Small and medium businesses form a dominant part of any economy. Countries, governments – in some more progressive corners in the world, whole societies – work hard to create fertile environments where new startup companies could spawn from. Just a tiny percentage of them will become the next [insert your favourite global brand here]. But we couldn’t live without even those who don’t. As a random example, SME’s give over 50% of the jobs and turnover of the UK economy – and the UK is supposed to be the most “large corporate” one in Europe.
Given this, it is no wonder that you hear the “we need more startups!” rally cry, especially in innovative and more value generating fields promising a brighter future. Depending who you talk to, there is always a different benchmark to look up to. Estonians feel that we should get to Finnish level. Finns feel that they don’t have as many startups as in Sweden or Singapore. Anywhere in Europe you can’t escape the discussion on when and how we get to where Silicon Valley is without startup culture and volumes.
And now a scary though from Silicon Alley, in the context of the MSFT-YHOO acquisition:
For $44 billion, Microsoft could buy every Silicon Valley and Silicon Alley venture-backed start-up in existence. That includes Facebook at $15 billion. It includes Slide, RockYou, and every other elemental company. It would be a Moe Green kind of scene like at the end of the Godfather when Michael Corleone takes out all the heads of the five families. It would turn Microsoft’s Internet business around overnight. It would be the ultimate coup.
Just $44 billion (well, I know it’s no pocket change, but remember the times when AOL paid about $182 billion for Time Warner? and US dollar has become a lot cheaper as well since then.) and for a second there are no more startups in the Valley? Nor the Alley. That is scary.
At the same time, the venture capital market looking to invest in those startups is better financed than ever. VC investments reached $40 billion globally in 2007 (why does this number look so familiar?), high since 2001. And the result? Sellers market, of course.
Paul Graham‘s essay The Venture Capital Squeeze from 2005 is a must read now. To understand why having rich employees is a benefit, how post-Enron SOX rules are suffocating the IPO market and how VC industry has gone head to head with corporate acquisitions.