How America Is Regaining Its Startup Mojo -- and Why It Matters - TheStreet

Editors' pick: Originally published Sept. 22.

Here's some more good news for the U.S. economy: The entrepreneurial bug is back.

"For the second year in a row, key measures of new business creation in the United States point upward," according to The 2016 Kaufmann Index of Startup Activity, published in August by the Ewing Marion Kaufman Foundation. "Only two years ago, the Startup Activity Index was at its lowest point in the last 20 years."

The index, which is represented as a growth rate, peaked in 2009, before troughing in 2014. It focuses on the growth of entrepreneurial businesses, as measured by increases in both revenue and employment.

The jump in the index should matter to investors because around 80% of jobs in the U.S. comes from small businesses. In addition, some small companies can become very big, like Apple (AAPL) - Get Report  and  Facebook (FB) - Get Report  , and it can be hard to tell ahead of time which ones will bite the dust and which ones will become spectacular successes. Some startups even make it into the S&P 500 index, which is tracked by the SPDR S&P 500 (SPY) - Get Report exchange-traded fund.

The key, though, is that more startups are better, because many will fail.

Austin, Texas, remains king of the entrepreneurial castle, this year's report says. Miami comes in second, and both are far ahead of fourth-ranked San Francisco. Los Angeles was third.

The cities which saw the biggest gains were Orlando, Fla.; Kansas City; Cincinnati; Nashville, Tenn., Detroit, and San Francisco, the report says.

"If this index keeps going up, that would be good," says Peter Morici, professor of economics at the Robert H. Smith School of Business at University of Maryland. In other words, while a rebound is a good sign, what really needs to happen is for the entrepreneurial activity to continue growing.

There are some hurdles that may prevent that, however, including the increasingly high levels of debt with which many college graduates are burdened.

"The kids are financially constrained," Morici says.

Another problem is that colleges and universities aren't training young people to be entrepreneurs. 

"The kids go to very bureaucratic institutions and they come out thinking in very bureaucratic ways," he says. The willingness to go it alone and bootstrap a business with little but sweat and determination often gets drummed out of college students before graduation.

EXCLUSIVE LOOK INSIDE: Facebook and Apple are holdings in Jim Cramer's Action Alerts PLUS charitable trust portfolio. Want to be alerted before Cramer buys or sells the stocks? Learn more now.

The Kaufman report itself also expresses some concern about American entrepreneurial mojo.

"Despite recent years' good news, longer-term trends are concerning," the report states. "From 2006 to 2013, startup density among the top 40 largest metropolitan areas declined by 24%, on average, indicating that employer startups remain precariously below historical norms."

And that creates another potential problem: Economies that don't give birth to a lot of businesses eventually stagnate.

So yes, there is risk for the entrepreneurs in setting up something that might fail -- and many will fail. But for societies as a whole, there's an even greater risk when not enough people are willing to take a leap of faith in the first place.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.