If you missed the 2013 Kauffman Foundation State of Entrepreneurship event yesterday, a video of the entire program is embedded below. Other materials and event information are available on the official Kauffman website.
I’m focusing this post on the panel discussion that took place after opening speaker remarks and Kauffman CEO Tom McDonnell’s address. I’ll organize my thoughts about the panel discussion along three major points, with the overarching theme that startup activity is on the rise:
- Community support / geographies of startup activity
- Larger discussion of crowdfunding
- High-technology startup activity compared to all other industries
After quick introductions, moderator Robert Litan, director of research at Bloomberg Government, set the stage for discussion, quoting federal statistics about startup activity and employment. A couple of other speakers at the event also referenced these stats; I think the most concise presentation is in Reedy and Litan (2011), which we’ve highlighted here on Growthology before, but it bears showing again.
This chart demonstrates the downtrend in new startups since 2005.
The two charts above speak to the decrease in total employment by startups and the decrease in their average starting size.
The data in these charts are only available up through 2010. With this in mind, Litan asked the panelists what they thought more recent years have looked like. My general sense is that the panel was in large agreement that the current state of entrepreneurial activity is much more positive—that is, they expect that these official data will show upticks when additional years are added. This was, I think, the primary theme of the panel.
Here’s a one-sentence summary of their discussion: More platforms enable community support of and participation in startup activities now more than ever. There are, of course, more nuances to what was covered, which I detail below.
When discussing trends, right off the bat, the topic of geography came up, with many panelists echoing a theme we’ve discussed here countless times—startup activity happens outside of Boston, Silicon Valley, and New York. The panel offered examples like participation in the Startup American Partnership or the Kauffman Foundation’s own 1 Million Cups.
A more informal measure was also given—an increase in number and geographic dispersion in invitations to speak at startup-related events. Speaking to general interest in starting up independent of geography, a casual poll of Harvard Business School graduates was cited: Out of 90 students, 86 stated that either upon graduation or at some future point in their career they want to start a business. Additionally, there is a reported 50 percent increase in the number of HBS graduates starting up right after graduation. All told, the panel spoke to a groundswell of interest in startup activity. We will have to wait and see if this plays out in official statistics.
Related to this point, the panel spoke about recent developments like crowdfunding (donations-based already available through things like Kickstarter; securities-based regulations still under development)1 and other investment platforms such as AngelList that enable the discovery of different geographies of entrepreneurs and informs investors about opportunities to invest in their local communities.
Thoughts on crowdfunding were peppered throughout the latter portion of the panel, so it’s difficult to pull them as separate points, but I shall try. Crowdfunder.com founder Chance Barnett reported that rulings for securities-based investment by accredited investors could be established relatively shortly, but there will be a longer delay in rulings for non-accredited investors (predicted second half of this year).
Generally speaking, I think I am correct to say that the panel thinks that crowdfunding can be a good thing, particularly in light of the catalyst role it can play in local communities, and that concentrating on the potential negatives is not as productive. The panel did not say that there are no concerns about crowdfunding investments not working out, but rather the potential outweighs these issues.
In a point I’ll touch on next, in light of the increased focus of venture capitalists on high-technology startups, crowdfunding could be important in supporting startups in underserved industries.
I felt the panel offered a qualification on the first point about increased startup activities. The panel went on to distinguish between startup activity generally and startup activity in the high-technology industry.
There were various comments about how high-tech startups are increasingly ample in numbers and that this is a “hot” space—perhaps too hot. There were comments that tech startups are well-served by the existing capital ecosystem, but startups outside of this industry are being underserved, and the panel called for paying increased attention to startups outside of the high-tech sphere.
A Q&A session at the end offered the following nuggets:
- Business plans as a process and procedure are outdated (at least in the opinion of a panel member who is a venture capitalist; I agree, for whatever that’s worth).
- The panel is skeptical of venture capitalists who say they will not invest in any startup that takes crowdfunding—will they actually hold true to that principle when presented with the opportunity and slew of data (read: market support) generated from crowdfunding?
- Speaking to community support of startups, bringing startups together—whether accomplished by entrepreneurs, the local government, corporate citizens, or other community organizers—to create a dense network of entrepreneurs is a task everyone in the community can take on; if an outside entrepreneur comes in, your community should have an answer to the question “where can I go hang out with other startups?”
- A pitch for a free-agency model for university faculty and technology licensing was presented, where faculty can pick any licensing office they would like to commercialize a new technology (not limited to just their own university; see Chapter 5 of Better Capitalism)
1 For more background information on crowdfunding, see the Jumpstart Our Businesses Act which was signed into law last year. Wikipedia has a decent summary.