Internet ventures 2.0 start in humble settings
There are a few hurdles between Landy Ung and her dream of growing her startup into a household name. One is the fact that her only outside funding comes from her mom's fried chicken restaurant, and another is that her only full-time programmer is her boyfriend who has a day job.
She and Wan Hsi Yuan, 27, run the business 8coupons.com from their 500-square-foot studio apartment, meaning headquarters is, effectively, their couch. The business, which text messages discounts to users' mobile phones, keeps Yuan and Ung, who is 28, up until 3 a.m. most nights. Then, Ung said, she sometimes finds herself lying awake, worrying.
"I need to watch a little National Geographic special on the rain forest or something before I go to sleep," she said.
Welcome to startup life in 2007.
While their Internet bubble predecessors dreamed of stock offerings, spoke blithely about burn rate and talked about selling everything online, these startups are focusing on interactivity, services for mobile gadgets and getting bought by a bigger company.
This time, the cost of everything from laptops to programmers is lower and no one is splashing for fancy office space, so starting up a company is cheaper, said Chris Shipley, executive producer of the DEMO Conference, a new-technology showcase.
"The Aeron chair is out, the Starbucks latte is in," Shipley said.
"If your team includes some engineers, you've got a laptop, you've got an Internet connection, you code like hell and see what you can come up with," she said. "It costs your time, it costs a lot of sleepless nights."
Venture funding for all industries has fallen by more than half since 1999, dropping from $54.1 billion then to $26.5 billion in 2006, according to the National Venture Capital Association. Funding for Internet startups is running at roughly $1 billion a quarter in 2007, down from a high of $14.27 billion in the first quarter of 2000.
Like the Internet bubble, startups are clumping in a few areas and wireless services is one. Some companies do text coupons exclusively, such as San Jose-based Cellfire.com, which has venture funding and national advertisers such as Hardee's. Others send coupons as an add-on to other services, such as GoMobo.com, which lets users order coffee or meals by text message.
Mobile coupons "could work if done in association with a service the user opted in for, but as a stand-alone service, it has many challenges," said Jed Katz, managing director at DJF Gotham Ventures.
Ung and Yuan have put $30,000 into the business. They figure they have enough money to last a year, but they're hoping to get venture funding by March. According to their projections, 8coupons should be profitable by the first quarter of 2010, but one lesson of the Internet bubble is that profitability projections often prove overly optimistic.
Asked if the risks of starting a company make Ung nervous, she answers, "My parents came to this country from Cambodia when they were 40 with three kids, no money and no English. What's the worst that can happen?"
While working at American Express Co. in New York, Ung started thinking about starting a neighborhood Web site. One day, coming home from work and bombarded by people handing out flyers and coupons, she thought, "Why not take all this and put it online?"
Eighteen months later, the site was launched.
Growing it requires everything from algorithms to cold calls. 8coupon's 150 advertisers, most in New York City's East Village, start with free trials, then pay $250 a month. Two part-time employees help with sales, another works on the math needed to keep the site running.
The hardest task is converting new advertisers, Ung said. Since most users don't print their coupons, she makes sure everyone at a participating company is ready to honor coupons that exist only on a customer's cell phone screen.
The site has 1,700 users and depends on flyers and word of mouth for more. Users pick a coupon on the Web site, then enter their cell number to get a text-message coupon.
Asked what success for her business will look like, Ung answered without a second's hesitation. "When a consumer thinks about local coupons, they'll think about 8coupons."