Fertile Ground for Startups

Who needs job security? In June 2008, as the recession was moving from bad to worse, Caterina Fake gave up a comfortable, executive-level job at Yahoo! (YHOO) to launch a company. She left California and set up shop in New York City to co-found Hunch, a Web site that uses the experiences of others to help people make decisions. The 40-year-old, who had co-founded the photo-sharing site Flickr before it was acquired by Yahoo, couldn't resist the idea of creating something new, whatever the economic headwinds. "The entrepreneurial spirit really thrives in situations of adversity," says Fake. "The world is full of more possibility."

Fake isn't alone in betting on that. A crop of potentially groundbreaking companies is emerging from the wreckage of the Great Recession. No question, some will blow up, and others will fail to reach their potential. But the downturn has done little to dampen the entrepreneurial spirit. During the first half of this year, angel investors financed 24,500 new ventures, 6% more than during the same period last year, according to the Center for Venture Research. The overall amount of money going into startups has declined, but the figures suggest that this year will see the birth of roughly 50,000 companies with enough promise that someone is betting money on them. "It may be that this is the best time to start a company," says Carl Schramm, president of the Kauffman Foundation, an organization that promotes entrepreneurship.