SAN JOSE, Calif. — Bootstrapping — the practice of launching a business with personal funds, credit cards, hard work and chutzpah — has long been a catalyst of Silicon Valley's dynamic economy. But now, with investment dollars scarce but job-seekers plentiful, Internet entrepreneurs are taking the lean, Spartan ethos to new extremes.

Dan Olsen, founder of a startup called YourVersion, fondly recalls the "food equity" phase of his 2-year-old company, when he served up barbecue to friends after a Saturday of coding at the Palo Alto, Calif., apartment he shares with his wife. Today, YourVersion, which has created a "real-time discovery engine," still has zero revenue and has yet to cut a paycheck. But a posse of workers — full-timers, part-timers, interns — gather Monday through Friday, enticed by the challenge and the promise of some future payday.

Innovation persists in good economic times and bad — and for some entrepreneurs that may mean using a coffeehouse with free Wi-Fi as an office. The quest to create new businesses with low-cost and no-cost help in a grim economy has spawned a cottage industry. It includes the Founder Institute, an unorthodox startup incubator; StartupHire.com, a search engine for jobs in venture-backed startups; and Jobnob, which stages events to introduce job-seekers to startups.

The Founder Institute, which recently completed its first four-month session for 54 startups with 66 founders, was conceived as a kind of night school for budding entrepreneurs who were unable or unwilling to give up their day jobs. In this way, it is different from tech "boot camps" like Y Combinator, which provides startup teams with shoestring budgets for a crash program of development.

"We don't encourage people to quit their jobs," said serial entrepreneur Adeo Ressi, who conceived the Founder Institute as an offshoot of TheFunded.com, his controversial Web site that subjects venture capitalists to anonymous reviews. "That is a legitimate funding vehicle in this financial market: Be gainfully employed."

Some Founder Institute grads were among those offering "alternative compensation" to 300 job-seekers at a recent Jobnob gathering in a Palo Alto nightspot. One was Jesse Hammons, founder of Zaggle, a new twist on social networking.

"We want to put the social back into social media," he declared to the crowd. "We're making no money at all! We run 100 percent on passion and that's what we're looking for!"

Jobnob's publicity for the event included this come-on: "Cash Conscious Startups — are you willing to buy a smart, talented, unemployed person a drink? Come with one or two specific projects that you need accomplished and we'll help you find the perfect person to get the job done. And if you get funded you can always hire them!"

Redbeacon, a Web site that helps users shop for local services, is among the buzz-making startups that have found free temps through Jobnob. Ethan Anderson, one of three Google veterans who founded Redbeacon, said capable individuals, given the economic realities, are willing to perform tasks that earn them a reference, a line on their resume and a measure of good will.

Some techies say that such tasks help keep their skills sharp, but the potential for exploitation is obvious. YourVersion's Olsen points out that he worked with his lawyer to craft a contract that would ensure his workers, after crossing a set threshold, an equity stake.

Ressi conceived of Founder Institute in February, after the financial meltdown made a bad recession brutal. It serves as a kind of collectivist effort that creates a formal structure around the informal mentoring that happens frequently in the valley. "I was seeing a lot of founders failing, and that was very frustrating. I wanted to do something about it," he explained.

The Founder Institute opened in May. Ressi enlisted a faculty that includes Mint.com founder Aaron Patzer, TechCrunch's Mike Arrington and AdBrite's Philip Kaplan. To graduate, participants must pledge a 3.5 percent ownership stake of their companies into a pool that is shared by fellow students and instructors, who all work for no pay.

"We don't charge a lot of money to attend. We just charge what it costs," Ressi said.

Each member of the first class paid $50 in admission and $450 to cover catering and incidental expenses. "But I lost my shirt," Ressi said. He's raised the fee for the next session to $600. Applicants are required to pass an aptitude test that gauges their ability and commitment.

Several Founder Institute grads have left their old jobs to focus full time on their startups. Camaraderie, they say, is one of the program's virtues.

"There is a sense of membership — like an alumni group that's extremely close and tapped into what the others are doing at all times," said Tim Hyer, founder of a startup called RentCycle. The group "serves as a mini-PR engine of tweeters, bloggers and evangelizers. We want to see our counterparts succeed. You get a genuine sense that people are rooting for you, which to a startup is half the battle."

YourVersion founder Olsen, 39, took a different path, enlisting friends to help launch his startup. After attending Northwestern University through the Naval ROTC program and serving five years in an elite program that designs nuclear submarines, he attended Stanford's Graduate School of Business and later landed at Intuit.

YourVersion, with its slogan "Discover Your Version of the Web," hopes to provide a streamlined Web experience tailored to the user's stated interests. One recent day, six people were working on YourVersion inside Olsen's apartment, including two computer science students from Santa Clara University and a marketing intern from UC-Berkeley. Overseeing quality assurance was full-timer Chris Haase, an Intuit veteran who offered an explanation for Olsen's success as a recruiter: "We recognize that he has an outstanding vision and sets a high bar."

At four recent tech confabs, YourVersion won "people's choice" and "audience favorite" honors. With such accolades, Olsen is preparing to talk to venture capitalists, hoping to raise from $500,000 to $1 million. That should be enough to start paying a few people.