The Effects of Debt on Entrepreneurs
The Ewing Marion Kauffman Foundation’s Zero Barriers movement has focused the conversation around identifying and removing barriers to entrepreneurship. According to the Kauffman Foundation, the overwhelming majority of net new jobs in the U.S. come from new businesses, so if we want to create good jobs for Americans, we need to grow new companies across the country. Yet 78 percent of all startup investment goes to just three U.S. states (California, Massachusetts and New York); in the other 47, more firms are dying than are born each day. While big companies have never been more successful, new firm creation is at a 30-year low.
The Foundation recently hosted a design lab to address one key challenge: providing more equitable access to early stage investment and services for aspiring entrepreneurs representing diverse communities & geographic regions. The two-day event brought together more than 40 players from across the field — including Wall Street firms, community banks, microlenders, financial technology companies, and nonprofits — to rethink the entire finance system by directly engaging and working with entrepreneurs to overcome this barrier. Ross Baird, President of Village Capital, and I facilitated the workshop and it reminded me of a conversation we had several months ago around debt and its effect on entrepreneurship.
The recession of 2008 showed us two very distinct things: One, most people had their net worth tied up in a home and it was not unusual (and generally considered a good decision) to take out a second mortgage or line of credit to pursue the establishment of a new company. This is no longer an option for most of us. And second, student debt has skyrocketed. Student debt has risen from $579 billion to $1.2 trillion nationally. Starting out ‘adult life’ heavily indebted makes it effectively impossible for young people to take the risk of starting something new because consistent income is needed to pay off loans.
Coupled with historically low savings rates – an Atlantic piece from last Fall stated that over 47% of Americans do not know where they’d find the money to cover a $400 emergency – and the equation is quite unsettling.
In this video, Ross and I discuss the effects of debt on entrepreneurship and policy ideas that might enable a positive change to our current trajectory. Watch the conversation below:
What are some of your ideas on how to change the course of American enterprise? How do we create an economy where all Americans are able to fully participate and thrive? Email us and share your ideas!