A couple of weeks ago, ABD ran a story about Clubhou.se and startups. Eric Parker, president and CEO of Make Startups stated that only 17% of entrepreneurs were able to get funding, while Congressman Rick Allen bemoaned the bureaucracy that inhibits startups.
A new paper published by the Federal Reserve Bank of Atlanta sheds further light on business startups. They use applications for Employer Identification Numbers (EINs) as a measure of entrepreneurial idea generation. They then track how many of these ideas and EIN applications turn into employer businesses within eight quarters, or startups. Most business ideas do not come to fruition or are nonemployee businesses.
There is a huge variation in startups per capita by state and by county. The authors set out to determine the characteristics of locations that generate large numbers of startups per capita.
At the county level, a higher share of individuals with at least a bachelor’s degree and a higher share of foreign-born residents is positively associated with startups. Counties with a higher share of African Americans have higher applications but lower startups. The authors do not suggest why this is. A higher share of Asians and Hispanics is also associated with lower startups.
Counties with higher per capita income and employment to population ratio also see higher startups. Counties with a higher debt-to-income ratio have lower startup activity.
To examine the role of funding, the authors calculate the ratio of loans less than $1 million to employment at firms with less than 500 employees. This measure of funding is positively associated with startups supporting Parker’s statement. Startups are also more likely in counties with more concentrated employment.
Overall, economic conditions contribute most to startups, followed by demographics and then, financial and business conditions.