Immigration policy continues to vex America. For more than a century, the United States has proudly defined itself as the world’s great melting pot of immigrant cultures and talents. And yet, few issues have more sharply divided the modern political landscape. As policymakers grapple with these difficult questions, two critical realities are too often forgotten amid the haze of fractious political debate — the connection between entrepreneurship and economic prosperity, and the importance of immigrants to American entrepreneurship.
On Monday, Revolution — the Washington-based venture capital firm lead by Steve Case — announced a new $150 million seed fund dedicated to helping entrepreneurs living outside the well-established startup hubs get their business off the ground. I’ll use this opportunity to share three things stand out in my mind.
The Center for American Entrepreneurship, a non-partisan policy and advocacy organization, published a study today on the founders of America’s most valuable companies—those in the Fortune 500. The results are striking—43 percent of companies in the 2017 Fortune 500 were founded or co-founded by an immigrant or the child of an immigrant, and among the Top 35, that share is 57 percent.
Democrats want to withhold support for any spending bill that doesn’t establish the legal right of “DREAMers”—the 800,000 immigrants brought here illegally as children—to stay in the United States permanently. Economic history suggests that we may thank them for doing so.
On Friday, I shared thoughts on Twitter about the Amazon HQ2 sweepstakes. I was stunned to see the virality of engagement that ensued. Typo aside, this message seemed to really resonate with a wide set of people.
I want to socialize an idea that my friend Chris Heivly and I have been tossing around the last few months. It’s a concept called #FoundersFirst, and it’s something that we hope will be embraced in startup communities everywhere. Let me explain.
You hear it in startup communities everywhere: “we don’t have enough capital; if only we had more capital we could achieve X; we can’t grow our company here because there is no risk capital,” and so on. There is no denying that early-stage funding can help startups profoundly. But, let me point to another type of capital that is just as important for a startup community over the long-run. It is also something that local leaders have greater control over. Social capital refers to the set of informal norms and values shared by a group of individuals (a network), which allows them to cooperate and engage collaboratively with greater ease. If it is the network (relationships) that directs vital information and resources (ideas, talent, funding) to company founders, it is social capital—the nature of those linkages—that determines how well information and resources flow through the network.
In The Innovation Blind Spot: Why We Back the Wrong Ideas and What to Do About It, a book released just last week, social entrepreneur and venture capitalist Ross Baird discusses how our blind spots affect how, whether, and to what extent we support the ideas of tomorrow. In it, he describes how mental shortcuts, biases, and funding models prevent us from tackling our most pressing social and economic challenges, instead opting to solve problems that are familiar, and where investment returns are more predictable.
Last week my friend Chris Schroeder published a highly engaging article on the state of technology entrepreneurship in the Middle East. If this topic interests you, I encourage you to check him out. Chris is a successful American internet and media entrepreneur turned global startup investor. He’s easily one of the most knowledgable people on the planet about startups and venture capital in the Middle East specifically, and emerging markets more generally.
The article, “A Different Story from the Middle East: Entrepreneurs Building an Arab Tech Economy“, appears in the MIT Technology Review. It highlights some recent successes in the region—including Amazon’s $600 million acquisition of e-commerce platform Souq.com in March, and the $1 billion valuation placed on ridesharing app Careem a few months earlier—and the psychological impact these breakout companies have had on entrepreneurs there.
Last month, economist William Baumol passed away at the age of 95. His death was universally mourned by the economics community, many of whom shared the view that he had passed before receiving a much-deserved Nobel Prize. One of us had the great privilege of working with him, befriending him, and being able to regularly witness his economic wisdom, even in his later years.
Among his many contributions to economics, Baumol is most famously known for his “Cost Disease”, which explains why high-productivity industries raise costs and therefore prices in low-productivity industries. This insight is particularly relevant now, as economic activity has shifted into low-productivity services like healthcare and education, where price increases are devouring public and household budgets, and whose continued low productivity has weighed down U.S. productivity growth overall.
However, a lesser-known work of Baumol’s is equally relevant today, and may also help explain America’s productivity slump. Baumol’s writing raises the possibility that U.S. productivity is low because would-be entrepreneurs are focused on the wrong kind of work.
Talent flight is a real problem. Not just for college towns, but for major cities and regions outside of coastal innovation and knowledge hubs like Silicon Valley and New York. The US Midwest, for example, is notorious for producing high rates of engineering and science graduates from top-flight schools, only to see them flee for the coasts (though, this trend may be changing somewhat).
Over the long-term, city leaders need to think hard about how to make sure that would-be local entrepreneurs and other talented individuals have the resources they need to stay at home. But, let me suggest another course of action that can be taken right away: build a diaspora.
The last year has been rough for ridesharing app Uber, what with a litany of regulatory challenges, lawsuits over intellectual property infringement, and questions about gender relations in the workplace. The new year even brought a Twitter-driven #DeleteUber campaign.
So, how’s the business of ridesharing doing? Well, we don’t have good government statistics for 2016 yet, but we do now have such data for 2015, and these show that the hyper-growth of ridesharing that we documented last year is, if anything, accelerating. In fact, just-released data from the U.S. Census Bureau on “nonemployer firms,” which tracks the activity of freelancers (as in the gig economy), shows that 2015 saw the strongest growth of ridesharing yet. Ridesharing through Uber, Lyft, and other apps showed no signs of plateauing in 2015, and instead, the evolving industry spread—including into new metropolitan areas.
Earlier today, Tyler Cowen had a post titled "Why are there so few computer science majors?", which was prompted by this Dan Wang post on the subject. Among other things, Tyler wonders if there are relatively few computer science majors simply because the tech sector is actually pretty small. Since I was already working with economic data today for another project, I thought it was worth taking a quick look to find out just how big the tech sector really is.
Last week, the Ewing Marion Kauffman Foundation released its annual Kauffman Index of Entrepreneurship, detailing “new venture creation” in the United States through 2016. The index reported that the rate of entrepreneurship in America held steady last year, up sharply from lows reached during the Great Recession.
Also included are measures across all 50 US states, the40 largest metropolitan areas, and along various dimensions of entrepreneur characteristics (race, gender, nativity, education, and age). Colorado ranked sixth in terms of “startup density” (new firm formations per capita) and Denver was tenth among the largest metropolitan areas for the same measure.
But, these rankings mask important details—they doesn’t distinguish between growth-oriented entrepreneurship and small business formation (this distinction matters for public policy and for economic growth), and the geographic boundaries may be too broad. Fair enough, data limitations abound for this high-level view of activity, and Kauffman provides an informative, timely, service no less.
What remains clear is that density matters a great deal for growth-driven, innovative enterprise, and we can learn something from the places that continually produce these types of businesses.
Engine, the non-profit organization that supports technology startups through economic research, policy analysis, and advocacy, has been producing profiles of startup communities throughout the United States on its blog.
I'm going to Chicago tomorrow to attend the wedding of an old friend over the weekend. Chicago has always been a special place for me—I lived there for a few years after college and received a first-rate education on the city's south side. Chicago is awesome.
A lot has changed in the city since then, including the development of a booming tech and startup scene. Some of this I've learned about through conversations with active participants in the startup community there, and some has been through a series of research that has been published in the last few months.
As such, I'll use this opportunity to share some of these items with readers who might be interested. The collection of readings—which span academic working papers, analytical blog posts, and business case studies—are all great. They are informative, well-written, and resourceful. And please, if you know of others, add them to this thread in the comments section. Enjoy.
Yesterday, an article in the Wall Street Journal talked about some adjustments in the venture capital funding market. The general thesis: fewer companies are getting funded, those that do are raising more capital than ever, and those that don't are left to die (zombie companies). I don't have the time right now to re-assess or validate that analysis in a meaningful way, but on the surface, it appears to be relatively sound.
However, it did make me curious about what's happening in funding markets, and since it's been awhile since I've done any analysis in the area, it prompted me to take a deeper look at funding trends. One thing stood out to me was a sharp reversion in first-fundings since 2015—particularly compared with relatively stable funding trends in later rounds.
If you haven’t done so already, I highly recommend reading The Third Wave: An Entrepreneur’s Vision of the Future, a New York Times Bestseller by Steve Case that published one year ago. Steve is back in the news, with an expanded version (in paperback) out this week that adds a chapter on startup-friendly policies in the post-election environment.
Yesterday, my friend and colleague Roger Dean ("RD") Huffstetler announced his candidacy for the United States Congress, representing the 5th District of Virginia. He will run as a Democrat, which, given the district, would give a typical candidate an uphill battle—and against an incumbent no less. But, this is no ordinary candidate. It won't be easy, but he can win. And he should win. That would be a great thing for Virginians and for Americans. Here's why.