ProviderTrust featured in The Economist as a fast growing health-tech startup

AT FIRST glance, it seems that America’s economy is losing its mojo. Many economists, most notably Robert Gordon of Northwestern University, have lamented that productivity growth seems to be anaemic when compared with earlier golden eras (see Free exchange). A gloomy chorus of business leaders has echoed what media outlets have by now turned into a mantra, that American entrepreneurship is in steady decline. Surely America’s overall competitiveness, then, is plummeting?

The answer from one influential think-tank, the World Economic Forum (WEF), is no. In its latest update to its long-running annual ranking of global economic competitiveness, published on September 27th, America rose from third place to second, ranking below only Switzerland.

This is partly because poor economic policies and weak productivity growth are bedevilling rivals such as China and Europe. Yet glaring American weaknesses, such as fraying infrastructure and fractured politics, are outweighed in the WEF analysis by the country’s strengths in areas like business sophistication and technological readiness. And aside from market size, the variable on which America still outscores other rich countries the most is its culture of innovation and entrepreneurship.

Hand-wringing about a crisis in business formation relies on official data showing that fewer new firms are being started than in the past. The latest figures, released on September 20th, show that there were 414,000 firms that were less than a year old in 2015 (the latest available year), compared with an average of 511,000 in the decade before the financial crisis. Still, not every new firm is equal — some entrepreneurs want to create the next Tesla, not open another bodega. Of the roughly 4.4m firms created in the last ten years, about 30,000 can be described as gazelles, or young, high-growth companies, according to the Kauffman Foundation, another think-tank that is known for its work on entrepreneurship. These firms have a disproportionate impact on job creation and innovation. They pack a powerful punch.

A forthcoming report from the Kauffman Foundation finds that high-growth entrepreneurship has rebounded in America from the trough induced by the global financial crisis and is now rocketing (see chart). These experts scrutinise three things: how quickly startups grew in their first five years; the share of firms scaling up past 50 employees by their tenth year; and the prevalence of “fast growth” firms with at least 20% annualised growth over three years (and $2m or more in revenues).

The analysis also reveals that such gazelles are found in unexpected places. Consider ProviderTrust, a health-tech startup. The firm has developed a novel software-as-a-service offering that helps health-care firms track people’s professional credentials and licences efficiently. Because states do not typically share timely information about disciplinary actions taken against health-care workers, footloose rogues can create a costly regulatory headache for unwitting new employers in another state. The company has been growing at a rate of over 60% a year since its founding in 2010; revenues should reach $10m this year.

Or look at Root Insurance, America’s first mobile-only insurance firm, which is increasing downloads of its app by nearly 50% month over month. It uses actual driving data to set insurance rates for all of its customers, and offers discounts to drivers for using the self-driving mode of their Tesla car. Alex Timm, its chief executive, explains that data collected via its customers’ mobiles proves that people are much safer when the car does the driving. His firm monitors drivers for texting and driving, which it discovers by analysing the micro-vibrations of smartphones.

These gazelles are found not in Silicon Valley or Boston but, respectively, in Nashville and Columbus. Other overlooked cities in the American heartland are also hotspots of high-growth entrepreneurship (see map). Mark Kvamme of Drive Capital, a venture-capital (VC) fund based in Ohio, points to Indianapolis as a rising technology hub: ExactTarget, a local software-marketing startup, was acquired in 2013 by Salesforce, a Californian software giant, for $2.5bn. “Luring talent away from Silicon Valley and Seattle is getting much easier,” says Mr Kvamme, a native Californian who left Sequoia Capital, a top Silicon Valley VC fund, to found Drive.

Steve Case of Revolution, an entrepreneur turned venture capitalist (in 1985 he co-founded what later became America Online), calls this the “rise of the rest”. Having observed this trend on periodic bus tours across America, during which he encourages (and sometimes invests in) many local entrepreneurs, he thinks three factors are fuelling it. Barriers to entry have fallen, especially for technology companies. Access to risk capital for startups, including through crowdfunding, is no longer limited to the two coasts. Local governments are increasingly supporting training schemes, accelerators and other bits of soft infrastructure that greatly boost startups’ chances of success.

Challenged on whether high-growth entrepreneurship can really be spread like jam across America, Mr Case acknowledges there is value to clustering. He insists, however, that nearly three-quarters of all VC money need not go to just California, Massachusetts and New York. “Spreading this to 30 cities”, he reckons, “would transform America.”

Link to article on The Economist Website.