"Now is a great time to start a company," according to David S. Rose. David should know, he's started several, and is Chairman of the Board of the New York Angels, Inc., the leading angel investment consortium in the New York region.
Last week at New York Entrepreneurship Week's BootupNYC event, Rose's keynote discussed the differences in cost and investment between starting a tech based business just a few years ago, and starting one now. The orders of magnitude are considerable.
"When the Internet started, it was the Wild West, so everything was custom created, both for business models and engineering," says Rose.
When he launched AirMedia in 1993, a venture funded wireless internet broadcast "newscatcher" product, it took roughly $20 Million to finish the hardware and software development. The company became an Inc. 500 company, though the product was somewhat ahead of its time and they restarted the company.
In 1998, Airmedia became an Internet backend to let others create information, and it took $2 Million to create a shipping product and platform. When Rose invested in WIFI startup Joltage, a competitor to the "WIFI only in certain coffee shops" model popularized by T-Mobile in 2001, it took only $200k to ship the product.
Earlier this year, NY Angels funded Pond 5, which created a user-generated video stock footage website. They had a team of 3, and they had started their company by bootstrapping a site to the point of generating revenue. The cost? $20,000. Because they were able to show revenue and demand, NY Angels invested $500,000 to grow the company.
It is common to hear of developers creating iPhone applications at $2000. $2k is a long way from $20 million - because there's much more Internet infrastructure to support your development. Back then, Rose said, "You had to convince people that your concept had a chance to work, then you raised capital and developed a Proof of Concept. Today you should be able to develop a web site before you show it, and get much, if not all, of your product created out of your own pocket or with funds from friends and family."
Once you do that, Rose advises, get the product out there and find an audience. "Investors need you to show that you have users and traction before they will fund you. At that time you can use angel funding to accelerate your marketing and growth to show real customers spending real money on your product. The new reality for companies is to get to break even-or to profit-on angel money, and then you can get a follow-on round and really grow the enterprise. But remember, fewer than three companies out of 100 get angel funding, and the only ones who do are the highest quality ones. These are the startups with all the pieces of the puzzle pulled together: large market opportunity, great product, scalable business model, demonstrated customer acceptance, competitive advantages, tight operating budget, clear exit strategy, and above all, great management with a proven ability to execute."
(Disclosure: NY Angels' incubator provides space to NYSIA. I am a consultant to NYSIA).