There are plenty of businesses that were “jump-started” into operation, without VCs or with minimal investment. A few examples of these businesses in Spain are Meneame and Panoramio now part of Google Earth, while in the U.S. there’s Digg. And of course, there are many more throughout the whole world. As the crisis hits us all this is one of the topics that I touched upon during my latest lectures with future entrepreneurs.

Right now startups are being made Open Source style: everyone puts in a little bit of their time. And this is partly feasible because Open Source itself exists nowadays: programming requires fewer resources than before, hosting is cheaper, hardware in itself is cheaper. Open source apps lowered the barriers to putting products on the Internet, and the Internet is now ten times bigger than it was at the time of the last crash. Indeed, here is a little tidbit of information for you: In 2007, YouTube alone consumed as much bandwith as the entire Internet in 2000.

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Jorge on January 15, 2009  · 

I agree with the hosting cheaper like cloud on demand services like Amazon AWS, but the open source are similar to 2000, Which open source for tech company did not exist years ago? I do believe in no VC business for first steps, even more if business based in SpSpain where client financing models can work pretty good, it is what I do with my startup. What I see a killer with respect to 2000 is on-demand: on demand hosting, advertising like ad words and whwhat I call on demand soft development with frameworks like django and ruby on rails which speed up development a lot

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Matias Paterlini on January 15, 2009  · 

I gotta say I completely agree with you. In fact, my first two startups were both built without VCs and they had some success, even when some of the partners were working in some other places to get money to live.

If you have savings to put your mind on your own venture, I suggest to do that without looking for VCs, but if you don’t have money, Instead of going to the VCs with your idea, I suggest to keep working while you spend time on your own project. If you do that, you’ll have something working to show to the VCs and if you make the necessary effort plus some luck, you won’t need them at all, and your business is going to be successful.


Matias Paterlini

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David on January 16, 2009  · 

Are you talking about companies using open-source or producing it? Or, perhaps a combination of both? For sure, companies are able to leverage vast amounts of open-source and on-line knowledge to create products quickly and cheaply. While the barrier to entry is lower for you, the same is true for everybody else. Which may explain why some projects/companies that used to embrace open-source (used it and produced it) suddenly shift to only using open-source after VC funding. It also explains why some users of open-source are not always very “open” about how they use or have changed it. Of course, the nature of the open-source, how it is used (for recreation or business), and it’s user community (end-users, developers, system integrators, etc) all have significant relevance to how releasing open-source can benefit a sustainable business. I do believe in open-source, and that it offers tremendous value to end-users, developers, and system integrators. But, releasing software as open-source isn’t only about (a lack of) funding, doesn’t necessarily attract a large and participatory user community, and requires one to know their audience. At the end of the day, what makes a success is a good idea and marketing it. Open-source can be successfully used in marketing (both by users and producers, with various levels of honesty), and if your open-source project is actually useful to people, it will attract a community. For the latter, it may take some time and patience – slowly growing a community and brand, while watching others rise and fall after burning through their funding.

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Martin Varsavsky on January 16, 2009  · 

@ David:

I refer to start ups using Open Source, and not only Open Source now they can use software in a way that was just not available in 2000 when everything needed to be developed. It is just easier to get a site going nowadays. So a couple of super talented guys, a programmer and a designer, with a limited budget can put together a Meneame that has millions of users per month.

michael on January 16, 2009  · 

Some years ago, you could develop software in your basement, sell it and earn some money. I did this myself some years ago with a text editor written for Cobol environments. Then came the need for huge packages, with zillions of features, and it became more difficult. On the Internet it’s easy – in fact a Rails tuition text shows how to make a social network in your first lesson. That is good. You should be able to build and test demand for your product very fast, adn at minimal cost.

Where the VC comes in , though, is to provide the capital to scale the successful business and pay for the founder to employ the skilled people who provide expertise, experience, contacts and fill in the areas of the business that the founder cannot manage.

All the huge businesses we know today of course started small, but at some point had to decide whether to stay in their garage, or grow into a world dominant company.

Without resource, of which money is key, no business can grow fast enough to outstrip competition. VCs provide this.

As Martin says, businesses can be created without VCs, but without funding they’ll never achieve their potential.

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