The balance of power is shifting from investors to hackers when it comes to starting a software company.
The balance of power is shifting from investors to hackers when it comes to starting a software company.Why? "Because you don't need as much money, but you still need as much brains," says Paul Graham. He's a co-founder of Y Combinator, which provides micro-funding (along with reams of good advice and great contacts) to entrepreneurs.
Graham gives four reasons why it's cheaper to start a software company today than it was in the past.
First is open source software, which is widely available and free for the offering.
Second is Moore's Law -- computers are more powerful and less expensive than ever, and bandwidth is cheaper.
Third is the Web itself. In the 1990s, startups had to rely on old-school methods to generate buzz and attract interest: hire publicists and marketers to court the media and attract users. But today, the Web's social networks spread the word faster than a press release or a goofy guerilla marketing campaign ever could.
Fourth is the change in programming languages. "Ten years ago, the most common development team was eight guys writing in C++ or Java," says Graham. "Now it's two guys writing in Ruby or Python. And those two guys are probably the founders, so you don't have to pay them anything.""
Graham is putting his theory to the test with Y Combinator, which rarely gives startups more than $20,000. It's a pittance compared with the millions handed out by traditional VCs, but just enough for the founders to assemble a working prototype in three or four months. The prototype then opens doors to additional VC funding or, in a couple of cases for start-ups backed by Y Combinator, outright acquisition.
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