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Predictions for 2011 | Technology

Start-up activity will accelerate

In one positive sign, leasing is up at the Cambridge Innovation Center in Kendall Square, and analysts expect start-up activity to accelerate. In one positive sign, leasing is up at the Cambridge Innovation Center in Kendall Square, and analysts expect start-up activity to accelerate. (Boston Globe/File 2008)
By D.C. Denison
Globe Staff / January 2, 2011

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The number of technology start-ups in New England will surge in 2011, a critical development for an economy that relies on innovation.

Advances in so-called cloud computing will allow entrepreneurs to cheaply tap into powerful, offsite computer networks and drive down the cost of starting a company. Google Inc., IBM Corp., and other large technology companies will keep shopping for promising New England firms, emboldening venture capitalists and angel investors to bet on young companies. And area schools will pump out more graduates who see innovation as a way to make their mark.

The result: a healthy crop of new tech companies in 2011. The number of New England technology start-ups receiving early-stage venture capital has increased gradually since hitting a 15-year low in 2008, but analysts expect the pace of new firm creation to pick up substantially this year.

There are already signs of it. At Cambridge Innovation Center in Kendall Square, more than 60 start-ups have leased offices since the business incubation space added two floors and 57,000 square feet in September — boosting the number of fledgling companies in the center by more than 15 percent. More young firms are expected to follow.

Tim Rowe, the center’s chief executive, cites several reasons why technology start-ups should increase in 2011. First, innovation is spreading across a variety of fields, from alternative energy to mobile phones to life sciences. Meanwhile, a still-difficult job market is pushing would-be entrepreneurs — particularly recent college graduates — to give their start-up ideas a try.

Venture capital is plentiful, and looking for investment opportunities as big paydays seem increasingly possible. Google, for example, was widely reported to have offered $6 billion for the social coupon start-up Groupon Inc., which turned down the deal.

At the same time, advances in cloud computing have dramatically cut the costs of launching a tech start-up, allowing venture investors to fund more firms and improve chances of success, said Michael Greeley, general partner at Boston venture firm Flybridge Capital Partners. By hosting their businesses on inexpensive remote servers, today’s entrepreneurs can get up to speed quickly and inexpensively — and expand without having to constantly purchase computer hardware.

It’s also possible today to target potential customers online rather than pay traveling sales forces.

That means start-ups can get going with thousands, instead of millions of dollars, giving rise to an emerging class of backers known as “super angels.’’ These wealthy individuals, who invest larger sums more frequently than traditional angel investors, and with a higher level of sophistication and organization, can jumpstart a new company with as little as $25,000, particularly in digital media and consumer Internet sectors.

As a result, Greeley said, Massachusetts is heading towards a “silver age of company formation’’ — one that could become golden if the financial system fully recovers and the market for initial public offerings revives.

“Innovation is sweeping across all industries at the same time,’’ Greeley said. “I cannot recall a time when this has happened before.’’

D. C. Denison can be reached at denison@globe.com.