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The Wrong Reasons to Support University Entrepreneurship Programs

As a professor of entrepreneurship at a university, I benefit from efforts by foundations and governments to support entrepreneurship programs. While I’d like to see this support continue, I wish that the support would be provided for the right reasons.

To me, the right reason to support entrepreneurship programs at universities is because educating students about this topic is valuable to them in the same way that teaching them physics or art history benefits them. The wrong reason to support university entrepreneurship programs is the belief that these programs will enhance economic growth in a region.

There is little evidence to suggest that either the quality or quantity of university entrepreneurship programs in an area does much to affect high growth start-up activity.

First, the distribution of venture-capital backed companies across the United States looks nothing like the distribution of university entrepreneurship programs. The National Venture Capital Association reports that 65 percent of all companies that received venture capital in 2007 were located in just five states: California, Massachusetts, Texas, Washington, and New York. These five states have nowhere close to two thirds of all the entrepreneurship programs in this country. So it seems unlikely that there is a relationship between the number, or quality, of entrepreneurship programs in a state and its level of venture capital activity.

Second, recent college graduates account for few start-ups. Data from the Census Bureau’s Survey of Business Owners shows that over two-thirds of the entrepreneurs whose businesses had received an external equity investment and were less than six years old in 2002 were between the ages of 35 and 54 years at the time their businesses received that investment, and only 0.05 percent were less than 25 years old. Therefore, university entrepreneurship programs don’t generate many people who are likely to start businesses in the near future.

Third, few college graduates remain in the place where they went to school. In contrast, most people start businesses where they are currently working. Therefore, efforts to stimulate the amount of entrepreneurial activity in a region through college education will suffer from much greater leakage than efforts to stimulate the amount of entrepreneurial activity through efforts to help the entrepreneurs currently starting businesses in the region.

Fourth, entrepreneurial activity involves a large amount of learning-by-doing. The research evidence suggests that many entrepreneurship skills are learned on the job, working for companies that are successful at this activity. For this reason, entrepreneurship students are a poor source of assistance to help build entrepreneurship in a region. Most students have little of the relevant work experience necessary to help entrepreneurs to start successful companies.

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About the Author: Scott Shane [1] is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of eight books, including Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By; Finding Fertile Ground: Identifying Extraordinary Opportunities for New Ventures; Technology Strategy for Managers and Entrepreneurs; and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company.