◼ ECONOMICS Bloomberg Businessweek June 29, 2020
29packed with new startups, the Shark Tank
contestants who hit it big, the predictions that mil-
lennials would become the most entrepreneurial
generation ever. Yet by just about every measure,
U.S. entrepreneurship has been steadily decreas-
ing, or flat, for 20 years or more.
When Ronald Reagan came into office in 1981,
2 in 10 Americans worked for themselves in some
capacity. The figure was half that before the 2008
financial crisis, and it’s continued to trend down
since. Data culled from paperwork new businesses
submit to the IRS tell a similar story: Applications
from establishments that are flagged as having a
higher propensity for hiring hit a high of about
394,000 in the first three months of 2006, but fell
precipitously once the Great Recession hit and have
barely breached 330,000 per quarter since. As for
millennials, it turns out they’re the least likely gen-
eration in a century to become entrepreneurs.
Even before the coronavirus arrived, entrepre-
neurship never felt less attainable for the majority.
Few young businesses start with much capital, and
only 17% ever access outside financing. (Most run
on savings, family investments, and revenue.) They
typically don’t grow very quickly or very much; only
2 in 10 have employees. Economists often cast these
entrepreneurs as woefully inefficient, and many
have pointed to their decline as a positive sign. If
thousands of small hardware stores or taxi busi-
nesses are replaced by Home Depots or Uber, this
benefits consumers and investors, the argument
goes, pushing prices down and profits up, driving
innovation, and moving the economy forward.
This is the zero-sum conception of entrepre-
neurship pushed by Silicon Valley, with its obses-
sive focus on a few highly successful startups at the
expense of the rest. (“Competition is for losers” is
a mantra of venture capitalist Peter Thiel.) As the
gap grows between the few that can capture mar-
kets, tap capital funding, and continue to grow and
the majority left to fend for themselves, the foun-
dational promise of America’s equal opportunity
through self-starting rings increasingly hollow. The
strongest plants may grow into tall trees, but they
deprive saplings of sunlight, slowly killing the forest.
This schism is plainly visible in how venture capi-
tal is allocated. In the U.S., the overall pool of money
has grown exponentially over the past decade, from
$229 billion in 2009 to $443 billion last year, accord-
ing to data provider PitchBook. But the trend in
recent years has been toward bigger checks for
fewer superstar startups. Call it the Softbank effect.
And despite all the talk in corporate America of
the importance of striving for greater diversity, the
message doesn’t appear to resonate in Palo Alto,
the de facto capital of the venture capital indus-
try. In 2019, according to Pitchbook, less than 3%
of investments went to women-led companies—an
all-time high, ladies!—while a report by Diversity VC
found that just 1% of VC-backed founders were
Black and 1.8% were Latino.
To understand how out of step with the times all
thisis,considerthis:From 2002 to2012,thenum-
berofbusinessesownedbyBlackwomenincreased
179%,comparedwith52%forallwomen-owned
businesses and 20% for all businesses, accord-
ingtoa recentreportfromtheEwingMarion
KauffmanFoundation,anadvocacyorganization
forentrepreneurs.YetBlackwomen-led startups
attracted just 0.06% of angel and VC funding raised
between 2009 and 2017, according to ProjectDiane
2018, a biannual demographic study sponsored by
JP Morgan Chase & Co. and the Case Foundation.
There’s also a stark geographic skew: Almost
half of all funding in 2019 went to companies in
the Bay Area, followed by those in New York and
Massachusetts. Even Seattle, home to two of the
most valuable technology companies in the world—
Microsoft Corp. and Amazon.com Inc.—received
only a smattering of VC funds. “The gaps in inequal-
ities that exist today, even in entrepreneurship, ILLUSTRATION BY CHARLOTTE POLLET. DATA: PITCHBOOK DATA, NATIONAL VENTURE CAPITAL ASSOCIATION▼ U.S. venture capital,
percentagechange
since 2005
Dealvalue
Deal count2005 2019500%2500