Entrepreneurship activity in the United States declined last year; strong rebound expected

WASHINGTON, DC - May 14, 2002 - Interest by would-be entrepreneurs to start new businesses declined last year as the economic recession and lingering effects of the dot.com crash dampened enthusiasm for launching risky new ventures.

The trend is expected to continue for the near term with a strong rebound later in the year, according to the "Global Entrepreneurship Monitor (GEM) 2001 National Entrepreneurship Assessment for the United States of America," conducted by Babson College and the Kauffman Center for Entrepreneurial Leadership. Results of the study were announced today at a luncheon meeting of the Congressional Economic Leadership Institute, hosted by the National Commission on Entrepreneurship.

According to the GEM study, entrepreneurial activity in the U.S. last year plunged 30 percent to 11.7 percent of adults from 16.7 percent in 2000. The measurement reflects the percentage of the U.S. adult population involved in the start-up process or in a business less than four years old.

Enthusiasm to take the entrepreneurial plunge fell even sharper, with only a little more than one out of every three adults (35 percent) believing that good opportunities will develop over the next six months. This compares to one out of every two adults (52 percent) in 2000 and 57 percent in 1999.

"Retrenchment is expected in an environment where the number of initial public offerings has declined sharply and the venture capital community has pulled in its horns," said Andrew Zacharakis of Babson College, who served as the lead U.S. GEM researcher. "Innovation and willingness to take risks often take a hiatus during times of instability, especially in the face of the technology backlash resulting from the Internet bust."

The GEM report further points out that the beleaguered venture capital community faces additional pressures. The report concludes that there will be additional venture capital-backed companies closing their doors in the months ahead and predicts a severe shakeout of the venture capital industry with some of the younger, unsuccessful venture capital firms closing down. Additionally, those venture capital firms that are still investing have become leery of investing in seed-stage companies. Rather, they are investing in follow-on rounds of financing of private companies that still show promise but are unable to raise money in the public markets.

On a positive note, however, the report discloses that informal angel investment in the U.S. last year remained strong, amounting to $129.2 billion.

But although the United States appears to have temporarily lost some of its entrepreneurial enthusiasm, the GEM authors/researchers point to several positive findings that bode well for a strong rebound in entrepreneurship activity. "The demographic structure, beliefs and cultural heritage of the U.S. population provide the basis for strong optimism regarding a resurgence of entrepreneurial activity in the near future," said Larry W. Cox, co-author of the U.S. GEM report and director of Programmatic Research at the Kauffman Center for Entrepreneurial Leadership.

A large percentage of older entrepreneurs (age 45 to 64) which translates into deeper industry experience, large networks and greater personal capital for fueling high potential ventures;

A high ratio of women to men involved in entrepreneurial activities, thus signaling broad-based participation in economy-building entrepreneurial processes;

A positive perception that the government is supportive of entrepreneurship and that current government regulations are not too burdensome, fomenting a belief that there are few roadblocks to venture creation and growth;

A training and educational infrastructure that fosters creativity, self-sufficiency and personal initiative, as well as explicitly teaches entrepreneurship;

A general belief that there is sufficient equity and debt financing to launch and grow new ventures, despite certain 'capital gaps.' The GEM research is an expansion of the groundbreaking 1999 GEM report, which analyzed entrepreneurial activity in 10 countries to determine the complex relationship between entrepreneurship and economic growth. The scope of the project tripled for 2001 with research teams from 29 countries participating.

Editor's Note: An executive report of the GEM findings can be found at the Kauffman Center's Web site: www.entreworld.org.

Established in 1992 by entrepreneur and philanthropist Ewing Marion Kauffman, the Kauffman Center for Entrepreneurial Leadership is the largest organization focused solely on entrepreneurial success at all levels - from elementary students to high-growth entrepreneurs. The Kauffman Center works to accelerate entrepreneurship in America by reaching individuals of all ages through two focus areas: the delivery of entrepreneurship education and development, and the promotion of an entrepreneurial environment. The Kauffman Center is fully funded by the Ewing Marion Kauffman Foundation. For more information visit our Web site at www.entreworld.org.

Babson College in Wellesley, Mass., recognized internationally as a leader in entrepreneurial management education, grants BS, MBA and custom MS degrees through its Undergraduate Program and the F.W. Olin Graduate School of Business at Babson College, and offers executive development programs to experienced managers worldwide through the Babson School of Executive Education. The College's for-profit venture, Babson Interactive LLC, develops distance learning programs and business simulations for executives and graduate students. More information about Babson is available at www.babson.edu.

The National Commission on Entrepreneurship was established to educate and communicate about the critical role entrepreneurs play in driving our nation's economic growth. The Commission's mission is to develop a public policy agenda that will help protect and promote the nation's flourishing entrepreneurial economy. The Commission serves as an important resource for policymakers, informing them about the key barriers constraining entrepreneurs and recommending public policies and programs that support and contribute to their success. Founded with support from the Ewing Marion Kauffman Foundation, the Commission is headquartered in Washington, D.C. It is a nonpartisan, non-profit organization with a three-year charter. The Commission's work is governed by an operating Commission of prominent and successful entrepreneurs from various commercial segments across the U.S. The Commission also seeks counsel and input from expert advisory panels on key issues of importance to the entrepreneurial sector. Visit our Web site at www.ncoe.org.

Ahh, I would rather argue that 'Ages' are judged by who composes the ruling class not the techonology that precedes the era...The political difference is that during the Industrial Era the massive capital investments were in factories that could not be moved and thus were open to eploitation of those who worked them. In the Information Age, a computer and a cell phone are the 'tools' of the economy the way the factory and mass production were to the Industrial Age. The politics that defined the past 140 years are no longer relevant.

The political difference is that during the Industrial Era the massive capital investments were in factories that could not be moved and thus were open to eploitation of those who worked them. In the Information Age, a computer and a cell phone are the 'tools' of the economy the way the factory and mass production were to the Industrial Age.

It's a common, arrogant, egotistical and myopic misperception of Nintendo Generation Information Age control freaks that sophisticated manufacturing technology is readily transferable and operable by unskilled monkeys. Their judgement has been hopelessly crippled by Hollyweird enviro-nut extremist propaganda.

It's not transferable; thats the problem with Industrial Age.
who needs the headaches?

WEALTH: The net ownership of material possessions and productive resources. In other words, the difference between physical and financial assets that you own and the liabilities that you owe. Wealth includes all of the tangible consumer stuff that you possess, like cars, houses, clothes, jewelry, etc.; any financial assets, like stocks, bonds, bank accounts, that you lay claim to; and your ownership of resources, including labor, capital, and natural resources. Of course, you must deduct any debts you owe.
VALUE ADDED: The increase in the value of a good at each stage of the production process. The value that's being increased is specifically the ability of a good to satisfy wants and needs either directly as a consumption good or indirectly as a capital good. A good that provides greater satisfaction has greater value. In essence, the whole purpose of production is to transform raw materials and natural resources that have relatively little value into goods and services that have greater value.
SERVICE: An activity that provides direct satisfaction of wants and needs without the production of a tangible product or good. Examples include information, entertainment, and education. This term good should be contrasted with the term good, which involves the satisfaction of wants and needs with tangible items. You're likely to see the plural combination of these two into a single phrase, "goods and services," to indicate the wide assortment of economic production from the economy's scarce resources.

Wealth is created only by engaging in value-added activities. By the same token, Service sector activities do not create wealth, they merely transfer, redistribute and eventually dissipate wealth as consumption. Thus, as value-added activities move offshore and the U.S. labor force shifts to the Service Sector, wealth is dissipated, not created. And the U.S. standard of living declines as a result.

I agree, however, the value-added of the Information Age is a radical reconstruction of the economy that makes it much more responsive to changes in market conditions. There is simply trillions and trillions of dollars to be 'saved' in automating business processes (off site sales rep to plant floor, for example.)

While not inovation and rather application, the process by which we learn to do things exponentially 'cheaper' has 'value.'

the value-added of the Information Age is a radical reconstruction of the economy that makes it much more responsive to changes in market conditions.

Information is not in and of itself "value-added", it merely enables value-added processes to be utilized more efficiently. To create wealth, one must still engage in the ownership/operation of material-based productive resources. i.e. -- the "Industrial Revolution" remains intact as the predominant economic force, not the "Information Age".

"untaxable barter economy " you're too late, the government already has tax laws from 20 years ago to tax your barters. Your are suppposed to report the value of these on form 1099!

How long has "day trader" been in the vernacular, and already they have a special tax considerations for it. I would have to believe that congress will find a way to tax these guys just as soon as there are enough of them to catch its attention. Too bad congress can't move as fast on anything else. If congress ever bans unsolicited junk e-mail, I might be able to see them as something other than tax collectors. While they are at it, force broadcasters to use the same volume during commercials, damnit.

Similarly, while the improved communications of the "Information Age" may precipitate social change, the economics of high-tech manufacturing are merely refinements of the Industrial Revolution.

You might be on to something there. Someone once argued that we have merely added electronics to German weaponry and developed helicopters instead of tanks for blitzkrieg. The company I worked for sold a couple web apps that basically automated all business functions. Pretty cool stuff, but you still need to be moving physical goods for the most part. When amazon.com sells ones and zeros instead of books and CDs, we will know the revolution has come. I think it will take another generation to make that jump if it is even possible.

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