This time, the start-up boom is no bubble

The scene is a Starbucks in Regent Street, London. Two 23-year-old women from Trinity College, Dublin, are doing a five-minute pitch from a laptop to a couple of serious venture capitalists (VCs). It is the cappuccino version of TV programmes such as Dragons’ Den and it is telling us a lot about the vitality of the new internet start-up boom in the United Kingdom.

I have no idea whether the site they have created (Welovefancydress.com) will be a winner, but it was nifty enough to hold the attention of the VCs. One of them asked how much it had cost so far. The reply: “A hundred.”

I think the VCs thought they meant £100 000 until another question revealed it was £100, and the total funds being sought a mere £2 000—small enough to be from the back pockets of VCs who normally think in millions.

This example is exceptional, but it illustrates the lean and mean face of the new start-up boom, which augurs well for its longevity. It is reckoned that—thanks to falling prices, more powerful bandwidth and the ease with which websites can be set up—it is 90% cheaper to set one up now than at the height of the last boom.

This time it is not a bubble waiting to burst. These new start-ups make a virtue out of frugality. Their heroes are people like the guys behind Last.fm, the London-based personal radio site that is doing well globally which was developed on the roof of a terrace in Whitechapel. Their mission statement is, “Don’t use two tents if one will do.”

What a refreshing change from the hedonistic excesses of the likes of Boo.com, which in the 1990s blew nearly $120-million on fancy offices, Concorde trips, advertising and unworkable technology. These days start-up enthusiasts come with something that is actually working—not just a piece of paper with an idea on it.

This new puritanism is reflected in using a Starbucks rather than a swanky venue for these OpenCoffee meetings every Thursday. The man behind them, entrepreneur Saul Klein, reckons there are definite signs of a fresh, more firmly based start-up boom.

There is certainly a buzz around the place. That’s Paul Birch in the corner, a co-founder of Bebo, the social networking site, who is working in its nearby London office on a new form of networking that doesn’t require users to upload detailed personal information upfront but leaves them instead to generate it organically. Someone else is doing well selling high-quality video streaming to companies, having been funded by governmental sources.

The new boom is fuelled by several new factors: the existence of more venture capital houses and “angel” investors than before, plus—for the UK—a new generation of entrepreneurs who are investing money made out of the previous boom (such as Brent Hoberman of Lastminute.com, who has backed start-up WAYN).

Entrepreneurs, many of them immigrants, also have access to the strong growth in spin-offs from universities such as Cambridge, Oxford (where DesignTheTime has just received large funding to archive the world’s memories), Imperial College, even LSE.

The trend for low-cost start-ups is generating a new class of venture capitalists prepared to invest smallish sums of money, unlike the big established ones which prefer to spend £1-million on one start-up rather than have the bureaucratic bother of doing 10 deals of £100 000.

Organisations such as OpenBusiness—which runs a monthly meeting off London’s Brick Lane where low-budget start-ups with social motivation can showcase their sites—is typical of the new approach.

There are lots of others, ranging from the exclusive Zenopy (you need three members to recommend you) to Second Chance Tuesday, an oversubscribed event in central London where start-ups meet investors as First Tuesday did during the previous boom). Most participants agree: this time it is not a bubble, but the establishment of an eco-system.

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