Good Time To Start Your Own Internet Company? Maybe

You have been laid off from your job. You have had it with corporate America. Now is the perfect time to start your own Internet company, right?

The answer is yes.

And no.

The answer is a resounding yes if you’re interested in starting a home-based Internet business with no full-time employees and a great viral marketing strategy. Of course you’ll also need an outstanding product or service, and that’s often the biggest hurdle in this era of copycat websites. The good news is that with all the free blogging software available and some help from a designer you could quickly be up and running for only a few hundred dollars.

Some of the most popular black-owned gossip and entertainment sites are being run out of basements and bedrooms. Yet some of them are reaping annual advertising sales revenue exceeding six-figures. That’s a nice piece of change for an entrepreneur with a regular 9-5 who sees the website as a lucrative side hustle. After all, multiple revenue streams are definitely a good thing is this day of continued layoffs and restructurings.

On the other hand, think again if you envision yourself instantly building an empire with dozens of employees, sweeping office space and a fat travel budget. For now, at least, those days are over.  These days few venture capitalists are excited about investing in sites whose business model is built around ad sales. The recession and the sheer number of sites competing for ad dollars has pushed down revenues for everybody. Make no mistake, home-based sites with little overhead can still be very profitable. But venture capitalists have no interest in mom and pop operations. Instead, they are all looking to tap into the next Facebook or Google.

Entrepreneurs who are less ambitious than that will find it virtually impossible to attract VC money for the foreseeable future.  According to the National Venture Capital Association, venture capital investment continues to shrink, and is now down to the levels of the early 1990s. That was roughly when I raised $5 million from Tribune Co. to start the original blackvoices.com. Back then if you had a good idea you could raise a million dollars over lunch. Black Voices, Black Planet, BET.com and the ill-fated NetNoir flourished during that period, but in the decade or so since then there has been only one splashy, multimillion dollar investment in the black space — the 2008 launch of RushmoreDrive.com. Unfortunately, RushmoreDrive recently closed, marking what will probably be the last multimillion dollar investment in the black web space for a long while.

We are seeing other closures as well. Barry Diller’s InterActive Corp. yanked funding from RushmoreDrive for poor financial performance, and similar moves are being made in the general market space. Sampa, a Seattle startup catering to families, announced last week that it was shutting down because it wasn’t able to pay its bills. It had raised $1 million in angel funding. TeeBeeDee, a social networking site targeting baby boomers, recently ran out of money after having raised $4.8 million in venture capital money just two years ago. The site is now closed.

Recent misses like TeeBeeDee and Sampa will continue to scare away investors who might have considered investing in niche sites. But again, the news is not all bad. You can still be a success and make some good money if you have a great online idea. Just start on a shoestring and keep it that way until the economy substantially improves. That means no maxing out your credit cards or taking out a second mortgage. As long as you are covering your costs, everything else is gravy, so be sure to follow your passion and have some fun.

Make no mistake: the good times will come back again. The really sharp entrepreneurs are getting their ducks in a row, says Ray Rothrock, a partner in the Silicon Valley-based VC firm, Venrock. Rothrock recently told The New York Times,  “There is no drop-off in the amount of deal flow coming our way. Entrepreneurs look out six, seven, eight years and believe these times will pass.”