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How many startups are active in the US and how many of them are active in San Francisco Bay Area, Boston Area, New York Area, Texas and Rest of USA?
Hello! Thanks for your question about the number of active startups in the U.S. and how many of them are active in San Francisco Bay Area, Boston Area, New York Area, Texas. The most useful sources for this research were the annual Kaufmann Startup Activity reports that measure entrepreneurship in the U.S. over three key variables.
After extensive search, a direct answer to your question is not publicly-available due to the difficulty in defining and identifying startup companies. Leading sources on this topic calculate numbers of entrepreneurs or consider only employer businesses, excluding sole founders. However, using the Kaufmann data and estimates of startup success rates, I was able to estimate the total number of entrepreneurs who were active in the U.S. as of 2016. The short version is that there are at least an estimated 21 million entrepreneurs in the United States. I have included my calculations and results in this spreadsheet. Below you will find a deep dive of my methodology and findings.
METHODOLOGY & FINDINGS
SOURCE DATA
I began by searching for existing publications listing the number of startups in the United States. One of the most respected publications on this topic is the Kaufmann Startup Activity Index, which is published annually. The Index measures entrepreneurial activity and new business creation in the US across "national, state, and metro levels." It captures business activity across industries and investigates both individual entrepreneurs, "the businesses they create," as well as startups evolution into employer businesses that hire other people. The Index is comprised of three indicators:
1)
"The Rate of New Entrepreneurs in the economy, calculated as the percentage of adults becoming entrepreneurs in a given month."
2)
"The Opportunity Share of New Entrepreneurs, calculated as the percentage of new entrepreneurs driven primarily by “opportunity” vs. 'necessity.'"
3)
"The Startup Density of a region, measured as the number of new employer businesses, normalized by the business population."
As you are interested in total startup activity, the first indicator seemed the most relevant to your needs as it measures the number of new entrepreneurs per 100,000 people in a given region. As such, the Rate of New Entrepreneurs reflects all startups whether a small at-home business run by one entrepreneur or a business that becomes an employer of other people.
The third indicator is also helpful, as it indicates the number of businesses that hire other people. However, after an extensive search I was unable to find the total number of employer businesses in the United States to determine the total number of employer startups. In addition, only looking at employer businesses would exclude companies created by "single founders who may not hire others" and who make up a large part of the startup community.
As the Kauffman Index looks at new entrepreneurship at an annual level, it is relatively conservative, is based mainly on Census Data, and does not capture businesses that remain in the startup phase for over a year. In contrast, the Global Entrepreneurship Monitor (GEM) is more expansive in its assessment of startup activity. It includes businesses at later stages and "different phases." For example, it would "both a three-year-old business and someone working on a startup in her spare time while still employed by another company." GEM estimates that there are 27 million entrepreneurs in the United States. Both Kaufmann and GEM use "number of entrepreneurs" as a proxy for measuring startup activity and do not list a total number of startup companies.
CALCULATIONS
Kaufmann publishes its annual Startup Activity reports in a publicly-available format along with data at the national, state, and metro area levels. As such, I was able to pull their three indicators for the United States as a whole and the regions you need and have included them in the first green tab of this spreadsheet. I then pulled the total adult population for each region using U.S. Census Data. Using the rate of new entrepreneurs and population estimates, I then calculated the absolute number of new entrepreneurs per region in 2016. They are as follows:
UNITED STATES: 6,600,000
SAN FRANCISCO BAY AREA: 306,971
NEW YORK METRO: 736,735
BOSTON AREA: 146,961
TEXAS: 947,986
REST OF UNITED STATES: 4,461,348
As you are interested in all active startups, not just new ones, it was important to estimate the number of new entrepreneurs in 2012-2015 and then determine how many were likely to still be around in 2016. The length of a startup period depends on the company and there isn't necessarily a time limit. With that in mind, I used five years as a reasonable start-up phase based on articles on start-up success rates from SmallBizTrends and Success Harbor. According to those two sources, 66% of startups succeed in year 2-3 the first 1-2 years, and 50% succeed through years 4-5. These are relatively optimistic success rates in contrast to the typical adage that "90% of startups fail," but are based on data from U.S. Census data on small businesses.
First, I gathered Kaufmann data on the rate of new entrepreneurs for 2012-2015 and applied it to the estimated adult population data. I was unable to quickly identify year-by-year population estimates, so used the same population figure. You can find these calculations in the purple tab 2 in the spreadsheet. Then I applied the success rates to each year (50% to 2012-2013; 66% to 2014-2015). Finally, I summed the results to determined the total active entrepreneurs in 2016 including those who survived through their first five years.
These calculations resulted in the following per region:
UNITED STATES: 21,036,000
SAN FRANCISCO BAY AREA: 938,530
NEW YORK METRO AREA: 2,274,055
BOSTON AREA: 44,464
TEXAS: 3,067,099
REST OF UNITED STATES: 14,311,852
As my calculations are based on the Kaufmann data and the same estimated U.S. population data for all years, they are relatively conservative. It is consequently unsurprising that the total number is lower than the GEM data of 27 million. However, the two values are reasonably close enough to make me confident that my estimates are reasonable.
WHY DATA ON STARTUP ENTITIES IS HARD TO FIND
After running an extensive search, it seems that the U.S. government, research entities like Kaufmann and GEM, and consultant firms like Deloitte struggle to identify the exact number of startups because the definition of a startup is fluid. It can include individual entrepreneurs, small businesses, and larger companies, but also is not mutually exclusive. While some new businesses are startups, not ALL new businesses are. For example, a florist who opens a new local business may or may not be a startup depending on their intent and goals. Generally, startups and entrepreneurs are defined as being focused on growth. As such, Kaufmann and GEM circumvent the difficulties of defining startups by focusing on entrepreneurship as a proxy for startup activity.
USEFUL INFORMATION & POSSIBLE CONTINUED RESEARCH
In the course of my research, I identified this article from The Next Web that references Compass' Startup Ecosystem Report. It ranks cities around the world based on their startup ecosystems. New York City is ranked second after Silicon Vally. You may be interested in investigated similar rankings further towards understanding environments around the world that are most conducive for startup growth.
CONCLUSION
To wrap it up, due to the difficulties inherent in defining startups, it was not possible to identify the exact number of startup companies in the United States and the regions you require. However, using data from Kaufmann and cross-checking it with the GEM findings, I was able to calculate that there are an estimated 21 million entrepreneurs in the United States as of 2016. I was also able to estimate the same figure for the San Francisco Bay Area, Boston Area, New York Area, Texas and the rest of the country. Finally, I have included links to the Kaufmann reports and other sources, which you may find useful. Please see this spreadsheet for all calculations and findings.
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