Elliott Breece, co-owner of Aime Inc., works from his home along with his co-owners and their employees.
It was a typical day at the “office” for Amie Inc. In an apartment at 168 Williams St. on Providence’s East Side, the three recent Brown University graduates who launched the Web-based startup gathered in a bedroom, along with one of their free-lance code writers.
On the desk, next to an empty pint of Ben & Jerry’s ice cream and a bottle of Tylenol, was a laptop computer. A whiteboard covered in hand-drawn diagrams and notes completed the infrastructure of the room they call their “programming environment.”
Rhode Island's Market Has Changed. Developers, Builders, Investors and Sellers Must Change With It.
By Emilio DiSpirito IV License Partner | Engel & Völkers Oceanside Leader | The DiSpirito…
Learn More
“This is world headquarters,” quipped Elliott Breece, co-founder and chief executive of Amie Inc. The young firm created AmieStreet.com, a Web site where users can buy and sell independent music and form social networks with fellow music lovers.
Though meager compared with the high-end office suites downtown, Amie Inc.’s home-based offices are part of a cutting-edge business strategy for technology startups: begin small, keep expenses low, and accept as little outside investment as possible.
Breece, co-founders Joshua Boltuch and Elias Roman, and a fourth roommate moved into their East Side apartment in June, shortly after graduation day at Brown. Each pays about $450 per month in rent.
They were able to get their business up and running for about $17,000, which came from their families and friends.
“It’s safe to say that, in the future, we’re not going to bring on any more [investment] than we need to operate,” said Roman, who as a student, spent summers interning on Wall Street. “It keeps you lean and hungry.”
The AmieStreet.com operation is part of a new wave of technology startups, in Providence and around the country, that have found utility in launching low-budget enterprises.
Their small budgets help the startups avoid some of the drawbacks of taking venture capital, according to industry veterans.
Such promising technology startups such as ArsDigita of Cambridge, Mass., have gone bust after taking on more venture capital than they needed, said Paul Graham, co-founder of Viaweb, an Internet commerce company since acquired by Yahoo! Inc.
For example, he said, ArsDigita was a profitable software company in 2000, when owners accepted $35 million from two venture capital firms. It went out of business earlier this year following an ownership dispute with those investors, according to a report in Mass High Tech.
“So there’s a case, not merely where a company that might have been good took too much money and turned out not to be,” Graham said. “It was a company that was already good and didn’t need to take money. When they did it, it destroyed them.”
Conversely, Graham said, when he and his business partners founded Viaweb, while earning their doctorates in computer science at Harvard University in the 1990s, they lived off burritos and kept costs low. (In 1998, Graham and his partners were bought out for about $49 million, according to the buyer, Santa Clara, Calif.-based Yahoo!)
Launching a Web-based startup on the cheap has become easier in recent years, Graham and others say, due to lower costs of computer software, and the increasing ease of use that means the companies need less manpower. Consider “Ruby on Rails,” a free, downloadable software package that – according to its developer, Chicago based 37signals – enables users to “quickly and easily” write code to create Web sites.
Another boost comes from the falling prices of computers. Look at Dell Inc., whose Web site advertises data-storage servers for small businesses for as little as $349.
“If you go to Dell and buy their cheapest [computer], that will be more powerful than a $10 million supercomputer was in 1980,” Graham noted.
Lower technology costs also have empowered younger entrepreneurs – many, still in college – to launch Web-based startups, according to Jack Templin, principal of ThoughtCap, an information technology consultancy based in Providence.
Templin noted that a lot of IT startups in the Providence area began with students at schools in the city, particularly at Brown. “Students are a big part of what is driving this trend,” he said. Their youth and their low living costs enable them to take on the risk of starting a business.
The startups’ reduced need for capital, Templin said, leaves the investment community looking for ways to gain a stake in this latest generation of Web-based companies. One potential solution is to offer the young startups easier access to smaller amounts of capital.
In Cambridge, Graham and three partners have formed a seed-capital firm called Y Combinator that typically invests no more than $20,000 in each startup. He said the investments provide young entrepreneurs with enough money to cover living expenses for about three months, giving them time to develop their ideas into technology that works.
Rather than making people submit business plans and give lengthy presentations, Graham said, his firm wants only a simple online application from those seeking seed money. “All you need to do is send us an e-mail,” he added. “PowerPoint is absolutely banned.”
Since the bursting of the dot-com bubble, the amount of venture capital going to Web-based startups has fallen dramatically. U.S. Internet startups received $12.3 billion in venture capital in the second quarter of 2000, compared with $916 million in April, May and June of this year, according to PriceWaterhouseCoopers’ and the National Venture Capital Association’s MoneyTree Report.
“I bet that venture-capital investments in [Web-based companies] won’t reach 2000 levels for another 10 or 20 years,” said Graham. He doesn’t see that as roadblock, however. “The number of good startups that are being created is probably greater now than it was in 2000.”
