If you live in the tech or web startup world, you've probably heard of Michael Arrington remarking that his VC friends are concerned that angel investors prolifically funding companies with small rounds of seed capital are training a whole generation of entrepreneurs to build "dipshit companies that sell to Google for $25 million ."
But who does this criticism serve? Not the entrepreneurs. Nor the angels. Only VCs benefit if the status quo doesn't change. Gone are the days when starting a tech company costs millions of dollars because equipment and bandwidth costs were astronomical. So gone are the days when VCs held all the power.
This is of course not a good trend for venture capitalists. They don't get to play in the seed rounds and they're not needed when Google or Yahoo! or Facebook comes calling with $25 million.
But this trend points to an even more interesting dynamic. $25 million is nothing to sneeze at but it's a small fraction of a fraction of the cash held by giants like Google, Apple and Microsoft. And the mergers and acquisitions game never really played at such small scale. Companies used to sell for hundreds of millions of dollars and the pressure to make M&A work was enormous.
At such small prices, the pressure to make mergers work decreases tremendously. Large companies can afford to make many more such transactions and only need to be right a few times. Gone are the days of AOL and Time Warner making a huge mess of things and thousands of jobs hanging in the balance. Google's acquisitions of Dodgeball and Jaiku didn't work out but that didn't put a dent on the bottom line. Facebook's acquisitions of FriendFeed and Divvyshot might just make feeds and photos exponentially better. Condé Nast swallowed Reddit and the whole company might be getting smarter about making content more social throughout its portfolio of brands and titles. Large companies should undertake more of these inexpensive experiments.
Place your bets Corporate America! Dipshit companies can make winners out of entrepreneurs, angel investors and large corporations. Only venture capitalists lose out on this action. But fear not my VC friends. Find that crazy entrepreneur who won't sell for a mere $25 million and you might just have the next Facebook on your hands.
in the meantime, let us all hope we see more dipshit companies being snatched up by giants or would-be giants.