The Times Are Indeed Changin’ (continued)

In the interview with Sam Gustin last week, I said:

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.

It looks like that scenario is coming true faster than I thought when I uttered those words. As Bill Burnham (not my partner Brad Burnham) said in a post yesterday on the YHOO-MSFT deal:

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.

I am not saying the M&A market is going away, but I think there are several factors that might slow it down. In addition to one less mega Internet compay, we also have IAC in an unstable situation that could well result in it (or part of it) getting gobbled up. And the big media companies like NBCU, CBS, News Corp, Disney, Viacom, etc have never really been able to compete with the valuations that the big Internet companies were paying. At times they’d step up, like News Corp’s brilliant buy of myspace or CBS’ buy of for $285mm.

I think all of us who start or finance consumer oriented web services should be thinking a bit differently about exit scenarios now. It’s time to think long term. Back in 2000, when the market broke, my partner Jerry said to me:

Now we’ll see who is doing this for the money and who is doing this for the passion

We had quite a few companies in our portfolio weather the storm from 2000 to 2004. The ones who did were in it for more than the quick flip. I think it’s time to do that same gut check again.