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Council Insights: Startup Boom Signals Strengthening Entrepreneurial Ecosystem

In the decade prior to the COVID-19 pandemic, American entrepreneurship lagged behind the historically high levels that many have come to expect. In 1982 about 38 percent of U.S. firms were less than five years old; by 2018, that share fell to 29 percent, with many start-ups concentrated in Silicon Valley and a few other innovation hubs. However, the pandemic has spurred a surge in American entrepreneurship in communities across the country.

In 2020 during the heart of the pandemic, Americans increasingly turned to entrepreneurship as they searched for new work and took advantage of demand for new niche products and services. This trend was expected to slow as businesses and offices re-opened, but startup rates continue to rise. According to Census data, in Q4 2023 entrepreneurs filed 450,000 likely employer applications, a 37 percent increase compared to Q4 2019. Startups, in part driven by rapid growth in the AI industry, also surged in 2022 and 2023—surpassing pre-Great Recession levels of startup activity.

A new feature of the current startup boom is a growing shift towards geographic and demographic diversity. Recent Brookings research show that Black and Hispanic families are increasingly turning to business ownership, at nearly twice the rates in 2019. Entrepreneurship activity is also taking place outside traditional centers of innovation, enabled in part by remote work flexibilities. Between 2019 and 2023, over 80 percent of U.S. counties experienced business growth. And smaller metro areas like Nashville, Provo, and Wichita have been identified as the “rising stars” of tech. Sustaining this entrepreneurial trend in communities across the country will be crucial for expanding and strengthening the U.S. innovation ecosystem.

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