CHAPEL HILL – Small businesses in high-income zip codes were affected more negatively than those in other zip codes, because these businesses skew toward providers of non-essential services away from home, found the Kenan Institute in the 2021 Trends in Entrepreneurship report.

That is one example of a key takeaway: for small businesses, much like the broader economy, an economic recovery following the onset of the coronavirus pandemic in the United States has been a k-shaped one, where some businesses are thriving and others are dying.

In aggregate, small business revenue remains more than 20 percent lower than where it was in January 2020, prior to the onset of the COVID-19 pandemic, the report found, using data from Womply accessed through Opportunity Insights.

On the one hand, small businesses are beginning to seek workers, as the recovery is in progress, after some were able to take advantage of federal programs like the Paycheck Protection Program (PPP), while on the other hand, face headwinds in accessing talent due to worker preferences to shift job searches toward larger companies in times of economic uncertainty, found research conducted in 2020.

https://wraltechwire.com/2021/04/21/small-businesses-scrambling-for-help-as-jobs-go-unfilled/

“This led to a deterioration in the quality of the human capital pool available to early-stage ventures during the downturn,” write the authors of the 2021 Trends in Entrepreneurship report.

The pandemic disrupted the wage progression for millions of Americans, said Sandra M. Moore, Managing Director and Chief Impact Officer, Advantage Capital.  “This is important because wage progression positively affects both the business and the worker alike, rendering it an essential aspect of sustaining long-run healthy business growth and individual prosperity,” she added.

Now, small businesses face headwinds as they seek to scale their employee base to take advantage of a potential economic rebound, especially as vaccine rollouts continue to occur, and the summer months are nearing.

In North Carolina, for example, there was an increase of 22 percent in available job openings at the end of March 2021 compared to the end of March 2020, with many openings available at larger firms.

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Meanwhile, many small businesses have closed. In North Carolina, the number of small businesses decreased by 18.7 percent between January 2020 and September 2020, the Kenan Institute report found, and nationally, every U.S. state experienced a decline, with the average decline of 27 percent.

Businesses appear to be closing faster than new businesses are formed, found the Kenan Institute report. And, for those that have formed during the latter months of 2020, after the onset of the pandemic, a greater share are businesses described as formed due to necessity rather than due to opportunity, said John Dearie, founder and president of the Center for American Entrepreneurship. Furthermore, said Dearie, many of these businesses of necessity are sole proprietorships, and thus unlikely to be a source of job growth for the economy.

COVID-19 disproportionately affected minority businesses, entrepreneurs, Kenan Institute finds

Yet, for those who choose to invest in new and small businesses, the data shows that it can pay dividends.  According to data that runs through the third quarter of 2020, venture capital fund returns have been highest compared to all private fund types across all horizons in the past 15 years, and mezzanine debt funds have been the top-performing debt strategy for the one-, three-, five-, and 10-year trailing periods, found the Kenan Institute. That includes the one-year horizon for venture capital firms, which saw 27 percent returns in aggregate.

“There was tremendous concern at the beginning of the pandemic that the VC industry would lock up and choke off the flow of capital to young, innovative companies,” said Steve Kaplan, Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance and Kessenich E.P. Faculty Director at the Polsky Center for Entrepreneurship and Innovation, University of Chicago Booth School of Business.

Kaplan co-authored a study that found that venture capital firms initially reported delaying investment, the terms they expect are more founder-friendly than deals prior to the pandemic, and that they remain optimistic about their own performance, with 91 percent stating a belief that they will outperform public markets and three-quarters saying they expect the venture capital industry as a whole to outperform.