Running With Foxes


Trend Spotting 2.0

acquisition1.gifLets face it, building a business for acquisition was never a good idea. But while stock prices were rising, you can’t resist making a product that just solves a problem left over from one of the big internet properties (Google, Microsoft, Yahoo, AOL, IAC).

However, the recent layoffs at Yahoo fear of the little (or big) “r” seem to have placed a lot of acquisition talks on the table. Since the beginning of the year Microsoft, Google, AOl, IAC, and especially Yahoo have been on a downward trend. This makes acquisitions a strikingly more expensive endeavor.

Think of each stock as a devaluing currency in the current market. Many deals are paid out in cash, stock, and earnout. A falling stock price makes deals more expensive. Does Google really want to pay $1 billion in stock at today’s bottoms when it can get picked up when the stock recovers? (Goog has sunk about 20% since the beginning of the year)

The IPO market is essentially dead for startups. I have friends who are getting pink slips precisely for that reason. Now I’d assume the acquisition market will slow down as the potential upside from stock shrinks.

Looks like many startups will have to find a revenue model to wait out the “light” recession of the next year. Oh, the horror.

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