Then again, others say, very young companies with little more than a cool feature will have trouble drumming up interest from Yahoo and Microsoft, which will be too distracted by the merger to pay much attention to start-ups.
"Clearly the fewer buyers, the harder it is to sell something," said Bill Burnham, a managing partner at hedge fund Inductive Capital.
One investor who requested anonymity said he was in talks to sell an Internet company in his portfolio to Yahoo when Microsoft made its move. Yahoo executives put the deal on hold last week because, they said, the start-up might overlap with some of Microsoft's businesses.
Sunnyvale, Calif.-based Yahoo has been long viewed as a friend to start-ups, willing to buy tiny companies and spread their ideas across its online properties. Although Yahoo had a reputation for not overpaying, Burnham said it often tried to keep up with moves Google made. Yahoo's shopping offered hope to small companies.
"It's created a very vibrant market for these very early-stage start-ups that don't have much revenue," Burnham said.
Microsoft hasn't been viewed as much of an exit strategy for entrepreneurs, said Brian Lakamp, a former executive at Sony Pictures who has his own online music start-up called MediaMaster. But Yahoo hasn't been an ideal suitor either because of its slowing growth and slumping stock price, which left it vulnerable to Microsoft.
"Lately Yahoo has been seen as a wounded soldier," he said.
In recent years, bigger companies have been buying experimental start-ups way too early, said Monsalve, the venture capitalist.
He predicted that a quieter merger market would take pressure off entrepreneurs to sell and give them more time to build their businesses. That could be a boon to entrepreneurs and investors who want to make an impact.
"We'll have more of a chance to prove out the dream of the start-up," he said.
Mark Goldstein has sold five start-ups and is working on his sixth. As chief executive of Loyalty Lab, an Internet advertising firm, he takes a Darwinian view of Microsoft's bid for Yahoo and its effect on the Internet industry.
"Unhealthy companies simply don't survive," he said. "Yahoo had no employee retention. It was a bureaucratic culture. We've got to root for the long-term."
As for start-ups, he said, "we can dream we'll end up as a button on someone's website. In the end, all of us disappear. That's the nature of the Internet."
--
michelle.quinn@latimes.com
