There are two dominant myths about startup finance:
1. Broke students spend nights and weekends hacking together a billion dollar company that they sell during summer break.
2. It takes a multimillion dollar check from Sand Hill Road to get off the ground.
The first was never true; the second is no longer true. Why?
First, the costs of storage, hardware and software have plummeted in the past decade (Remember Silicon Graphics?). Recently the Kauffman Foundation found that it takes only about $109k to start a new company. In a more interesting survey The Next Web attempted to break down the cost of launching successful products like Twitter, Instagram, Pinterest and Vine. If you hired developers and designers to build these products instead of coding yourself, it might take $50,000-$250,000 to get to a minimum viable product.
Building a basic prototype yourself just takes time and a laptop. Add in the cost of basic expenses, cloud storage, a better laptop, a lot of caffeine, a few inexpensive tools and services, perhaps some AdWords, and you get to a few tens of thousands to get started.
The cost goes up when you start hiring employees. But that has changed too. There are more engineers, more designers and more product managers than 10 or 15 years ago and the labor pool isn’t limited geographically. Instead of competing with Google, Twitter, Facebook or WalmartLabs for talent, startups outsource or supplement development to teams in India, Russia, Ukraine or even mid-sized cities in the US.
Another change came with The Lean Startup movement. Eric Ries’ book introduced a methodology for launching a startup efficiently, a reaction to the dot-com days of extravagant spending on infrastructure without confirming a business model (Remember Webvan?).
A fourth factor driving increased startup activity is the explosion in startup support. Governments in the EU, Singapore and Japan are investing billions to seed startups; Start-Up Chile wants to turn Chile into a hub of innovation; and Russia is attempting to recreate Silicon Valley and MIT at Skolkovo. Elsewhere entire startup ecosystems have grown up to provide training, networking, mentorship and financial support for startups.
And that — the development of healthy startup ecosystems — may be the key to successful support of innovation.