Making a splash - the LILO generation

The internet and digital revolution offers the most potential. Indeed it is accelerating change - start-ups such as music-sharing site Spotify, launched last October, and messaging service Twitter have risen with bewildering speed.

Digital businesses grow quickly and the huge advances in technology, helped by the recession, have forced down the price of entering the market. The entrepreneurs behind these start-ups have been dubbed "LILOs" — "a Little In, for a Lot Out". Some are barely into their twenties but anyone who has been to venture capital events such as First Tuesday, the networking club founded in the first dotcom boom in 1999 and now enjoying a revival, knows that many are highly driven — and less naive than they might once have been.

Christer Holloman, CEO of First Tuesday, says: "Everyone is having to work harder to stand out, to get funding. But people are also working harder to create streamlined organisations."

Holloman identifies ShipServ, a website for the maritime industry that brings together suppliers and buyers, as flourishing. ShipServ is a niche service but its virtue is simple — the site saves money for its users around the world.

Kieran Baker, who founded his production company Political Bytes a year ago and recently helped to make Prince Charles's MySpace viral video on saving the rainforests, said: "While we're in a downturn, the risks of starting up are less because we measure success differently. Investors know that the return for them, once we come out of this recession, could be three- or four-fold." Banks' reluctance to lend money in the crunch means entrepreneurs are being resourceful about raising funds.

The LILOs are turning, for example, to angel investors or private wealth managements clubs such as The Route, where a group of like-minded investors might be willing to take a stake in a business. The savvier start-ups are borrowing money rather than giving away too much of their shareholding, says Mark Worrall, managing director of The Route.

Websites such as LinkedIn, the social network for business professionals, are also proving a new and cheap way to get in touch with kindred spirits.

Christer Holloman says that the LILO generation is "cleverer about how they go about launching a new company". For example, he says, to minimise the risk, they might hold onto their main job but work on the start-up part-time. Timothy Ferris's 2007 book The Four-Hour Work-Week is an inspiration.

Holloman adds: "Being an entrepreneur is now socially acceptable."

Robert Taylor, CEO of private bank Kleinwort Benson, says a growing number of his clients — many of them entrepreneurs — are willing to invest in new businesses as they think prices are now cheap. But he warns that patience is key: "The return might take a long time but the price is very attractive."

Channel 4 chairman Luke Johnson, the serial entrepreneur who bought and turned around Pizza Express in 1992 in the nadir of recession, says the rewards could be great for those who dare: "Your start-up might prove a vain attempt at the prize, so you may lose money, time and pride. But 2009 is in fact a great time to fail."