Thursday, October 05, 2006

Smaller start-ups, smaller funds

The Sleuth has a great video interview with Neil Sequiera with General Catalyst Partners talking about how GYM (another goofy IT acronym… this one means “Google”, “Yahoo” and “Microsoft” but for some reason I find this acronym amusing) are aggressively buying small technology-play companies. He goes on to state that GYM would rather buy small companies and just focus on the technology purchase. If the start-up gets too large, then GYM figure it is cheaper to just build the technology themselves.

This is probably true for some of these more consumer-facing “Web 2.0” applications but I doubt it holds true for deeper, more complex technologies. There you probably want a slightly more mature company with some market traction. This way the acquiring company can pick up a technology that has already been market-tested, and they can pick up a few more customers in the process. But I don’t think this is the level that Sequiera is talking about.

A lot of what he is saying was also recently said by PayPal co-founder Max Levchin said at a talk I recently attended at B-school. If Sequiera is saying it, and Levchin is saying it… so it must be true

Sequiera also goes on to say that VCs are really only interested in bigger deals, because smaller ones aren’t worth their while. With that in mind, I was interested to read about microfunds. These are smaller funds some VCs are putting together to go specifically to go after the $10m-$15m deals.

Makes sense… if companies now require less capital to start-up, VCs should probably evolve to address and invest in those smaller firms.


SV Sleuth said...

One other thing that Sequeira mentioned (but that isn't in the interview) is that his firm more often is setting up companies all by itself. They create the business plan, find a small team to start the company and provide them with a desk in their offices.

It sort of goes to the same point as the microfunds.

Ron said...

I lot of big time Silicon Valley companies are trying to do the same sort of thing, kinda. They develop internal incubators and attempt to create internal "start-ups."