Does America Have the Best Start-Up Culture?
America might have its share of problems, but it's a great country for entrepreneurs.
That's according to the second-annual Ernst & Young G20 Entrepreneurship Barometer, which ranked the U.S. as one of the top five countries for launching a small business. Australia, Canada, South Korea, and the United Kingdom rounded out the list, which surveyed 1,500 entrepreneurs worldwide.
Each of these G20 countries were ranked in five categories: how easily start-ups can access seed funding, how well a country's culture supports entrepreneurship, how taxes and regulation incentivize entrepreneurs, how education and training help people launch businesses, and whether the government does anything to support these burgeoning start-ups.
Here's how the America makes, or misses, the mark in each category.
The U.S. leads in funding, in no small part thanks to its large network of VC firms, angel investors, and crowdfunding. The U.K. placed second, while China ranked third. Although the amount of venture capital in the U.S. dropped by a third during the Great Recession in 2009, it shot back up to $30 billion in 2011. American citizens also enjoy greater access to domestic credit, including small business loans. The U.S. domestic credit to private sector percentage (a percentage of GDP) is 199.1, twice the G20 average, which is 99 percent. Unfortunately, most of America's venture capital is concentrated in the high tech and life sciences sectors, and 50 percent of those surveyed said the U.S. government could offer more in the way of tax incentives for backing small businesses.
To no one's surprise, the "Land of Opportunity" ranked first in this category, with South Korea in second and Canada in third. That partly has to do with Americans' can-do attitude: 43 percent of U.S. entrepreneurs say they view failure as a "learning opportunity." The U.S. ranks third in research and development spending across the G20, preceded by Japan and South Korea. Entrepreneurs benefit from R&D because it helps foster more innovation.In 2009, U.S. businesses funded over 60 percent of total R&D in the nation to manufacture commercial products. The largest business sector dedicated to R&D in the States is computer and electronic products.
Tax and Regulation
The U.S. ranked 13th in this category, with Saudi Arabia placing first and Canada in second. EY found that 73 percent of U.S. entrepreneurs claim national tax incentives have decreased in the past three years, compared with the G20 average of 38 percent. Considering how much easier it is to start a business in the U.S. versus elsewhere, EY suggests the negative feedback on taxes may just reflect how vocal U.S. entrepreneurs are on the issue. Total labor-related taxes in the U.S. are only 10 percent, while the overall G20 average is 24 percent. However, the total tax rate--taxes and mandatory contributions borne by the business expressed as a share of commercial profit--for U.S. businesses remains around 47 percent, while the European Union's rate fell to 43 percent from 50 percent.
Education and Training
The US ranks third place in education and training, following France in first place and Australia in second. This comes as no surprise, considering the U.S. has one of the highest rates of education spending at 5.5 percent of GDP and is home to some of the highest-ranking universities. However, EY found that only 12 percent of entrepreneurs saw improvements in government programs supporting entrepreneurship; only 27 percent found improvements in vocational education in school curriculum; and 43 percent said there were more specific programs at universities and business schools for entrepreneurs. Another problem is how poorly U.S. students fare on STEM-related tests (science, technology, engineering, and mathematics). Only 9 percent of 15-year-old American students performed well in standardized Program for International Student Assessment (PISA) science tests.
Although the U.S. is packed with start-up accelerators, incubators, and entrepreneurial mentorship programs in the private and community-level, it ranked last in this category. Surprisingly, Russia came in first, and Mexico second. About 41 percent of U.S. entrepreneurs believe there is a need for government-run start-up mentor programs. However, only 9 percent of U.S. entrepreneurs think access to government programs has improved in the past three years, compared with the G20 average of 32 percent. EY's Barometer found that entrepreneurial support in the U.S. is more informal since many entrepreneurs take rookies under their wing or the rookies turn to private-sector programs, such as Y Combinator.