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Democratization of Entrepreneurship July 23, 2011

Posted by Bipul Sinha in startups.
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The first decade of the new century witnessed a fundamental change in the nature of the technology entrepreneurship. The dramatic reduction in the cost of starting a technology business combined with readily available risk capital has created a near perfect market for anyone with an idea and some risk tolerance to become an entrepreneur. This democratization of entrepreneurship has profound implications not only for the venture capital industry but also for the economic growth and prosperity.

The maturity of the Internet as a platform and the growth of open source projects have given rise to infrastructure-as-a-service providers that allow companies to almost completely eliminate the upfront capital expenditure and pay based on usage of the infrastructure. The entrepreneurs are leveraging the outsourced infrastructure along with Internet based low cost distribution to test and refine business models. The so called “Super Angels” who are a new class of risk capital providers have emerged to support such early stage Internet business model experimentation. In most cases the outcomes of such experiments are determined with less than $1M in invested capital. The successful models then go ahead and raise substantial venture capital to scale the business. What is the most interesting is, unlike the previous generation of technology entrepreneurs who were building infrastructure components of the so called technology stack, this new generation of entrepreneurs don’t need deep domain experience to start web based businesses as vast majority of the new companies are business model innovations with some technology pieces layered in. Further fueling this phenomenon is plenty of early exit opportunities for these companies even if the business model turns out to be not very scalable.

The democratization of entrepreneurship is net positive for the Silicon Valley ecosystem. The reduced barrier to entry and cost of failure have encouraged hordes of new college grads and corporate professionals to start companies. The traditional venture capital market is more efficient than ever because only somewhat proven ideas get further funding to scale the business. The venture firm brand name is not the most significant determinant of deal access especially in early stages due to serendipity factor in the identification of teams and business models. The market is much more of a level playing field for all.

Some people argue that easy access to capital and plenty of early technology/talent exit opportunities would create a culture of “fast flippers” where entrepreneurs would avoid long and hard slog of building large, standalone businesses that made Silicon Valley. Surely, there are well funded startups that look more like lifestyle businesses with no real potential to scale. However, we are early in this cycle and I believe market forces would eventually bring equilibrium.

I am more excited than ever about the pace of innovation and the resulting economic growth and prosperity. The unleashing of communication revolution combined with ubiquitous computing is creating level playing fields for consumer and entrepreneurs alike around the globe. We are indeed living through an age of acceleration where erstwhile temporal distances are getting squeezed. I will write more about it in the future.