Bid for Yahoo may spur deals for start-ups
MOUNTAIN VIEW, CALIF — . -- If Microsoft Corp. gobbles up Yahoo Inc., it would leave one fewer Internet giant to ignite a bidding war for young companies such as Meebo Inc.
But if Meebo's Seth Sternberg is worried, he isn't acting like it. "Freakin' awesome," was how he described his reaction to the potential merger.
"More churn in the market opens the door for a lot of innovation," said Sternberg, who helped start the 30-employee instant messaging company three years ago.
Silicon Valley is buzzing with debate over how such a blockbuster merger would affect the high-tech landscape.
Yahoo plans to reject Microsoft's $44.6-billion offer today, saying it undervalues the Internet company, a person close to Yahoo's management said Saturday. But many analysts believe Microsoft will sweeten its offer and close the deal, which would be the biggest acquisition in the software giant's 33-year history.
Start-ups play a key role in the ecosystem here. They are de facto research and development labs for bigger companies, which often capture innovations by acquiring small firms, said Jonathan Miller, a former AOL chief executive who is now founding partner of Velocity Investment Group.
"As they get bigger," he said, "they need to buy more."
There's no superstition that prevents people from talking about when and how a young company can cash in its chips. Buyout? Initial public offering? These ideas are woven into decisions about how much financing to take and from whom.
Discussion about the proposed merger's effect hasn't been limited to whether it would change the number or prices of acquisitions. As at Meebo, talk often turns to the state of innovation and company creation.
Some investors and entrepreneurs argue that the hot Internet sector is bound to heat up even more if there is a battle between Google Inc. and a stronger Microsoft. Other Internet companies might also feel the need to bulk up, including Time Warner Inc.'s AOL and EBay Inc.
There's also a new class of buyers on the Web, including NBC Universal, Comcast Corp., Viacom Inc. and CBS Corp.
"The pie is getting bigger and bigger, and the number of players who want a piece of the pie is getting bigger," said Sergio Monsalve, a principal with Norwest Venture Partners.
Some Silicon Valley denizens say many of the people leaving Yahoo and Microsoft via layoffs or resignations -- and there could be a flood -- will start new companies to pursue their ideas.
