Rethink your exit NOW!
February 2, 2008
The flurry of excitement surrounding Microsoft’s $45 billion offer for Yahoo has caused more than a few venture capital funds to rethink their investment strategies. Entrepreneurs need to be aware that this deal will seriously impact the venture capital market. For the past four years investors have been able to justify early investments in ‘if-y’ but compelling businesses (think: delicious) by convincing themselves (and Yahoo) that they could always sell to Yahoo, Microsoft or IAC. Of course, the MicroHOO! combination would signal a consolidation in the web application space. There would be fewer buyers and as a result fewer opportunities for exits. This may or may not be true, but you better realize that investors are concerned. Their behavior (i.e. investments) will change.
Hours after the announcement high profile investor Fred Wilson suggested,
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.
Just before that Bill Burnham wrote,
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.
Scores of venture investors take what Fred and Bill say seriously. I suspect that because investors will believe the M&A market for web startups will weaken, it will. Investors move in herds, make sure you don’t get run over…
