The following example is somewhat tongue-in-cheek and meant to illustrate that perspective is everything. You’ve heard of the saying “there’s always a bull market, somewhere”? Well, there’s probably also a saying that goes something like this: “there’s always a buyer, somewhere” (or “a sucker is born every second”).
Anyway, after MSFT announced plans to acquire YHOO, venture capitalist Bill Burnham raised an interesting point:
Because by swallowing up Yahoo, Microsoft will be removing one of the biggest and most active acquirors of start-ups in Silicon Valley. The intense competition between Microsoft, Google, and Yahoo has arguably been one of the main factors helping drive up M&A activity and prices for internet related start-ups. It seems like every rumored acquisition over the past few years has had all three fighting in some way to win the deal.
Then NY-based VC Fred Wilson hinted that VC investing strategies will have to change:
I think we have to be mindful of the overall macro environment that we’re in… It will be less attractive to sell our companies, so we may choose not to do that, and we may choose to continue to finance them and grow them and develop them some more. It may mean that we finance our companies differently. We may finance them for longer periods of time, and take a more conservative approach to how we do the financing rounds. So I think we will have to adjust.
Microsoft has done more to help fund our company than any other entity I can think of, be it another company or an investment group. You see, I’ve funded our company’s operations myself… once in a while, Microsoft goes out and buys a company that I own shares of and the windfall adds a considerable amount of capital to my funds. Examples:
- Last year when Microsoft paid a massive premium to buy aQuantive, Microsoft tripled my investment.
- By offering a 62% premium on Yahoo!’s shares, once again Microsoft is helping fund WatchMojo.com and Mojo Supreme in general.
I don’t know what these VC types are talking about, I am all for Microsoft continuing this trend!
The point is, I think VCs are a bit bummed out that two of the usual suspects (MSFT and YHOO) that bail out their investments-with-no-business-model portfolio companies is about to become one, and as such, this will reduce competition for their exits and the prices thereof.
I think that’s nonsense. Other companies will step up: IAC, CNET, eBay, Amazon etc. just to name a few. And then there’s the old media companies like Viacom, CBS, News Corp., Walt Disney, NBC, NYT, Scripps, etc. who are getting more and more serious about new media.
In fact, this M&A will ensure many more deals to come. I’ve argued that we are in a maddening era of massive consolidation. This is one more manifestation. It might sound impossible, but many more will come over time (Apple/Google? Google/AOL? Google/IAC? eBay/Amazon? etc.)
Will this affect the landscape? Of course. But the landscape is all about one’s perspective, and as we said, VCs should chalk this up as the glass is half-full and not half-empty. In fact, to take this one step further, as MSFT and YHOO focus on integration and “keeping the pedal to the metal” I think they will be more likely to acquire because the “build from within” argument will be less powerful than if the two massive companies weren’t planning to integrate.
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