Start-ups feel squeeze as funding hit by downturn

THE number of people trying to start businesses with the potential to boost the economy and create jobs declined by 10 per cent in the wealthiest nations during the global slowdown, the Global Entrepreneurship Monitor (GEM) said yesterday.

Last year, even as the number of people trying to start businesses in wealthy countries declined, a quarter of new entrepreneurs felt the prospects for their businesses are rosier than a year earlier.

Professor Bill Bygrave, of Babson College in Massachusetts, said: "Throughout the world, would-be entrepreneurs are having greater difficulty in obtaining financial backing for their start-up activities, especially from informal investors – families, friends and strangers. This pool of money declined from $400 billion (245bn) to $350bn (215bn)."

The academics behind the survey said their data suggested that countries with strict employment protection regulations had fewer entrepreneurs who had a high potential to create jobs.

Dr Kristie Seawright, executive director at GEM, said: "While it may seem counter-intuitive to call for a reduction in employment protection at a time when people are losing jobs, strict employment protection legislation makes it risky for entrepreneurs to create jobs and more risky for experienced people to quit their job and help build new businesses."

Dr Jonathan Levie, from Glasgow's Strathclyde University, which helped compile the survey, added: "If good people feel it is unsafe to leave their current employment because jobs are hard to come by, it is difficult to put good new teams together to exploit new opportunities.

"If there is considerable churn in the job market; good people know they can always get a job, so they will be more willing to take the higher-risk route with a new high-potential business."