A surge in new Oregon businesses in the pandemic’s early days has continued without interruption, defying higher interest rates and a steep decline in investment capital.
“Business formation has increased noticeably and appears to be sticking,” state economist Josh Lehner wrote in an analysis earlier this month.
That’s a hopeful sign for the state’s economy, he said, because rising entrepreneurship puts “more ping pong balls in the hopper.” It increases the chances of new businesses emerging that boost Oregon’s productivity, a major source of economic growth.
Oregon has been averaging about 7,000 business license applications a month recently, according to data from the secretary of state’s office, which oversees business registration. That’s near an all-time high.
While the numbers include both new and renewed licenses, the net growth over the past few years suggests more businesses are forming. It’s a conclusion backed up by similar federal data, reported less frequently.
Entrepreneurs keep starting new business despite rising interest rates that have made it more expensive to borrow the money to launch a company.
And venture capital for ambitious Oregon startups fell by nearly half last year, a decline that accelerated in the beginning of 2023. Venture investors staked just $92 million into Oregon startups during the first three months of the year, the smallest quarterly tally since 2017.
So why are people still starting businesses, even though money is harder to get? The answer is that most entrepreneurs aren’t trying to raise millions of dollars to build the next tech giant. They just need enough to get their small business off the ground.
“Personal savings and home equity are the most common funding source for new businesses,” according to Lehner.
Federal stimulus payments early in the pandemic, coupled with low employment and wages that have continued to rise, may have people feeling they can better afford to take a financial risk on a new business. And the tight labor market may give them assurance they will have options to fall back on if their venture doesn’t succeed.
The pandemic shook up many industries, changing the ways people shop, commute and entertain themselves. Some budding entrepreneurs may see opportunities in the new landscape.
Further, Lehner notes that entrepreneurship peaks when people are in their late 30s and early 40s. That’s right where millennials are now, a growing cohort in Oregon’s population and “a big demographic tailwind to new business formation.”
That doesn’t mean Oregon should expect a host of big, new businesses to emerge from the current wave of entrepreneurship. Remote work means startups are more dispersed geographically, often finding workers with the skills they need in other parts of the country.
The average employment at young companies has fallen both in Oregon and nationally – from around six per business in the ‘90s to an average of three workers today, a trend that predates the pandemic.
Still, Lehner sees the elevated levels of business formation as a heartening sign for Oregon at a time when population growth has flatlined. He said new firms create new opportunities.
“While simply having more businesses does not necessarily lead to increased business investment and productivity gains, it sure is an encouraging signal about those possibilities in the years ahead,” Lehner wrote.
This is Oregon Insight, The Oregonian’s weekly look at the numbers behind the state’s economy. View past installments here.
-- Mike Rogoway | mrogoway@oregonian.com |
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