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Kauffman Index Finds Second Straight Year of U.S. Startup Activity Increases

August 25, 2016

Startup activity in the United States has increased for the second straight year after declining throughout the Great Recession and the years that followed, according to a newly updated index from the Kauffman Foundation. The metropolitan areas with the highest levels in 2016 Kauffman Index of Startup Activity are Austin, Miami, and Los Angeles. Among large states, the most startup activity according to the 2016 index were in Texas, Florida, and California, while Montana, Nevada, and Wyoming had the highest levels among smaller states.

The 2016 Kauffman Index of Startup Activity is comprised of three equally weighted proxies:

  • Rate of New Entrepreneurs, which measures the percentage of the U.S. adult population that became entrepreneurs, on average, in a given month;
  • Opportunity Share of New Entrepreneurs, calculated as the percentage of new entrepreneurs driven primarily by "opportunity" vs. "necessity" – with necessity entrepreneurs defined as those who were previously unemployed and looking for a job; and,
  • Startup Density, which is defined as the number of new employer businesses normalized by total business population.

Nationally, the Rate of New Entrepreneurs was 330 out of 100,000 adults in the 2016 index, an increase of nearly 6.5 percent from 2015. The Opportunity Share of New Entrepreneurs reached 84 percent in the 2016 index and is now more than 10 percentage points higher than it was in 2009 at the height of the Great Recession. This statistic suggests that roughly two out of every 10 entrepreneurs started their business directly out of unemployment, while the remainder came from somewhere else (e.g., job, school, other labor market states). Startup Density fell nationally in 2016, from 81.9 new employer businesses per 1,000 employer businesses in 2015 to 80.4 businesses per 1,000 employer businesses in the most recent year of the index. For the last four years, this measure has been approximately 20 percent lower than pre-Great Recession levels.

At the state level, the index distinguishes between the 25 largest and 25 smallest states. Among larger states, Texas, Florida, and California had the highest levels of startup activity according to the 2016 index, while Wisconsin, Pennsylvania, and Alabama had the lowest levels. Montana, Nevada, and Wyoming were the states with the highest levels of startup activity in the 2016 index among less populated states, while startup activity was the lowest in West Virginia, New Hampshire, and Iowa.

More than half of the 40 metropolitan areas studied by Kauffman experienced increased levels of startup activity between the 2015 and 2016 indices. Metropolitan areas scoring highly in the 2016 index were Austin, Miami, and Los Angeles. The metropolitan areas that had the lowest levels of startup activity in the 2016 index were Pittsburgh, Milwaukee, and Minneapolis-St. Paul.

The national report also looks at trends in entrepreneurial demographics. Although the startup gender gap decreased last year with the rate of women entrepreneurs increasing by its largest margin in nearly 20 years, the gap is still relatively large. Additionally, the report finds that 40 percent of new entrepreneurs were African American, Latino, Asian, or other non-white ethnicities. Since 1996, the share of new entrepreneurs who are Latino has doubled from 10 percent to 20.8 percent of all new entrepreneurs in the 2016 index.

Additionally, the Kauffman Foundation has developed interactive data visualizations at the national, state, and metropolitan levels.  

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