Two Oxford university graduates have become millionaires after selling their fledgling internet company less than a year after its launch.

Cousins Kulveer and Harjeet Taggar, who started their business while still undergraduates, sold their online auction management company Auctomatic to a Canadian web firm Live Current Media for £2.5 million.

The deal, to be finalised next month, marks the end of months of hard slog by the cousins, who were so hard up when first going into business together that they ate nothing but noodles for six months.

Their story is a very modern-day fairly tale of toil and triumph. It also provides a fascinating insight into the business culture of internet start-ups and raises serious concerns about the flight of British talent to the US.

Harjeet, 22, a law graduate originally from Slough, said: “When we were negotiating to sell Auctomatic we nearly ran out of money.

“We survived on ramen noodles for lunch and dinner. We didn’t even buy any furniture for the apartment that we were working out of, just desks. We had foam mattresses on the floor. We would work until we needed to sleep and then get up and start all over again,” he said.

The pair set up their first company, an internet auction site called boso.com (buy or sell online) at university.

It caught the eye of Paul Graham of Y Combinator (YC), one of the biggest investors in California’s Silicon Valley, who took them to the US and put them in touch with Patrick Collinson, 19, an Irish computer programmer.

The three joined forces to develop the original boso.com concept into Auctomatic, a service that helps businesses to sell goods on online auction sites like eBay.

The company was launched last year with additional backing from Paul Buccheit (the creator of Gmail) and Chris Sacca (ex-special head of initiatives at Google). Within months it was sold to Live Media, which has now hired the cousins and Mr Collinson.

The cousins had always been interested in making money. Kulveer used to trade cards at school as a mini business, while Harjeet took orders of playlists from his school friends and sold them CDs he had made at night.

Determined to follow this entrepreneurial streak into adulthood Kulveer quit a job in banking and Harjeet resisted parental pressure to “get a proper job”, turning down an offer to join a leading law firm.

Both say the final impetus to launch their own company came at Oxford after they joined the university’s student society, Oxford Entrepreneurs (OE) and attended networking events at the Said Business School.

Since its launch five years ago, OE has become the largest student entrepreneur society in the UK, with more than 1,200 members – one in ten of whom are running their own companies.

Other OE succes stories include Bob Goodson and Kirill Makharinsky, who have set up YouNoodle, a social networking site for entrepreneurs.

The cousins are convinced, however, that they could never have realised their dreams if they had remained in the UK.

Kulveer, 24, a Politics, Philosophy and Economics graduate originally from Eltham in South London, said: “It would have been too expensive and complicated to set up an office and hire staff in London. Getting investment here is a much more protracted process with investors imposing all sorts of constraints.

“It took Y Combinator just 15 minutes to decide to invest in us. When I was emailing Paul Buccheit to talk about investment, he said, ‘how about $50,000?’. I replied that $75,000 would be nicer and he just said, ‘ok fine’.

“Investors there are more willing to take risks,” he said.

Times recommends

• Graduates face debt and bleak job hunt
• Student of the Year Awards 2008 featuring Kelly Rowland
• Student bursary system 'penalises' the poor