their job during the pandemic. It also notes how business formation has been brisker in nations with easier administrative processes for starting a new company.

The increase in startups is a departure from the aftermath of the 2008 Great Recession, when entrepreneurs encountered greater barriers to financing. However, PIIE notes that while other nations have launched programs to support new businesses during the pandemic, U.S. federal programs have primarily been directed at shoring up existing companies (although qualifying startups can receive forgivable loans through the Paycheck Protection Program).

Sectors with strong startup activity during the pandemic included retail, warehousing, and health care. While the report covers a wide range of business formations, including side ventures, the number of new companies deemed likely to hire workers also saw strong annual growth at 15.5 percent.

PIIE says the trend could result in greater efficiencies in existing business as well as the formation of entirely new industries, and urged governments to ease requirements for new entrepreneurs. It also suggested that while “entrepreneurship by necessity” will continue to create new businesses, some potential entrepreneurs may instead be limited to gig economy work.

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