Recipes for Creating Entrepreneurial Growth: It s more than the Ingredients

Recipes for Creating Entrepreneurial Growth: It s more than the Ingredients Yas Motoyama and Jason Wiens Ewing Marion Kauffman Foundation National Governor s Association May 8, 2015 www.kauffman.org

Importance of Entrepreneurship Entrepreneurship small businesses Entrepreneurship ecosystem Innovation ecosystem Entrepreneurship ecosystem Industrial clusters

Continuing Decline of New Firm Formation 900 600,000 800 700 500,000 600 400,000 500 400 300,000 300 200,000 200 100 100,000 0 0 Number of Startups (right axis) Per 100,000 Prime Age (25-54) (left axis)

Conventional Elements of the Ecosystem 1) Startup firms / spin-offs 2) Talent / skilled labor 3) University & research 4) Finance / risk capital 5) Incubators 6) Core customers 7) Social capital / culture

Does injecting a missing element help? o Such as establishing venture funds or incubators Is imitating fully developed ecosystem good for you? o Silicon Valley with decades of experiments (Saxenian 1994; Lecuyer 2006) Should all ecosystems look alike?

Myth Element 1: Finance Failure of private venture funds o 80% of VCs unable to return 3% / year VC induces growth or firm growth induces VC invest? Alternative methods of finance o Bootstrapping Source Count Share Personal savings 322 67.2% Bank loans 248 51.8% Credit card 163 34.0% Family 100 20.9% Business acquaintances 57 11.9% Angels investors 37 7.7% Close friends 36 7.5% Venture capitalists 31 6.5% Government grants 18 3.8% Have not used finance 65 13.6% Inc companies (n=479)

Myth Element 2: Incubators / Accelerators Failure of incubators (Amezcua 2010) o Likely prolonging dying firms Accelerators? o Competitive application process o Pre-seed investment, with equity exchange o Create a cohort of entrepreneurs, and focus on teams o Connect to mentors No evaluation research yet o Outliers (Y-Combinator, TechStars) o What happens after being funded?

Myth Element 3: University University research, government R&D funding o Little correlations with startup or high-growth firm ratios o % college graduate is correlated AUTM Survey: 400-500 spin-offs / year o = 2.0-2.5 firms per major research university o With mean $329 mil STEM expenditure per university

The Baseline Strategy Increase the connectivity between: 1) Entrepreneurs, support organizations & mentors 2) Focus on individual and organizational connections o To promote learning between entrepreneurs Not about scientific knowledge or through business courses But about how to run a business Create the flows of entrepreneurs, people, and region

Reorganizing Public Venture Funds? Failure due to politics (Lerner 2002, 2009) Use it as a mean, not an end o (eg.) Arch Grants in St. Louis, Launch KC o Distribute small prizes ($50K) to 15-20 startups o Inspire and create a cohort of entrepreneurs o Integrate to local support groups

How to Jumpstart New Business Creation Let Entrepreneurs In Let Entrepreneurs Compete

Let Entrepreneurs In: Occupational Licensing

Let Entrepreneurs In: Occupational Licensing In many fields, advances have resulted from the very crackpots, quacks, and outsiders who have no standing in the profession and whom licensing seeks to eliminate. S. David Young

Let Entrepreneurs In: Occupational Licensing In many fields, advances have resulted from the very crackpots, quacks, and outsiders who have no standing in the profession and whom licensing seeks to eliminate. S. David Young Alternatives to licensing: 1. Certification Examples: car mechanic and hotel manager 2. Registration Examples: radiologic technologists and lobbyists

Let Entrepreneurs In: Welcome Immigrants

Let Entrepreneurs Compete: Non-Compete Agreements Credit: Duane Hoffmann

Let Entrepreneurs Compete: Non-Compete Agreements Disclose Earlier Shorten the Duration Narrow the Scope

Let Entrepreneurs Compete: Tax Incentives

Technology Transfer Challenges Role of Universities Beyond Tech Transfer & Commercialization

Role of Universities Technology Transfer Challenges Publication to tenure vs starting a company Maximize revenue vs make technology available to startups Beyond Tech Transfer & Commercialization

Role of Universities Technology Transfer Challenges Publication to tenure vs starting a company Maximize revenue vs make technology available to startups Beyond Tech Transfer & Commercialization Educate & inspire students to become next generation of entrepreneurs and those who work at startups Connect students to local startups (human transfer vs technology transfer)

Access to Capital

Entrepreneurial Ecosystems

Indicators of Entrepreneurial Vibrancy Density Fluidity Connectivity Diversity Measuring the Impact What & How?

Measuring the Impact What & How? Indicators of Entrepreneurial Vibrancy Density New and young firms per 1,000 people Share of employment in new and young firms Sector density Fluidity Population flux in & out migration Labor market reallocation Number & density of high-growth firms

Indicators of Entrepreneurial Vibrancy Connectivity Between programs & resources Spinoff rate Dealmaker networks Diversity Multiple economic specializations Immigrant share of population Economic mobility Measuring the Impact What & How?

Thank You Yas Motoyama, Ph.D. Director of Research & Policy ymotoyama@kauffman.org Jason Wiens Policy Director jwiens@kauffman.org @JWIENZ

Employment in Young Firms

Declining Entrepreneurship 500 Age 0 and Size < 500 Firms per 100,000 residents by State 450 400 350 300 250 200 150 100 50 0