How much does it cost to create one job?
March 18, 2012 1:11 PM   Subscribe

In startup businesses, how much funding is required, on average, to create one job? I'm looking for hard data, ideally broken out for different industries.

In other words, I'm looking for studies that quantify the ratio of early-round funding to employment generated. If a company has 20 employees after attracting $5 million in funding, that's $250,000 per job created. For some kinds of businesses, like retail, the startup funding per job is probably a lot lower. For others, like high-tech manufacturing, it's a lot more. Can you point me to resources with this information?
posted by beagle to Work & Money (7 answers total) 3 users marked this as a favorite
I don't think the type of information you're looking for is available. Most, if not all, startup funding is privately placed, and so there is no regulatory framework with which to capture data about jobs created per dollar of funding. Companies hire on the basis of need, not on the basis of capital raised.
posted by dfriedman at 1:26 PM on March 18, 2012

It may also have changed over the past few years because of technological progress.

I've heard an argument that a new web startup costs only a bit more than having half a dozen people hang out for a summer, basically keeping the developers and designers in pizza and rent. You don't need to spin up a half dozen Sun servers in a dedicated data center rack like you needed to do 10 years ago (plus Solaris administrators, network people, etc.), along with maintaining office email, network services, etc.. Now, you tell them to deploy to Heroku or EngineYard while running your source repository in Github and your mail at Google.
posted by chengjih at 1:32 PM on March 18, 2012

Response by poster: I realize it's private information not readily available. But funding rounds and cumulative funding levels and employee counts are often announced by startups as indications of growth. I'm looking at this from the point of view of local economic development: on the assumption that most new jobs are created in small startup businesses, if you want to create X new jobs in an area, how much total investment might be needed to do so?
posted by beagle at 1:33 PM on March 18, 2012

If this information is available, someone who uses Quora may have the answer. Other possible resources would be Crunchbase and related sites.
posted by dfriedman at 1:36 PM on March 18, 2012

I think your basic premise is not really correct. In general private start-ups seek funding (and investors give it) to create businesses not jobs. Jobs are just a beneficial side effect. Only governments think about using investment dollars to create jobs.

You will find lots of data on investment rounds. For example checkout the National Ventures Capital Association's web site. However, I've never seen head-count mentioned in an investment round press release and generally start-ups don't talk about head-count growth unless they're trying to get money from government (SBIR, DOE, ARPA grants etc.). They they know that's the metric that matters to those decision makers. So perhaps checking their web pages might be a good place to start.
posted by Long Way To Go at 3:08 PM on March 18, 2012 [1 favorite]

You can get a very good sense of what the US government views as the minimum investment to create a job by researching the standards and requirements for an investor visa. There's something of a lawyer's-war-story verging on urban legend that one reason why there are so many Subway franchises in the country is that the capitalization they require, and jobs they create, fit precisely into the minimum.
posted by MattD at 3:26 PM on March 18, 2012

Response by poster: dfriedman, I did post this on Quora as well, but have received zero responses there so far.

Rodrigo Lamaitre, thanks, that study has some useful data. I agree other ingredients besides money are necessary to create jobs in any particular locality.
posted by beagle at 6:38 AM on March 19, 2012

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