Don't Bet On Job Growth From Start-Ups

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While starting a business is always hard, these days it’s even harder than usual.

Despite some improvement, access to funding remains far more difficult than in the past. Venture capital investment was down 44% in the first half of 2009 and bank credit remains limited for small borrowers. Even entrepreneurs’ personal wealth is still lower than it was pre-crisis.

As such, new business starts fell 14% from the third quarter of 2007 to the third quarter of 2008, and failed to rebound significantly in latest fourth quarter data from the Bureau of labour Statistics.

As a further sign of trouble, many business school students have been opting for safer large-firm employment instead of turning their new ideas into start-ups.

It could be a while before the small business growth engine is back in full form.

WSJ: The recession may have ended, but history suggests business creation won’t rebound quickly. The 2001 recession officially ended in November of that year. But business starts didn’t begin growing again until mid-2003. A sustained lull in company formation “could have huge implications for the economy down the road,” Mr. Headd says.

Experts wonder if the severity of the recession will discourage entrepreneurs for years. Bob Keidson, a newly minted M.B.A. from UCLA’s Anderson School of Management, might provide a clue. While still in business school, Mr. Keidson started a magazine about the bourbon industry. The company, in which he remains an investor, now has a staff of three.

Following graduation, he had planned to raise money from investors and start a company to buy distressed California real estate. After months of planning, Mr. Keidson decided funding would be too difficult and joined an existing real-estate firm. Established companies provide a “nice safety net,” he says.

Read more here.

Find related Bureau of labour statistics here.

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