Startup activity rose for the third consecutive year in 2016, according to the 2017 Kauffman Index of Startup Activity released by the Ewing Marion Kauffman Foundation on Thursday.
“A three-year upward trend in new business formation is a promising sign for the economy,” Victor Hwang, vice president of entrepreneurship at the Kansas City-based Kauffman Foundation, said in a release.
The index measures startup activity using three indicators: the rate of new entrepreneurs, defined as the percentage of adults becoming entrepreneurs in a given month; the opportunity share of new entrepreneurs, which is the percentage of new entrepreneurs driven primarily by opportunity as opposed to necessity; and startup density, which is the number of new employer businesses divided by the total population of existing employer businesses.
The overall rate of new entrepreneurs in 2016 was 0.31 percent, or 310 out of every 100,000 adults starting new businesses each month. This represented a slight decrease from 2015, when 330 out of every 100,000 people started businesses each month, a rate of 0.33 percent. The rate in 2016 translates to nearly 540,000 adults from the total population starting businesses each month.
The opportunity share of new entrepreneurs reached 86.3 percent in 2016, a whole 12 percentage points higher than it was in 2009, at the height of the Great Recession, according to the report. Opportunity entrepreneurship is higher for white and Asian people, compared to black and Latino people, the index found.
Startup density went up to 85.4 startups per 1,000 employer businesses in 2016 from a figure of 81.6 in 2015, according to the index.
The index found that out of the 25 largest states, California, Texas, Florida, Arizona and Colorado were the top five states for startup activity in 2017. Among the 25 smaller states, Oklahoma, Wyoming, Alaska, Montana and Nevada ranked among the top five.
Out of the 40 largest metropolitan areas surveyed in the report, the five metropolitan areas with the highest startup activity were Miami, Austin, Los Angeles, San Diego and Las Vegas.
Despite the concentration of venture capital in places like New York and Silicon Valley, Philip Gaskin, director of entrepreneurial communities at the Kauffman Foundation said, startup activity has experience broad-based growth.
The index also shed light on the contributions of immigrants to entrepreneurship. First-generation immigrants now make up nearly 30 percent of all new U.S. entrepreneurs, according to the index.
“Immigrants are twice as likely as native-born to start new businesses, and this is good news for new business activity and the economy,” said Arnobio Morelix, senior research analyst at the Kauffman Foundation, noting that more than 40 percent of Fortune 500 companies were founded by immigrants or their children.
The Startup Activity Index, along with the Main Street Index and the Growth Entrepreneurship Index, makes up the Kauffman Entrepreneurship Index, which attempts to give a holistic picture of entrepreneurship in the U.S.