Kids May Net Trouble With Business Ventures Online

Not long ago, a teenager bagging groceries or making milkshakes after school was almost certain to be considered industrious. Those who were self-employed--doing anything from mowing lawns to baby-sitting--might even be hailed as entrepreneurs.

Today the bar seems higher, with teenagers starting a range of computer-oriented businesses from their bedrooms. But the new wave of youth entrepreneurs--and their parents--face risks, warn financial advisors.

“Adults don’t take kids seriously and will take advantage of them, rip them off,” says financial consultant Eva Rosenberg, who offers advice through her Web site, taxmama.com.

Teens tend to be trusting and are thus more at risk, she said. “And many kids are not savvy enough to know all the legalities of the system.”

Success also carries risks, she said--teenagers making $10,000 a month “perceive that they have enormous power and they use it without judgment.”

And although jobs after school or during the summer carry little in the way of stress, Internet ventures can take a higher toll.

Apart from the pressure to come up with something unique and launch it--not to mention a drying up of the capital pool to fund these ventures--stress can come in the form of shorter life cycles on new ideas, missed school days, under-developed business plans and any number of adults ready to rip them off.

“Sure, some kids are cutting school to do these ventures,” notes Lloyd Greif, president and chief executive of Greif & Co., a Los Angeles-based investment banking firm. “But if they short cut education, when trouble hits, as it inevitably does, one mistake can be a final mistake.”

Greif says the bigger problem for these kids, though, is the issue of intellectual property--creating something that doesn’t tread on someone else’s patent and being able to protect it.

“Intellectual property has become a big field of law these days,” he says. “And when you’re starting up a business, you’ve really got to do your homework in order to be in a position to defend what you own.”

On the other hand, teenagers who start Internet ventures can get valuable work experience.

Ara Anjargolian, 18, of Glendale, created a Web site that offers personal calendar services, secondsaver.com. It’s not a money-making venture--the service is free--but he hopes eventually to parlay the operation into a profitable business.

And he’s already made some money with the site, albeit indirectly. The ArsDigita Foundation, a tax-exempt organization created by the Cambridge-based software company of the same name, awarded him a $10,000 prize for innovation.

The founder of ArsDigita, Philip Greenspun, was also a wunderkind, having graduated from MIT at age 18. He’s now 36.

The contest, now in its second year, is designed to encourage teenagers and young adults to think of noncommercial applications for the Web.

“I think one of the most insidious obstacles these young people face in these ventures is that our society inundates them with too much commercial, things to buy, things that cost money,” says Barbara Link, executive director of the ArsDigita Foundation.

“The Web is an incredible opportunity for them, but we’re trying to teach them that in order to be truly creative, they should want to solve a problem just for the sake of solving it,” she said. “They don’t necessarily have to make money to do it.”

Yet money often comes into play, if not in the form of start-up capital, then later on with licensing deals or, in the best of all possible worlds, the sale of the company.

Anjargolian says his current career plans are to continue with his Web site with the hope of building the user base into the hundreds of thousands.

“I’d like to see where this goes,” he says. “It’s totally possible that this service could extend to the point where it would call your cell phone to remind you of things you have to do.”

Start-up costs for these Internet ventures are pretty low--Anjargolian spent $400 for the Web space and the name--and experts suggest that full-fledged businesses can get going for $5,000 to $10,000.

But getting the funding necessary to sustain a business can be a hindrance, as venture capitalists have closed their coffers in the wake of recent E-commerce fiascoes. That poses another hurdle for young entrepreneurs, who generally don’t have personal resources to fall back on and may be unable to borrow money.

“The financing market has dried up quite a bit in the last three to six months for Internet ventures,” Greif says. “Up until now, young Internet entrepreneurs had assumed they’d have a steady access to capital, but that’s no longer true.”

“I’ve really sensed a disappointment in funding circles about Internet ventures lately,” notes Todd Stennett, founder and CEO of Air Borne 1, a company that does laser terrain mapping, who also acts as a consultant to young entrepreneurs.

When Stennett, 36, sought capital nearly two years ago to start his own company, looking to raise $2 million, he found that 80% of investors were disappointed that his company was not Internet related. “But now there’s so much uncertainty in the Internet realm, that’s all changed,” he says.

What is clear is that many of these young people are bringing an energy level and creativity--if not the gray hairs and business savvy--to the Internet that is sorely needed.

“So what they need to do is partner with someone who has the business knowledge,” suggests Roberto Barragan, president of the Valley Economic Development Center.

“I know of one case where the son hired his father to be the CFO of his company. Dad was the one with the accounting knowledge and that helped.”