Covid snapshot and resources

COVID-19 update & resources

COVID-19: Startup Economy Snapshot and Recommended Resources for US Businesses

Eric Malis
January 31, 2022

This publication provides a snapshot of the startup economy as of year-end 2021, measured by the number of new companies formed and the amount of venture capital raised during the pandemic. It also provides a list of recommended resources for US businesses from government agencies, law firms, and other relevant sources.

Startup Economy Snapshot

Despite wreaking havoc throughout global supply chains and health care systems, Covid-19 has helped stimulate growth in the startup economy. From the number of new businesses forming to the amount of venture capital being deployed, many entrepreneurs and investors are doubling down as the economy undergoes a form of “creative destruction.” And while the future remains uncertain, the pace of recovery in the innovation sector has already far surpassed that of previous economic downturns. What comes next will depend on how businesses adjust to the new normal.

New Business Formation

The number of new businesses formed in the United States (as measured by the number of Employer Identification Number (EIN) applications filed with the IRS) grew to nearly 4.4 million in 2020, a 24% increase from 2019. In 2021, that trend continued as 5.4 million new businesses formed, a 23% increase over 2020. (For context, prior to 2020 the annual increase had not exceeded 10% for as long as the US Census Bureau has been tracking the data, which began in 2004.) While this growth in new business formation may eventually recede as markets stabilize, many economists speculate that the trend is “not just transitory” as the ability to launch new ventures becomes increasingly more accessible.

Venture Capital Financing

When the pandemic first began, US venture capital took a bit of a dive. Researchers from Harvard, Stanford, University of Chicago, and University of British Columbia found that in the first half of 2020 the pace of venture capital investment slowed to “71% of normal expected activity.” But the second half of the year more than made up for it. By the end of 2020, venture capital backed companies in the US raised over $166 billion during the year ($335 billion globally), setting a record despite the pandemic. That record was then shattered in 2021 when venture capital backed companies in the US raised nearly $330 billion ($643 billion globally), roughly double that of 2020.

It’s not clear how long these trends will continue. As entrepreneurs and investors develop more efficient ways to deploy capital, it will be interesting to see how fundraising changes over time. One thing to watch is how receptive companies and investors become to alternative funding models, such as revenue-based financing offered by Lighter Capital and shared-earnings agreements utilized by Calm Company Fund. But fundraising is not a measure of success. It is merely a tool to provide entrepreneurs a means to experiment in the face of challenges. For as long as challenges like the coronavirus pandemic persist, entrepreneurs will have opportunities to innovate and overcome them. 

 

Recommended Resources

Information about the coronavirus pandemic and its impact on businesses and various communities is constantly changing. Below is a list of recommended resources with information about government programs, medical guidance, workplace toolkits, current statistics, and best practices.

Government Resources

Law Firm Resources

 

More Useful Resources

No person should rely on the content of this article for any legal or tax advice. Consult an attorney or tax professional on any specific questions.