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Put Your Money Where Your Mouth Is

Posted by: Mark Marich on January 27, 2014 Source: Policy Dialogue on Entrepreneurship

Bit by bit, entrepreneurs throughout the U.S. are picking up confidence along the road to economic recovery — and they are willing to put their money where their mouth is. The latest Startup Confidence Index from the Kauffman Foundation and LegalZoom shows a greater willingness from entrepreneurs to put personal savings toward new business ventures. Personal savings as a means for funding the startup jumped from 66 percent in 2012 to 86 percent in 2013.

That attitude isn’t necessarily borne out of necessity either as survey respondents reported that lenders were providing increased access to credit over the last 12 months.

"In previous reports benchmarking entrepreneurial confidence, various elements indicated business owners' often optimistic outlook on the economy," said John Suh, CEO of LegalZoom. "But few actions correlate more directly with economic confidence than personal investment. Investing personal savings to start a business when credit is readily available signals high conviction in the future."

Other funding sources included credit cards at 16 percent (10 percent in 2012), retirement savings at 8.5 percent (6.5 percent in 2012) and bank or home equity loans at 6.5 percent (4.5 percent in 2012).

The latest report in the series continues to build on the “cautiously optimistic” findings from November 2013.

In the survey, titled "Who Started New Businesses in 2013", and conducted with companies recently formed using LegalZoom, perhaps the strongest evidence of an improving economy is the survey's operational findings.

Thirty-seven percent of new business owners said they had encountered no difficulties in forming or running their companies, a 3 percentage point decrease from 2012.

However, of those who did cite difficulties, 36 percent listed unpredictability and 28 percent named lack of access to credit – down a whopping 19 and 17 percentage points, respectively, from 2012.

Survey findings also showed that businesses with one to four employees increased from 25 percent in 2012 to 26.5 percent in 2013. Twelve percent of the respondents – whose nascent ventures naturally are small – had revenues above $100,000, a 4 percentage point increase over 2012.

Further, startups with revenue below $50,000 dropped from 82 percent in 2012 to 77.5 percent in the most recent survey.

"Entrepreneurs are on the economy's front lines daily," said Dane Stangler, vice president of Research and Policy at the Kauffman Foundation. "The fact that the survey shows small, positive growth among these companies suggests that economic recovery may be gaining vibrancy on a broader scale, as well."

The higher number of female founders (35 percent, a 4 percentage point increase over 2012) in the most recent survey also hints at a wider economic recovery. More female entrepreneurs may mean that fewer men are leaving salaried work, or that more men are going back to it.

Overall, the survey showed nominal shifts in age composition of the sample between 2012 and 2013, with slightly fewer entrepreneurs aged 18-29 and 50-59, and slightly more aged 30-39 and 60+.

In 2012, 44.7 percent of respondents had previously started businesses, as compared to 41.4 percent in 2013. Among those who had previously started a business, entrepreneurs who had started more than one other company dropped from 52 percent to 48 percent.

Category:  Growth & Poverty  General  Tags:  Startup Confidence Index, LegalZoom

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