Apple, the world's most valuable corporation by market capitalization, was founded by two long-haired hippies in a garage. Steve Jobs had a big vision for how computers could redefine contemporary society. His partner, Steve Wozniak was an electronics whiz and computer programming savant who quit a safe and well-paying job at Hewlett-Packard (another garage start-up) to help Jobs change the world.
And that's exactly what they did.
The start-up life, characterized by all-nighters, in-fighting, and improbable dreams, occupies a special role in the American consciousness. It plays to an innate conception of a meritocratic society in which hard work and daring are rewarded with riches, fame and power. Bill Gates and Mark Zuckerberg could have stayed at Harvard, earned degrees, and went on to the comfortable lifestyles afforded to Ivy League graduates. Instead, they dropped out and struck gold.
Instagram
In the last year, start-up culture has recaptured the American imagination. Instagram, the iPhone and Android smartphone photo application company, was bought by Facebook for $1 billion. The only thing more astounding than the purchase price was that Instagram was a two-year old company with virtually no revenue and fewer than 15 employees.
Another mobile app company, OMGPOP, struck it big this year when Zynga bought it for $180 million. While a much smaller deal than Instagram's, it was an even more inspiring story. The company had struggled to get its product right for years before it made its first hit, the "Draw Something" video game.
Venture capitalists have been busy spreading money around so that they, too, can cash in on deals like Instagram. Total VC investment increased by 16.5% to $34.14 billion in 2011 from 2010, according to Dow Jones VentureSource. Consumer information services, which include social networking sites like Pinterest, attracted $5.26 billion in 2011. If you needed more proof of how frothy the start-up scene is, check out this stat: There are now 20 start-ups valued by investors at $1 billion or more, more than the 18 valued as such during the dot-com bubble of the late 1990s.
JOBS Act
Washington also has start-up fever. In April, President Barack Obama signed the so-called JOBS act, which will allow start-ups to raise investment from the general public and avoid going public for longer by raising the shareholder limit at which companies must begin disclosing financial information. The act also made it easier for start-ups to cash in on the public markets by reducing the accounting requirements under the Sarbanes-Oxley law. The bill passed by wide margins in the House and Senate despite warnings by regulators that it was unlikely to reduce unemployment and would lead to more fraud.
One of the less sexy, but most viable start-up areas has been in enterprise software. Companies making products for other businesses have drawn big money in acquisitions and venture financing. VC investment in business support services nearly doubled from $2.78 billion in 2010 to $4.11 billion in 2011. Established enterprise players like Oracle, SAP and IBM have all taken notice, shelling out billions to acquire successful enterprise start-ups.
And yet despite the lure of risking short-term security for life-long wealth, start-ups can still have a hard time recruiting employees. In a survey of 2012 college graduates, just 4% said that a start-up was their ideal place to work. To help entice people to New York's burgeoning start-up scene, a group of companies including Bit.ly and Yipit offered prospective employees $5,000 each to move to the city take a job.
Most Fail
Candidates have good reason to be worried about joining a start-up. Most of them fail. Of the 2,600 Silicon Valley start-ups founded in 2000, just over 20% were still around by 2009, according to an analysis by the Bureau of Labor Statistics. And with those failures came the loss of 25,100 jobs.
Of course, many argue that we're now in a situation nothing like the early 2000s. Indeed, some say that the promise of a decade ago is finally being fulfilled today. Broadband Internet access and smartphones are ubiquitous, giving many companies a chance at real revenue and profits.
With all the money floating around, life at a start-up doesn't even require as many sacrifices as it once did. Even small companies are providing catered meals, shuttle bus service and free electronics. Meanwhile, cash compensation is rising so much that start-up employees don't even have to take a big pay cut to join a fledgling business.
Almost 30 years since he uttered his famous line to John Sculley to get him to quit PepsiCo and join Apple, the mantra of Steve Jobs has gained new resonance: "Do you want to sell sugared water for the rest of your life? Or do you want to come with me and change the world?"
Write to Joseph Walker at Joseph.Walker@dowjones.com
