The Kauffman Firm Survey: how entrepreneurs start

Available at SSRN:

Some highlights:

* Nearly 60 percent of the businesses had no employees in their first year. Just under three-quarters of businesses had one employee or less, while about one-quarter of businesses had two or more employees. Very few businesses (less than 4 percent) had more than 10 employees.
* More than a third of businesses (37 percent) had no revenue in their first year of operation. About 45 percent of businesses in the KFS experienced a profit during their first year, compared with about 55 percent of businesses that experienced a loss in their first year. About 17 percent of businesses had profits in excess of $100,000.
* Nearly 44 percent of new businesses had no debt financing during their first year of operation. Many businesses were started with very little debt financing: 17 percent of businesses started with $5,000 or less; nearly 11 percent started with $100,000 or more.

* About 80 percent of businesses had some positive equity investment in their business in the first year. Nearly 10 percent invested $100,000 of equity into their business, while another 33 percent invested between $10,001 and $100,000. About one-quarter of businesses invested some amount less than $5,000.
* The vast majority of equity invested came from the business owners themselves. Just 10 percent of the businesses in the KFS used external equity sources in their first year. Parents were the most common source of external equity (3.4 percent), while spouses provided equity to 1.6 percent of businesses. Non-family informal investors and venture capitalists were used very infrequently (2.7 percent and 0.6 percent, respectively).
* Nearly 70 percent of businesses in the KFS data were owned by men and just over 30 percent were owned by women. Whites owned more than 81 percent of the businesses, while blacks owned 9 percent, Asians owned 4 percent, and the remaining 5 percent were owned by Native Americans, Pacific Islanders and individuals of other racial groups. About 6.6 percent of the businesses were owned by Hispanics.
* Just under 9 percent of firms closed in calendar year 2005, and the survival rates vary by owner demographics. For example, 88 percent of black-owned businesses survived, compared with 92 percent of white-owned businesses and 91 percent of Asian-owned businesses. Women-owned businesses had a survival rate of 89 percent, about three percentage points lower than businesses owned by men.



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