When news of Google's $1.65 billion acquisition of YouTube rocked the worlds of technology and media, Shawn Livermore began to stew. The serial entrepreneur stared at his home-office ceiling fan. He scribbled ideas on a notepad. Crumpled balls of paper flew into his trash can.

"If this site—if all they can do is throw up some generic videos about their cat falling asleep or some guy dancing on a camera ... I thought, 'Man, I can do much better than this,'" says Livermore, 29.

Then the proverbial lightbulb switched on. A 30-page business plan and months of software development later, Livermore launched Jaudible, a website devoted to true stories told on video, out of a Costa Mesa, California, office park on January 5. Livermore's ambition is to become bigger than YouTube by syndicating content to television and radio stations around the world.

Never mind the seizing up of credit markets or how, during the week of Jaudible's Web launch, the stock market tumbled and economic indicators foretold a recession. Corporate America may be retrenching and consumer confidence plummeting, but many innovators like Livermore remain undaunted as they forge ahead with their startups.

Across the nation, entrepreneurs launch more than half a million new companies every year, even during recessions. Startups fell by 7.5 percent in the early 1990s but barely budged in the 2001 downturn, dipping just 2.6 percent, according to the U.S. Small Business Administration's data on companies with more than one employee.

"During a recession, some entrepreneurial opportunities diminish. But a recession can also create opportunities," says Indiana University professor David Audretsch, director of the Max Planck Institute of Economics and a widely published author of works on entrepreneurship. "It really depends on the situation."

As the marketplace contracts, new products and services might encounter chilly receptions. Reverberations from the subprime meltdown make it harder for new businesses to obtain loans.

But luckily for entrepreneurs like Livermore, who is seeking angel investors, venture capital remains available despite the current turmoil.

Last year, nearly $30 billion in venture funding poured into young companies, according to the National Venture Capital Association, which predicts slightly higher levels for 2008. "Venture capitalists are long term investors. The companies that they invest in today, they're not looking to exit for 7, 10, 12 years," says Emily Mendell, vice president of the trade group.

If a prolonged downturn dampens the market for I.P.O.'s, venture capitalists might have a tougher time cashing out of existing firms and plowing resources into new ones. But that would take time to register, so the funding pipeline likely won't feel any squeeze for another couple of years, according to Mendell. "V.C.'s are still actively looking for new ideas. Now is actually a pretty good time for entrepreneurs to be looking for money."

Economic storm clouds have another silver lining: lower startup costs.

"The ability to find good employees might be easier, and the dollars at which those employees are hired might be lower," says Gregory Fairchild, a professor of entrepreneurship at the University of Virginia's Darden School of Business. "When there might be an oversupply of commercial real estate, one can negotiate cheaper rates for office space."

At Jaudible, Livermore has taken advantage of both conditions: an abundance of workers and lower wages. About 20 people work for him, including software developers, editors, videographers, and interns. Most are part-time and all are independent contractors. Their pay totals less than $10,000 a month.

Although the startup occupies an immaculate 1,200-square-foot office suite in suburban Southern California, Jaudible pays no rent. That's because Livermore, who co-authored two books on computer programming, bartered for the space: He provides technology consulting for a company that happens to have extra space.

A troubled economy can give lean ventures like Livermore's an additional boost, he believes, by clearing the field of bigger and more bloated competition.

The son of an accountant, Livermore refuses to take out loans and has been self-funding Jaudible's operations, which he estimates have cost $100,000 to date, through his outside consulting work.

To keep expenses down, the C.E.O. designed Jaudible's system architecture himself and hired programmers based in India to do the grunt work of coding. He equipped cubicles with slightly used laptops bought at auction from a bankrupt new-media company. When he talks to his overseas videographers, he always uses a calling card.

Before Jaudible, Livermore founded two small tech-consulting firms but was dissatisfied with their low growth potential.

As he toyed with the idea of creating a YouTube rival, he clicked through the video-sharing behemoth as well as competitors like Metacafe, Bebo, and Revver, and was bothered by their grainy quality and anything-goes mentality.

A born-again Christian, Livermore wants Jaudible to ride the reality-show wave but also be "a blessing to the world"—or at least be wholesome enough for his 8-year-old daughter to watch.

Potty humor makes the cut. In one Jaudible video, a blond woman giggles about how a toilet overflowed on her at a party.

But in another confessional-style segment, a former drug dealer who knowingly sold crystal meth to a pregnant addict exclaims that he feels terrible because his customer gave birth to a "f---ed up" baby. Jaudible's editors removed the profanity.

Unaccustomed to sanitized content, Livermore's interns lobbied to include racier clips. But the C.E.O. held his ground, telling them that family-friendly material could bring in millions more in future TV revenues. "We want the American Idol audience," he says.

To grow Jaudible, Livermore has pitched dozens of investors, many of whom he met through sheer networking chutzpah. He sneaked into a venture-capital conference in downtown Los Angeles, where he shook every hand and emerged with not only a stack of business cards but also invitations to follow up. Once the site begins to generate more traffic—right now it has just 200 videos and 3,000 unique visitors—its C.E.O. plans to call on angel investors again.

"I'm not afraid nor am I intimidated by any of the economic-downturn talk," Livermore says. "Some of the greatest movements in history happened in some of the hardest times. I believe this is the next generation of YouTube!"