Startups Create Jobs

February 8 2010 No Commented

Startups Create Jobs

Back in the ‘70s, David Birch of MIT startled the world by reporting that US government data showed the predominance of new jobs in the US were created by startup companies.  Most mainstream economists scoffed at these results, since “everybody” knows that big companies create new jobs.

Over the past thirty years, these surprising findings by Birch have been reinforced by many others.  Most recently, Dr. Carl Schramm, CEO of the E. M. Kauffman Foundation (Kansas City) has produced a new set of data validating the earlier conclusions.  Dr. Schramm presented the chart below to the Obama Jobs Summit late last year, demonstrating the importance of companies less than 5 years old to job creation in the US.

This chart shows is that startups (the light gray bars) have steadily created 300,000 jobs per year for the past thirty years, independent of the economy (the shaded areas are periods of US recession).  On the other hand, job creation by firms five years of age and older (the darker bars), in sum, produced few jobs in robust economic years and lost huge numbers during recessions.  One can easily conclude that startup companies are critical to a healthy US economy.

[It is equally surprising that the US government has had virtually no policies specifically directed at encouraging company formation during these same thirty years.  Hummm…could it be that company creation thrives for just that reason!]

Angel investors annually seek out and engage with 25,000 high-potential startup ventures in the US, providing both mentoring and finances to new companies (usually less than five years old).  While we have little data on job creation by angel-funded companies, the probability of a relationship seems abiding to me.

 It’s a GREAT time to be an angel.  Find a group and jump in!