Startups for pennies: entrepreneurial boom ahead?

New software vendor launches with less than $100,000 startup investment; uses cloud for IT needs. Biggest line item for startups these days is 'rent and food.'
Written by Joe McKendrick, Contributing Writer

There was a time when launching a serious startup required serious capital. Seed money was required for hiring talent, marketing and promotion, office space, and for technology to make it all happen.

The technology portion of the equation is suddenly diminishing, dramatically. Thanks to cloud computing and social networking resources, it now costs virtually pennies to secure and get the infrastructure needed up and running to get a new venture off the ground.

An example I cited in a post last year is that of GigaVox Media, a podcast technology company. During its startup phase, the company tapped into Amazon Web Services for processing power, messaging, and storage.  The cost for the first couple of months for operations?  About $82, estimated GigaVox co-founder and CTO Doug Kaye. "We didn't have to buy a single server," he said.

Bloomberg's Ari Levy recently uncovered a bunch of startups that also have managed to launch at very low cost, thanks to cloud resources. He cites the example of 280 North Inc., which produces presentation and Web development software:

"The founders of software maker 280 North Inc.  needed little more than a half-dozen computers and a roof overhead. Francisco Tolmasky, Ross Boucher and Tom Robinson kept costs in check by using code available free on the Web and renting storage on the cheap from Amazon.com Inc.  Expenses are about $4,500 a month, and the San Francisco company -- two years after getting off the ground -- is close to making a profit."

Levy observes that 280 North only needed to raise $100,000 to get going, and "says it has plenty of cash to get another product to market."

He cites figures from the National Venture Capital Association, which estimates that the size of the average venture round has shrunk by half to $6.3 million since the dot-com bubble in 2000.

With IT infrastructure costs low and cheap -- with other resources such as the collaborative and production sites -- prepare for an explosion in entrepreneurial activity. Unemployment is high right now, and there are many, many, many professionals who see the startup route as a more sustainable alternative to seeking full-time employment.

With this confluence of underutilized skills and cheap resources -- the DIY economy -- we may be on the verge of an explosion in entrepreneurial activity in the decade ahead that will rival anything we've seen before.

Perhaps Chris Sacca, a 280 North investor and former Google Inc. executive, puts it best: “The biggest line item in these companies now is rent and food...  A decade ago, I don’t think you could write a line of code for less than $1 million."

This post was originally published on Smartplanet.com

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