Toward the $2,000 Startup

Everyone knows the cost of starting up an Internet company has dropped precipitously over the past few years. But if current trends keep up, it could be so cheap that no one will need venture or angel funding to do it.

That was a takeaway from a recent conversation with David Rose, the chairman of the New York Angels and head of early stage firm Rose Tech Ventures. 

Every few years, he says, the cost of starting an Internet company has dropped tenfold. Years ago, it cost about $2 million to get a strong concept to product launch. Shortly after the burst of the Internet bubble, the cost got down to a couple hundred thousand. Recent angel-funded companies have gotten there on $20k. And now, the cost is heading lower.

“You can build an iPhone App now for two thousand bucks,” Rose says. A company that recently pitched him claimed to have gotten 10,000 downloads for a Blackberry application with an investment of $15k.

What’s that mean for VCs and angels? Mostly, Rose says, they get to invest in companies that already have a finished product when they seek funding. So, the money is  for scaling, not for developing a prototype.

For entrepreneurs, the trend is mostly good, Rose says, as they can start a company with their own money. One potential downside, however, is that no one can raise investment capital with just a business plan anymore.