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Secret to successful businesses: How funding fuels job, company growth

Mar 03, 2025 - businessinsider.com
The article discusses a comprehensive study led by economist John Haltiwanger, which examines the factors contributing to business success by analyzing data from 50 million American companies founded between 1981 and 2022. The study found that the strongest predictor of success is the amount of financing a company secures before launching, with venture capital being particularly beneficial. However, venture capital is predominantly accessible to young, white male founders, highlighting a bias in funding. The study also notes a decline in the dynamism of startups, with fewer young companies growing rapidly or becoming major employers compared to previous decades. This decline is attributed to factors such as the dominance of Big Tech companies, which absorb talent and acquire promising startups, and a shift in the types of businesses being started.

Haltiwanger proposes several theories for the slowdown in startup growth, including a potential shift towards non-tech small businesses and the consolidation of talent within large tech firms. He also suggests that the current lull might precede a new wave of innovation, potentially driven by artificial intelligence. While there is a surge in AI-related startups, the impact of AI on productivity and business growth remains uncertain. The article concludes by questioning whether the rise of AI will lead to increased economic dynamism or if it will result in significant disruptions and challenges.

Key takeaways:

  • The strongest correlation between business success and the factors analyzed is the amount of financing a company is able to raise before it launches, with venture capital being a significant contributor to success.
  • Venture capital investment is biased towards young, white male founders, leaving women and nonwhite owners less likely to have outside investors.
  • The growth rate of young companies has slowed, with fewer startups growing into large companies, partly due to acquisitions by Big Tech.
  • The current lull in business growth might be a precursor to a boom in innovation, potentially driven by advancements in artificial intelligence.
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