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November 30, 2005

Google and Startups

Posted by David Hunter at 10:06 AM ET.

Yesterday’s item about Microsoft and startups (“Do not automatically look to Microsoft as a rainmaker”) comes to mind when reading the Business Week Dec. 5 cover story, Googling for Gold:

The Google effect is already changing the delicate balance in Silicon Valley between venture capitalists and startup companies. Instead of nurturing the most promising startups with an eye toward taking the fledgling businesses public, a growing number of VCs now scour the landscape for anyone with a technology or service that might fill a gap in Google’s portfolio. Google itself and not the larger market has become the exit strategy as VCs plan for the day they can take their money out of their startups. Business founders have felt the tug as well. “You’re hearing about a lot of entrepreneurs pitching VCs with their end goal to be acquired by Google,” says Daniel Primack, editor of PE Week Wire, a dealmaking digest popular in VC circles. “It’s a complete 180 [degree turn] from the IPO craze of five years ago; now Google is looked at like NASDAQ was then.” Other entrepreneurs, meanwhile, are skipping the VC stage altogether, hoping to sell directly to Google.

On Wall Street, the Google effect, while less profound, is still clearly in force. All manner of investment banks, from giants such as Morgan Stanley (MWD ) and Credit Suisse First Boston (CSB ) to mid-size players such as Allen & Co., have dispatched bankers to Google’s Mountain View (Calif.) headquarters, the better to court the Google gatekeepers as they attempt to sell a raft of mergers and acquisitions, financings, and strategic advice. Meanwhile, smaller boutique firms are trying to ride Google’s considerable coattails, signing up the scores of increasingly valuable Web upstarts cropping up around Google.

There’s one snag in this planetary realignment: Google has shown little interest so far in doing big deals with anyone.

Much more by following the link, but this kind of thing is bound to happen. Risking another analogy, lots of ready cash of either the real or market cap variety exerts a very powerful magnetic attraction. Equally understandable is the defensive reaction by the holders of the pot-o-gold to all the blandishments of those folks who want to sell them a company, although Google is particularly difficult according to the article.

Filed under Acquisitions, Alliances, Partner Program

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