Business Creation Uptick: Questioning the Long-term Viability of This Technological Entrepreneurship Boom
In the wake of the global pandemic, a remarkable surge in startup activity has swept across the United States. This phenomenon, dubbed "The Startup Surge," saw a record-breaking 4.5 million business applications by the end of 2020, marking a 24.3% increase from the previous year and a 51% rise above the 2010-2019 average.
The catalyst for this surge can be attributed to a confluence of factors. Unemployment due to layoffs has encouraged many to start their own businesses, while reduced startup costs thanks to new technology and government-provided pandemic relief have made entrepreneurship more accessible. Moreover, the shift to virtual work has provided many with increased free time.
One significant concern, however, is the escalating levels of student debt, which may act as a deterrent for aspiring entrepreneurs, particularly among younger demographics.
The surge in small business creation has had a profound impact on local communities. For every dollar spent at a small business, 68 percent funnels back into the community, compared with just 46 percent at larger firms.
The post-Covid era has seen a shift in the startup landscape, with the rise of artificial intelligence (AI) startups. This momentum, rather than pandemic-specific factors, has fueled continued venture capital inflows and growth in the startup ecosystem, particularly in North America.
Key reasons for the sustained startup surge include AI-focused venture capital dominance, investor eagerness to capture opportunities in AI, and the growth of the AI market and job creation. In Q1 2025, AI startups attracted nearly 58% of all global venture capital investments, amounting to $73 billion.
The AI-driven startup growth has had a significant impact on the economy and small businesses in the U.S. It fuels new technology, services, and employment opportunities, contributing to economic dynamism and transforming traditional industries. However, this concentration of venture capital on AI startups may limit capital availability for non-AI small businesses, influencing competition and market focus.
The startup surge has not been uniform across all industries. Sectors such as retail trade experienced a significant increase, while others, like construction, only saw a minor rise. The pandemic underscored the importance of digitalization, leading to a surge in online retail and other tech-driven sectors, and this era of digitalization and entrepreneurship lasted far beyond the year 2020.
Small businesses are responsible for nearly 65% of job growth in the United States every year and generate 44% of all economic activity in the country. Despite ongoing economic pressures, the entrepreneurial spirit of modern-day individuals continues to drive the startup surge.
Examples of businesses created during this period include "Sweet Dreamz," a small business selling homemade bath bombs started by Makala Jones after losing her serving job, and a business selling paintings of N.B.A. players started by Adam Sarkis.
The rise of the digital economy has created more market opportunities. Jeff Neal, for instance, created The Critter Depot to provide pet food for pet owners unable to obtain it during the pandemic, while Prodima, a company providing digital marketing services, was created due to an increase in demand for digital products.
The ongoing development of digital transformation, accelerated by the pandemic, has created a conducive environment for tech-driven businesses to thrive. Kayla Swisher, a student at the University of Maryland, started a profitable business selling earrings made from pressed flowers during the pandemic, while Torri Burrell, a student at Temple University, transformed her hobby of baking into a small business during the same period, with social media playing a significant role in promoting her products and growing her online presence.
Economists disagree on the future of the startup surge. Some predict it will become permanent, while others anticipate a decline in business applications, reaching pre-pandemic numbers. Regardless of the future, the startup surge has undoubtedly left an indelible mark on the American economy.
- In the ongoing digital transformation, finance and entrepreneurship intersect as a rise in student debt may deter some young entrepreneurs, yet the surge in small-business applications, particularly in tech-driven sectors like AI, continues to attract venture capital and shape the American economy.
- The post-pandemic landscape has diversified the startup ecosystem, with significant growth in small-businesses across various industries such as online retail, digital marketing services, and even homemade product ventures, demonstrating the financing of news enterprises in finance, retail trade, and other sectors.
