In Search of Capital: The Outlook for Start-ups in 2010

On the face of it, 2010 looks like a bad time to start a new business. Early stage capital, whether it is venture funds, angel investors or bank loans, remains tight. And while technically the recession has passed, consumers and businesses are still keeping a tight hand on their wallets. Despite the obstacles, however, start-up formation has increased recently, possibly due to laid-off workers deciding to pursue their entrepreneurial dreams. At the same time, high unemployment has expanded the talent pool for start-ups looking to hire. For those who can find creative solutions to the financing challenge, starting a new business now may turn out to be perfect timing. “The recession is a great time to start a company,” says David Wessels, an adjunct professor of finance at Wharton.

In fact, the numbers show that the pace of start-up formation has picked up despite -- or even because of -- the recession. According to a report released in May by the Ewing Marion Kauffman Foundation, a non-profit focused on entrepreneurship, the number of new businesses created between 2007 and 2009 was the highest level in 14 years, even exceeding the start-up boom of 1999-2000. In 2009, 340 adults out of every 100,000 started a business each month, up 4% from the pace in 2008.

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