A quick lookTechnology start-ups, investment, and the financial crisis

Published 10 October 2008

The U.S. financial crisis need not spell doom for technology start-ups, says Kevin Maney; one of the main reasons: “The cost of starting a tech company has dropped precipitously, thanks to cheaper/better/faster technology”

Many of the companies in the homeland security sector are start-ups — and with security needs growing and new threats emerging, the sector is especially attractive to young and nimble companies. Now, writes Portfolio.com’s Kevin Maney, the question is: In the wake of the financial crisis, and news reports that say that venture capital investment is falling off, “Is investment money going to dry up, leading to a drop in tech start-ups and a dearth of companies to help the U.S. rebound?” His answer: “Not necessarily.”

The reason is that VCs are important to Silicon Valley, “but they’re not the only source of money for start-ups anymore. The cost of starting a tech company has dropped precipitously, thanks to cheaper/better/faster technology.” Indeed, a company that five years ago would have cost $1 million to launch now might take $100,000 to launch. “And that makes it easier for angel investors — wealthy individuals — to fund companies,” Maney says.

He offers the example of Marc Andreessen and his business partner Ben Horowitz, which have been steadily funding about a start-up a month. “It’s also easier than ever for a few ambitious technologists to pool their own resources and start a tech company on a shoestring,” Maney says. He concludes:

Nonetheless, the country needs to make sure money is there to start companies and build new technologies. My colleague David Ewing Duncan wrote an important piece about this. OK, we need to pump $700 billion into the financial sector so there’s an economy that’s even functioning. But that’s just fixing what’s broke. As David points out, just a sliver of that amount would go a long way toward creating the companies and breakthroughs that will renew the nation.