There may not be a generation in American history with more entrepreneurial potential than Millennials. They tend to be more highly educated, independent, and open to change than their older counterparts. They report strong interest in starting businesses, have the most access to entrepreneurship training, and came of age at a time when successful entrepreneurs were ubiquitous in news and popular culture. In an economy in need of a jumpstart, it’s a match made in heaven.

There may not be a generation in American history with worse entrepreneurial prospects than Millennials. They entered the workforce amid a recession that left many without the resources necessary to start their own business. They hold a record amount of debt paired with next to no savings. A market dominated by big businesses has less room for small ones owned by young people. As far as entrepreneurship goes, the situation is a disaster.

Of these two interpretations, it’s the latter that’s been borne out by statistics. Millennials “have created fewer and fewer businesses since they entered the workforce in the early 2000s,” says a report from the Kauffman Foundation. Americans ages twenty to thirty-four are starting businesses at a slower rate than previous generations were when they were in the same age group. Business creation by Americans of all ages peaked at more than 550,000 startups in 2006, according to Kauffman, before dropping 31 percent to a low in 2010. That number only crept back up past 400,000 in 2012.

Before delving into potential underlying reasons behind the gap between Millennial interest in start-ups and their actual entrepreneurship rates, it’s important to understand why new businesses matter so much to the economy. While established companies tend to add jobs overseas, American start-ups are much more likely to create domestic jobs. The most efficient path to job creation is a start-up that hits it big—which is also the path to major technological innovation, according to Robert Litan, nonresident senior fellow in the Economic Studies Program at the Brookings Institution. “Cars, airplanes, computers, air conditioning,” Litan says. “All were commercialized by entrepreneurs, not established companies.” Very few start-ups will grow big enough to hire lots of people (and even fewer will produce products with the technological impact of the car or computer), but more new businesses means a higher chance that some strike gold.

The most obvious obstacle for Millennials who want to be entrepreneurs is their bank accounts. There’s a lot of overhead cost involved in starting a business—a Gallup poll last year found that 79 percent of people starting firms with fewer than five employees had to dip into their savings to do so. Given how many Americans in their twenties and thirties have had trouble finding steady work to pay the bills, it’s no surprise that they lack the savings necessary to get their entrepreneurial dreams off the ground. Combine that with massive amounts of student debt, and the drop in new businesses makes sense. While many members of previous generations could take out second mortgages or max out credit cards for funding, those options aren’t as open for debt-averse Millennials, who are more likely to be renters. What’s frightening is the long-term effect that entering the workforce during a recession can have on a generation, both in terms of future economic opportunities and psychology. Starting a business means taking a risk, and young people living paycheck to paycheck or going to grad school to avoid having to find a job in a weak economy are often unwilling to take that risk. “So many recent college grads live at home, and their parents are telling them to get a job,” Litan says. “The last thing that parents want to hear is, ‘I think I’m going to start a company.’”

Even those with the savings or the parental support to draw on are having trouble finding space in the market for their ideas. Entrepreneurship requires a niche, whether large (this app could change the way millions of people do an everyday task!) or small (there isn’t a good bakery within twenty miles of here!). As large companies consolidate and expand, though, those niches grow fewer and farther between. It’s especially visible in retail and food service—chains like Walmart and Target dominate, and jokes about how many Starbucks locations there are grew stale years ago—but, as Derek Thompson explained in the Atlantic last year, plenty of other industries are seeing long-term declines in new businesses. Construction start-ups (think home building, plumbing, and civil engineering) dropped by nearly 80 percent between 1978 and 2011, while manufacturing start-ups decreased by nearly 60 percent. How can a twentysomething wannabe entrepreneur compete with a company like Amazon, or Koch Industries? Consolidation can even eat away at the economic benefits wrought from the few who do go up against the big fish in the pond—many successful start-ups end up being purchased before they get big enough to hire a major number of people.

Another potential explanation, a favorite among conservatives, is that government regulation has stifled entrepreneurship. This can take the form of fees and requirements at the onset of a start-up. A Heritage Foundation report last year found that the cost of meeting regulatory requirements has gone up by more than $70 billion over the past five years. That can then dovetail with consolidation; while a company like Google can hire the lawyers and compliance officers necessary to understand complicated taxes and regulations, a new business with a young founder is going to have a much harder time.

There are reasons to doubt such negative effects, though. A study from Nathan Goldschlag and Alexander Tabarrok at George Mason University found that more heavily regulated industries actually have slightly higher rates of entrepreneurship. The study concluded that federal regulation “had little to no effect” on the overall decline of new business formation. In fact, there’s a segment of the entrepreneurial economy where experts are eagerly awaiting regulation: crowdfunding. It’s a way for large groups of people to send relatively small sums of money to businesses and projects they like, popularized by sites like Kickstarter (which saw people pledge $529 million to individual projects last year). While Kickstarter operates on what Kauffman calls “reward crowdfunding”—donors receive different gifts based on the size of their donations—there could be even more potential in “equity crowdfunding,” in which people who give money actually receive an ownership stake. The U.S. Securities and Exchange Commission is still writing the rules for equity crowdfunding, leaving a patchwork of regulation across the fourteen states that have legalized it in advance of the SEC rules. With full federal regulation, entrepreneurs (especially young ones with the savvy to promote their firms and projects online) could start taking investments from anywhere in the country.

At this point, researchers can only theorize about which explanation is to blame for the decline. Peak age for entrepreneurship, according to the Kauffman report, is around forty—people often need years of experience in a particular industry to identify a niche, gain skills, make contacts, and build up enough savings to take the plunge. Until Millennials hit that point, all we can do is compare them to previous generations before their own peaks. There are indicators that could signal an entrepreneurship resurgence among young Americans if the economy continues to improve. “We don’t know what’s going to come of the Millennials,” says E. J. Reedy, Kauffman’s director in research and policy. “The Millennials still have the potential to be the greatest entrepreneurial generation or America’s lost entrepreneurial generation.” Among the positive indicators is their high educational attainment, including access to specific training in starting businesses. There were more than 5,000 entrepreneurship courses reaching more than 400,000 students in 2008, compared to about 250 similar courses in 1985, according to the Kauffman report. Millennials tend to have a positive view of entrepreneurship, and they entered adulthood at a time when business founders like Steve Jobs and Mark Zuckerberg were already household names. Silicon Valley and the young people making millions there are constantly in the news—when they’re not being dramatized in movies like The Social Network or lampooned on HBO’s Silicon Valley. There’s a good chance that the average Millennial uses multiple apps that were developed by people around his or her own age.

But that’s just the problem: we’re in a time of what Reedy calls “hyper-extreme” young entrepreneurship. There are more incubators and accelerators than ever, only helping a tiny number of Millennials start companies. That doesn’t mean that the rest are outright ignoring entrepreneurship, though. Those skills and interests may actually be manifesting themselves in young people trying to make their way in the sharing economy. That means finding freelance or contract work, working on projects on their own time, and potentially leveraging assets like a car or an apartment to make money on the side. “They’re having to piece together their own jobs and careers,” Reedy says. “Somebody could be driving an Uber car, then doing ten hours of work as a barista.” Driving an Uber, opening an Etsy shop, selling freelance work—all could be seen as micro forms of entrepreneurship, kinds that won’t show up in studies of business creation. But unlike traditional entrepreneurship, they are only likely to create a single job, the one each individual is using to eke out a living.

Doing this kind of self-driven temporary work could be helping Millennials prepare for real business creation as the economy improves and they start to hit their forties. Or it could be keeping them from more standard work environments, robbing them of the experience necessary to identify niches and build contacts. Only time will tell whether Millennials are poised to break or doomed to perpetuate the country’s downward entrepreneurship trajectory.

Matt Connolly

Matt Connolly works for a labor union in Washington, D.C. Previously he was an editor at the Washington Monthly.