Friday, December 2, 2005


Om has a good and amusing story about how Google goes about seeking for acquisitions and how this is creating competition directly with VCs. It's not only Google since Yahoo! has entered this game of acquiring companies in their early stages before VCs can invest in them.

VCs looking to fund startups and flip them to Google (GOOG) are facing an unlikely rival -- Google. The Mountain View, Calif., search giant has started buying companies on the cheap, before they even make the pilgrimage to Sand Hill Road.

By encouraging entrepreneurs to pitch Google first, the company can shell out a nominal amount of cash for cutting-edge technologies and top-notch people. "These acquisitions are about talent," says Christopher Sacca, a principal for new business development at Google. "We want the people who are building the products." Google's sales pitch to the startups is simple: Come work for us, score some Google shares, and see your big idea rolled out to more than half a billion users. Sacca, for his part, says Google isn't trying to compete with VCs. "If your product is really a small feature, and if you are eventually going to be acquired, come to us early," he says.

Yet since it started the practice in 2003, Google has snatched up 12 companies, many of which had raised only small amounts of funding and sometimes no venture capital. And lately its pace of acquisitions has quickened. In the past six months, the company has purchased five microscopic startups.

Some didn't even make it beyond their campus digs. Kaltix, founded by three Stanford University students in June 2003, developed a prototype for a new personalized-search technology; Google nabbed the technology -- and the founders -- three months later. Google Local grew out of the acquisition of a startup called Where2 in March. Within weeks of the buyout, the four co-founders were rolling out their technology as part of Google's local search efforts.
(full article)

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