Startups: Job Creation Engines (Are You Listening Obama?)

In this week’s issue of BusinessWeek, we published the inaugural list of “The World’s Most Intriguing New Companies.” I am thrilled that we launched the package right as Global Entrepreneurship Week kicks off, taking place Nov. 16-22, in 85 nations.

In my lead story for the package, “Fertile Ground for Startups,” I made two big points:
1. Startups are playing an increasingly important role in American business
2. Startups may play a central role in any recovery.

There was one startling new study, based on 2007 Census data, I was unable to work into the story that I want to highlight now, which provides some empirical evidence supporting the second point.

According to a new study by the Ewing Marion Kauffman Foundation, which was co-written by the respected economist Robert Litan, companies less than five years old generated nearly two-third of the net new jobs created in the U.S. in 2007. Without these startups, “net job creation for the American economy would be negative in all but a handful of years.”

The upshot: It is clear more than ever that new companies and the entrepreneurs that lead them are the engines of job creation and economic recovery.

It is well known within economic circles that new companies produce the majority of new jobs in the U.S. economy. What this reports reveals for the first time is extent of that trend, and the fact that startups play a particularly important role in growing jobs out of a recession. New companies have produced all of the net new jobs in the U.S. from 2001-2007, and also from 1980-1983, the last big American downturn, according to the study.

Read the rest of the BusinesssWeek blog post here and also see an embedded link of the report.

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Entrepreneurs + VCs = Goodness (And why it will help lift us out of the Great Recession)

Yesterday, venture capitalist Brad Feld published a candid post in which he made the argument that entrepreneurs played a much more important than financiers in the startup ecosystem. Even though I wrote a book highlighting the importance of VCs, I totally agree with him.

It’s the entrepreneurs that drive innovation. They are down in the trenches building the businesses every day. They create most of the value.

However, without risk capital, the startup system ecosystem would be far less powerful and effective at generating innovation. You simply can not build a business without capital–even in these capital efficient Web 2.0 days. Look at any survey of a small business and the top concern is always money–having enough of it to run your day-to-day operation and getting more to grow the operation.

One of the big reasons that America is the world’s engine of innovation is that we were the first country to develop a professional and robust venture capital market. Now, other countries are following us, but our risk capital market is still one of the nation’s competitive advantages.

It’s also one of the reasons why I think we will lift ourselves out of this recession more quickly than we did in the Great Depression. There was no venture capital market in the 1930s. We have one now and the capital being put to work in startups will create companies and markets that will help grow the economy and revive our animal spirits. In fact, as I detail in my book, the VC industry was born out of the Great Depression when a group of businessmen in New England in the late 1930s realized the U.S. had created a “risk-less economy” and needed to find new ways of creating new companies.

I struggled with this tension in writing my book. I was writing about a VC but I came to see that what I was really writing about was the birth of this startup ecosystem, the entrepreneurial economy. I was writing about the largely symbiotic relationship between the entrepreneur and the venture capitalist. You can’t talk about one without including the other.

Sure, there will always be tensions between owners of a business and the managers. And that’s OK. But instead of pitting entrepreneurs against VCs I think it’s better and more appropriate to view them as partners in a mutually beneficial relationship.

Le Web: Fred Wilson on French Startups

Fred Wilson has been writing some really interesting posts about the state of the French startup scene.

Fred met with 16 startups and he concluded that there’s quite a bit of tech mojo in France:

“What that list tells me is that Parisian entrepreneurs are as up to speed on where the current opportunities as much as anyone in silicon valley, NYC, or anywhere else in the world. I’ve talked a lot about this lately, but globalization means that the word travels fast. Don’t think that the most interesting mobile games or iPhone apps will be built in Silicon Valley or even the US. Some will. Many won’t be.”

Since Georges Doriot was a French immigrant, I am particularly interested in learning about this topic. I think Doriot would be thrilled to read that his home country was starting to revive its entrepreneurial juices. Check out his post here.

These are some of the startups he highlighted:

ulik.com – social service for entertainment focused on ratings
wixi.com – invite only service for sharing music and video
twitrss – a mobile RSS reader in early alpha that uses twitter for sms alerts
yoowalk – a virtual world built entirely in flash available via a web browser
mypronostic.com – prediction marketplace