Despite U.S. stock indexes being beaten down this year, despite earnings warnings, despite inflation fears over oil prices, despite a tight labor market, despite, despite, despite ... technology entrepreneurs yawn, call some investors and start more companies.
The number of IT sector start-ups continues to grow, although business starts outside of IT continue on a downward spiral, according to a study by market analysis and financial services firm Dun & Bradstreet.
As a percentage of all new business starts, the IT sector has risen steadily since 1995. Forty-two percent more IT businesses started in 1999 than 1995, mainly driven by communications-related industries, the report said. Communications company startups grew 125% over their 1995 level. Computer hardware- and software-related industries showed 25% growth in 1999, compared to 1995 numbers.
A partner at one venture capital investment company attributed the relative youth of the Internet for the ongoing rise in the number of U.S. startups.
"The way we think of it, is that the public markets can go up and down, but there is such a fundamental revolution driven by the Internet going on that IT startups are a very long-term trend," said Ronald Nordin, a partner at the early-stage venture capital investment company Atlas Venture in Boston.
Nordin said the pace for funding companies had actually slowed at his firm, likening the change "figuratively from a few days to a few weeks," to fund a new company.
He attributed that to the uncertainty in financial markets, but said it was a good thing. "A lot of the 'fatty' things in the market have been flushed out - business models that didn't have a realistic chance of success. It's not as crazy as it was, and we're glad. We still get something like a thousand proposals a week," he said, laughing. "I'm not the one who actually has to read all of them."
Entrepreneurial fervor in the remaining sectors of the U.S. economy hasn't been quite so robust, according to Dun & Bradstreet. Overall business starts have fallen since 1996, and in 1999 were down to 90 percent of the 1995 level, and at 89% of the 1996 peak level, the report said.
In 1995, IT business starts made up 4.5% of all business starts; in 1999 they accounted for 7.1% of all business starts. Seventeen percent of IT business starts were in communications-related industries in 1995, with 27% of IT business starts in communications-related industries in 1999. New IT businesses in 1999 created more than 90,000 new jobs, accounting for almost one-tenth of employment in new businesses in the U.S., an increase of 40,000 jobs created in 1995, Dun & Bradstreet said.
Outside of the Internet sector of IT, venture capitalist Nordin said he sees optical communications and particularly the life sciences as areas for new company growth. Companies looking for ways to commercialize the results of the Human Genome Project are ripe for funding and eventual initial public offerings, he said.
Dun & Bradstreet, in Murray Hill, N.J., can be reached at 908-665-5000 or at www.dnb.com/.
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