Kauffman Foundation Study: Characteristics of Startups

Last month the Kauffman Foundation released results of its annual survey of businesses that launched in 2004, which explores the unique character of startups from perspectives such as financing, staffing, intellectual property, and owner demographics. The foundation calls the Kauffman Firm Survey, which is tracking the fortunes of about 5,000 companies, "the largest longitudinal study of new businesses ever conducted." The results so far cover the cohort's operations in 2004 and 2005.

Unfortunately the research buckets businesses into antiquated categories that make it impossible to drill down to specifics for online or web services companies (for example, the categories in "high tech" are based on 1991 definitions limited to "chemicals and allied products, industrial machinery and equipment, electrical and electronic equipment, and instruments and related products"). Nevertheless, with startups being such a critical component of Silicon Valley culture and a major driver of innovation in the online and social media space, the survey's findings are interesting. Some highlights:

• More than 91 percent of the businesses survived their first year
  
• Consistent with Silicon Valley mythology, almost half the new businesses reported operating from home or a garage
  
• About 2 percent received patents during their first year of operation, 9 percent received copyrights, and 13 percent received trademarks
  
• Almost 60 percent reported no employees and about a third had 1-5 employees; less than 4 percent had 11 or more employees
  
• Less than 30 percent offered health insurance and only 6 percent offered stock options
  
• 37 percent reported no revenue and 17 percent had annual revenue above $100,000; less than 5 percent had profit in excess of $100,000
  
• 56 percent of the companies used debt financing in their first year of operation; 23 percent borrowed $25,000 or more. Of those with debt financing, 48 percent used personal debt, often credit cards. About 25 percent took on business debt.
  
• 80 percent used equity financing and 9 percent had equity greater than $100,000
  
• 69 percent of owners were men; 81 percent were white, 9 percent black, and 4 percent Asian. 19 percent were under 35, 63 percent were 35-55, and 18 percent were over 55.
  
• About 23 percent had some education beyond a four-year college degree; 53 percent did not receive a bachelor's degree
  
• For 58 percent of owners, this was their first startup. 6 percent were serial entrepreneurs who had launched four or more companies.

Check out the full report for more details.