Fewer People Became Entrepreneurs Last Year And Other Surprises From The 2015 GEM

Is the startup up life beginning to lose some appeal? Entrepreneurial activity in the U.S. declined by two points, to 12%, in 2015, ending a four-year uptick.

The newly released Global Entrepreneurship Monitor (GEM), looked at new and existing entrepreneurs in 62 economies, finding that fewer people became entrepreneurs in 2015.

What accounts for the dip? It may be that would-be entrepreneurs sidelined in 2009 and 2010 by the fallout of the recession jumped in later, resulting in the upward trend in new ventures that began in 2011. Last year’s decline might indicate that rates are “settling down to more reasonable levels,” says Babson College Professor of Entrepreneurship Donna Kelley, the GEM Report’s lead author. “On the other hand, it may be an indicator of uncertainty or greater pessimism in the economy,” says Kelley.

More people may be hanging on to their jobs rather than take the risk of starting a company. They may not be seeing the kind of favorable signs that give them the confidence that people would fund their companies or buy their products, says Kelley. “We also found in our broader societal level measure of attitudes that fewer Americans believed there were good opportunities for starting a business,” she says. That percentage fell to 47% in 2015 from its high of 51% in 2014.

Those who did start companies got going with an average of $17,500. Women reported using half as much funding to start companies as men — $10,000 vs. $20,000–which suggests that women might have few resources to use at launch or that they felt they didn’t need additional resources to start. About 57% of launch costs come from entrepreneurs themselves.

And while bank loans don’t grab the headlines the way VC deals or great crowdfunding campaigns do, they remain crucial for many startups. Additional startup funding was most likely to come from banks, at 36%, followed by family or private equity/venture capital (both at 24%), government (22%), employers or colleagues (16%), friends (15%), and crowdfunding (12%).

Founded in 1999, the GEM report is created annually by Babson College and Baruch College. Among the GEM’s other noteworthy findings:

The gender gap persists. Since 2001, the rate of men’s entrepreneurship trends at about one and a half times that of women. But the rate of women’s entrepreneurship in the U.S. is higher than in most other innovation-driven economies—and twice the rate of many innovation-driven European countries. The gender gap is also greater among established businesses than new ones.

Women start different types of businesses than men. About 59% of women entrepreneurs start consumer-focused companies compared to 39% of men. Consumer businesses such as retail, consumer services, and hospitality often have lower barriers to entry, says Kelley. That makes them easier to start but also means more competition and a higher rate of failure.

Women are more social. About 12% of Americans are leading or trying to start a social enterprise, and while women account for about 39 %of total entrepreneurial activity in the U.S, they account for 49% of social entrepreneurship activity. Among women, those between the 35 and 44 are more likely to start social enterprises than women of other ages, while men maintain similar rates among age groups.

A win for women in Texas. Nationwide , there are 60% more male than female entrepreneurs.  New York and Ohio show an equal mix of both men and women engaged in entrepreneurial activities. Texas is close to equal, and also has the highest rate of women entrepreneurs.

African-Americans start more businesses, but are less likely to sustain them. African-Americans start businesses at higher rates than Caucasians, 14% vs. 12%, but are about half as likely to own established businesses, 4.5% vs. 8.7%.

Entrepreneurs want money and freedom. In the U.S., 69% of entrepreneurs said they were motivated to start by the pursuit of opportunity and the desire to increase their income or the level of independence in their work.