Measuring the impact of the startup economy is a complex task with more than one variable, which is affecting almost every industry today. The world started listening to academia during the tech boom of the 80s when research papers regarding new technologies were written at Stanford, Berkeley and MIT. These studies began to lay the groundwork for the Silicon Valley. At the time, Apple, Microsoft and Oracle were themselves startups.
What they did, the way they did it and the technology they brought forward changed the world, and it made a massive impact on the next 30 years. Not long after, we were introduced to the PayPal Mafia, which has members like Peter Thiel, Elon Musk, Reid Hoffman, Luke Nosek, Ken Howery and Keith Rabois.
All of them are billionaires today. They went into the world and created Tesla Motors, LinkedIn, Palantir Technologies, SpaceX, YouTube, Yelp and Yammer. Almost everyone in the present day uses what they created. So many experts have said that startups are the backbone of the economy, and even though we don’t perceive every new business as a startup, that is precisely what they were before we began associating the term with high-tech.
The best way to describe the expectations of a startup company in the Silicon Valley era is through the words of Marc Andreessen:
“With lower start-up costs and a vastly expanded market for online services, the result is a global economy that for the first time will be fully digitally wired — the dream of every cyber-visionary of the early 1990s, finally delivered, a full generation later.”
The startup community turned influencing consumers with novel concepts into an art form. Moreover, even Google was a startup once!
How Are Startups Affecting the Economy in 2018?
When Apple went public, 300 millionaires were created, and by 2007, over 1,000 Google employees were worth more than 5 million dollars. These figures, however, only show the tip of the iceberg when it comes to the impact that startups have on the economy. Startups are creating jobs, fulfilling dreams and spawning new industries for a significant percentage of the population.
According to the research paper “The Economic Impact of High-Growth Startups,” prepared by the Ewing Marion Kauffman Foundation, startups account for 50 percent of the newly created jobs. The research concludes that when these businesses expand, they don’t do it only in size, but also in various new locations.
Another significant factor is the subsequent employment growth in the related fields and the growth of the industry itself. For example, when the Bitcoin started gaining traction, the exchanges and the miners were not the only ones with new jobs. On the contrary, the cryptocurrency and the blockchain technology expanded so much that they started affecting banking, real estate, healthcare, law, politics, education and more. However, at the same time, new fields were born, which created more jobs for more people.
Investing in Startups
Venture capitalists have been investing in startups since the early 80s, when it became apparent that technology, talent and ingenuity are going to change the world. Almost 40 years later, startups are the epitome of those qualities. According to investors, for the venture to be even considered, the owners have to:
- Have a unique point of view in the consumer’s behaviours
- Develop a new technology or find a practical way to upgrade an existing one
- Find a problem in society and then come up with an inventive and profitable way to solve it
- Offer a product which is lacking on the market
- Have a quality know-how
- Have access to data that nobody else has, or they developed a software that is more precise in analysing data
We are going to finish this article with hands-on advice from Paul Graham regarding investing in startups:
“I think one of the biggest unexploited opportunities in startup investing right now is angel-sized investments made quickly. Few investors understand the cost that raising money from them imposes on startups. When the company consists only of the founders, everything grinds to a halt during fundraising, which can easily take 6 weeks. The current high cost of fundraising means there is room for low-cost investors to undercut the rest. And in this context, low-cost means deciding quickly. If there were a reputable investor who invested $100k on good terms and promised to decide yes or no within 24 hours, they’d get access to almost all the best deals, because every good startup would approach them first. It would be up to them to pick because every bad startup would approach them first too, but at least they’d see everything. Whereas, if an investor is notorious for taking a long time to make up their mind or negotiating a lot about valuation, founders will save them for last. And in the case of the most promising startups, which tend to have an easy time raising money, last can easily become never.”