January 14, 2001

Although the U.S. remains a country of entrepreneurs, a new study suggests the nation's entrepreneurial economic growth engine may be struggling to keep pace.

According to the "Global Entrepreneurship Monitor (GEM) 2000 National Entrepreneurship Assessment for the United States of America," conducted by Babson College and the Kauffman Center for Entrepreneurial Leadership, while entrepreneurship is a growing contributor to the nation's gross domestic product, signs of weaknesses in the entrepreneurial sector are growing. Among the study's findings:

- The percentage of people who perceive good opportunities to start a business has dropped to 52 percent in 2000 from 57
percent in 1999.

- Geographic disparity in entrepreneurial activity (especially high technology entrepreneurship) and infrastructure support for entrepreneurship (especially risk capital) continues to be a problem in many parts of the U.S.

- Physical infrastructure (especially transportation) is considered inadequate in many of the U.S. entrepreneurial hot
spots raising the concern of deterioration in the quality of life in those areas.

- Shortage of skilled personnel, especially software engineers, is a major problem nationwide

"The United States appears to have lost some of its enthusiasm as many of the dot.coms have become dot.bombs," said Andrew Zacharakis of Babson College and the lead U.S. GEM researcher. "However, the rate of entrepreneurial activity is still the highest in the world."

"Entrepreneurship may be one of America's greatest resources, but the U.S. has not focused on how entrepreneurial efforts contribute to economic growth," said S. Michael Camp, GEM project director and director of research at the Kauffman Center for Entrepreneurial Leadership.

The research is an expansion of the groundbreaking 1999 GEM report, which analyzed entrepreneurial activity in 10 countries, including all G7 countries. Created in 1997 to study the complex relationship between entrepreneurship and economic growth, the scope of the project doubled for 2000 with research teams from 21 countries participating, including all 10 countries from 1999. GEM researchers analyzed reams of data, conducted in-depth interviews with more than 800 experts and conducted scientific surveys of 2,000 persons in each country, more than 40,000 in total, to determine the level of entrepreneurial activity in countries participating in the GEM 2000 study.

To be sure, entrepreneurial activity in the U.S. continues to expand. The U.S. ranks third highest in entrepreneurial activity among all GEM countries, with one out of every 10 U.S. adults attempting to start a new venture.

Additionally, the U.S. venture capital sector has grown exponentially during the last few years and continues to outpace the rest of the world, as does the level of informal investor participation. One in every 15 U.S. adults invested an average of $4,000 in start-ups last year.

However, the study also points out that two-thirds of all venture capital invested nationwide went to just five states - California, Massachusetts, New York, Texas and Colorado and 78 percent of all venture capital invested in the U.S. went to companies in the information technology sector.

Several key experts noted that this disparity is putting some cities under pressure as far as roads, schools, and other infrastructure needs are concerned.

"In Southern California there is not enough public infrastructure, all the way from public education, where the school buildings need updating and expansion, to the roads which need more capacity, to the airports, which are overwhelmed," said Dr. William B. Gartner, Henry W. Simonsen Chair in Entrepreneurship, University of Southern California.

Other experts point out that the abundance of capital allowed for entrepreneurial start-ups by some individuals who were not quite up to the task.

As Stephen DeWitt, CEO of Cobalt Networks in Silicon Valley, a venture capital-backed company, which had one of the most spectacular IPOs in 1999, put it, "There is a glut of money and not enough entrepreneurs. You are starting to see a wide gulf between entrepreneurs that can cut it and those that can't."

Even more surprising is the decline in respect the U.S. population has towards entrepreneurs. Although more than 76 percent of the population still respects entrepreneurs, the number is down from 91 percent in 1999.

While this may be somewhat explainable by the dot-com slide and the subsequent impact on the 6 population as a whole, others see a growing arrogance in entrepreneurs who haven't paid their dues.

Recommendations

The study identified several policy initiatives to enhance the entrepreneurial environment. Among them:

- Increase entrepreneurship education, particularly at the primary and secondary school levels, as well as at technical
and engineering schools.

- Continued Government support for basic research, whether it is through the National Science Federation (NSF), defense
spending or any other number of grants and programs to support technology development.

- Identifying and celebrating role models especially for underrepresented groups. Increasing the participation of women
and minorities would have a large and sustained impact on the level of entrepreneurial activity.

For more information at http://www.entreworld.org.

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