Nashville startup activity increases, still below recession levels

Nashville was among the fastest-growing markets for startup activity, but the city remains below its pre-recession levels, according to a new report by the Kauffman Foundation.

Nashville ranked No. 16 among metropolitan areas for startup activity, up from 23rd in 2015, based on the percentage of new entrepreneurs in a given month. Other cities with notable growth included Orlando, Kansas City, Cincinnati, Detroit and San Francisco.

Nationally, startup activity has improved for two consecutive years, after hitting a 20-year low in 2014.

The report illustrates Nashville and the nation's momentum with startup growth but also underscores the difficulties of building a business after the economic crisis seven years ago. The city’s number of new entrepreneurs has fallen off since peaking in 2009. .

"If you compare the Great Recession to now, startup activity has only started to recover," report author Arnobio Morelis said. "It was very adversely affected by the Great Recession, not only at the Great Recession, but it really had a long Great Recession hangover."

While startup density has increased slightly in recent years, it is almost half that of rates in the late 1970s and well below rates in the early 2000s.

"When you look at those levels compared to 30, 40 years time frame, the U.S. overall is on a long-term decline in terms of startup activity," Morelis said. "The economy as a whole is going to be dealing with this."

The report pointed to recent gains in the opportunity entrepreneurs, those who start companies who are not unemployed. They launch a company based on opportunity, not just necessity. In Nashville, opportunity entrepreneurs increased to 70 percent, up from below 65 percent in 2013. Nationally, there has been a 10 percent gain since 2011.

The growth of women and minority entrepreneurs are also driving national startup growth in the past year, Morelis said. In 2015, 40 percent of entrepreneurs were from minority racial backgrounds, up from 22 percent in 1996. Supporting additional inclusion of diverse entrepreneur can help spur startup growth, he said.

"There is a big opportunity there for building on that for both gender and racial minorities to have a bigger pipeline to entrepreneurship," he said.

Reach Jamie McGee at 615-259-8071 and on Twitter @JamieMcGee_.

Metros with the Biggest Positive Shift in Rank:

                     2015         2016

Orlando:          33            21

Kansas City:    29            18

Cincinnati:        31            24

Nashville:         23            16

Detroit:             35            30

San Francisco:  9              4

Rate of New Entrepreneurs, or percent of adults that became entrepreneurs in a month in Nashville:

2016: 0.38%

2009: 0.60+%

Startup density rate in Nashville:

2016: 83 startups per 1,000 firms

2007: 100 startups per 1,000 firms

1977: 150+ startups per 1,000 firms

2016 Rate of Opportunity Entrepreneurs: 69%