The latest entrant in the crowded games-on-demand market is Happy Cloud, a startup that lets you stream games to your computer so you can play them in minutes rather than hours.

Happy Cloud serves downloadable games to users but makes them seem like streamed games because it allows gamers to start playing within a few minutes of starting a download. It sends the packets you need to begin a game first, then finishes the download in the background.

This method has been tried before by such players as Instant Action, which folded with the shutdown of IAC’s InstantAction division. Other rivals that do pure server-based game streaming include OnLive, Gaikai, Otoy, Spoon, GameTap, Exent and Playcast. So the field will be very crowded for Happy Cloud.

But Happy Cloud is targeting the pure download business with its “progressive download” technology. Rivals such as Steam offer a whole catalog of downloadable games, which often consist of gigabytes of data and take an hour or two to download. Happy Cloud says you can start playing a typical DVD-sized game within about 2 minutes on a connection that can move data at 20 megabits a second (cable modem speed).

The catalog so far includes Amnesia, Cities in Motion, FEAR, FEAR 2, Lego Batman, Lego Harry Potter, Majesty 2 and the Mount & Blade series. The company says it will add more games soon.

“Gamers don’t want to wait overnight for a download that might get interrupted,” said Eric Gastfriend, in a statement. He is vice president and general manager of Happy Cloud, based in Cambridge, Mass. The service is available to customers in the U.S.

The company was founded in 2009 and has 10 employees. Happy Cloud has raised $1 million from Jesselson Capital and Miles Gilburne. The founders are two brothers, Jacob and David Guedalia, who are on their sixth company now. Their previous company, iSkoot, was sold to Qualcomm in October.