Factors that Boost Metro Startup and Growth Rates
A Kauffman Foundation report highlights the impact of education on rates of business startups and growth in metropolitan areas, while disputing the impact of certain factors that previously have been touted for their influence.
The paper, “Beyond Metropolitan Startup Rates: Regional Factors Associated with Startup Growth,” reports on entrepreneurship activity in 356 U.S. metros as examined from three angles: the startup rate for all industries, the startup rate for high-tech sectors and the rate for high-growth firms.
Contrary to the conclusions of most earlier studies, this regionally focused analysis found that the public sector can affect few significant factors to encourage entrepreneurship. For example, despite billions of dollars in government research expenditures, which widely are believed to trickle down to the private sector, area research universities and patents do not contribute to higher rates of entrepreneurship.
Education appears to be the most significant factor that the public sector may affect. Metropolitan areas with more college graduates will produce more startups; however, while college completion often is considered the minimum indicator of high skill, the study showed that a higher high school completion rate will further increase the area’s startup rate.
Thus, it appears that policymakers best can influence entrepreneurship by finding ways to effectively connect these two factors.
Further, the study revealed that:
- Regions that enjoy substantial venture capital and other financial investments do not necessarily generate a higher ratio of startups. Consequently, a rush to create public venture funds holds little promise of generating more startups or establishing a startup culture.
- High-tech sectors are hotbeds for high-tech startups, but not for all kinds of startups. Thus, promoting high-tech entrepreneurship does not necessarily elevate the overall economy.
- Larger metros, not surprisingly, tend to have higher entrepreneurial rates, possibly because their economies are more diverse and resilient than those of smaller cities.