Is Google the VC A Good Or Bad Thing?

There has been talk about how Google and Yahoo are now competing with venture capitalists by buying up small startups before they get VC money and establish their businesses.

For Google and Yahoo, it’s probably smart if they identify that the technology and talent of the companies they are acquiring are worth it. They get to buy them before they have a lot of investors who need a return on investment, and they get to buy them before they’ve established a big market and deserve a higher payout.

Is this good for the companies? Yes and no. It’s good because they are assured of making some good money, and they have a good chance their technology will get rolled out to a large user base by Google or Yahoo.

However, are they missing out on making a bigger payday? Are they missing out on their product catching fire and making their own company even bigger, more successful, and more powerful? And, if they are entrepreneurs, do they really want to work for a large company?

And perhaps the most important question, is this better or worse for the web as a whole? Is it good that these technologies are getting to use the resources, expertise, and user base of a Google? Or would we be seeing greater innovations if they stayed independent?

Food for thought, it’s tempting to say that independence is better for the web as a whole, but I’m not sure if I was a startup founder if I could turn down a nice acquisition from a large player 6 months into my companies existence either.

  • Peter Caputa

    As a startup founder, I’d have a tough time passing up the opportunity. But, I also think the process of earning a user base the old fashioned way through word of mouth and product refinement based on customer feedback – may not happen once inside a larger organization. The goals of the larger organization become the goals of the startup. Also, I think the drive to make cash from the business through different revenue models (other than adsense) doesn’t happen if a google or yahoo buys up a company early on. And making the web an entirely ad supported system doesn’t excite me. It makes me pretty nervous actually.

  • Pat McCarthy

    Good points Peter. I agree that an ad supported web is not good, for many reasons. While I’m involved in advertising in many ways, I think a business that can generate money from it’s actually usage instead of just eyeballs has a better chance at being a long term viable business.

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