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Big Companies Hunt New Start-ups

Companies have two main ways to innovate: on the one hand some form of intrapreneurship or in-house venturing, and on the other hand a strategy of mergers & acquisitions. Google has a target of buying at least one company a month this year. Facebook just bought Hot Potato for $10 million. Zynga got $150 million investment by Softbank and probably will announce another $150 million investment by Google.

‘Old economy’ tech companies are also at it. IBM has already bought in 2010 a number of companies including Cast Iron Systems, Big Fix and Initiate, and this coming from one of the biggest producers of patents on the planet.

Apple too are shoring up their defences with strategic purchases. Earlier in July they purchased Poly9 Group, which was started in 2005 and had to date not sought any venture money. Poly9 made a browser-based 3D globe similar to Google Earth and may be a replacement for that application on the iPhone/iPad.

Disney just purchased PlayDom, an online social gaming start-up, for $563.2 million plus an earn-out of up to $200 million! It is a relatively ‘old’ company having been around for just over two years. Early in July Disney bought another gaming start-up (iPhone games this time) called Tapulous, for an undisclosed amount of money.

One thing that has changed in the ten years since I worked in venture capital in 2000-2003, companies in particular Web 2.0 companies are being bought a lot earlier. Bigger rivals want to adapt new technology or at the very least ‘take out’ potential future rivals. They are also terrified that a Google or Facebook will go by them without getting noticed. And they don’t want to pay the kind of money the MySpace and YouTube went for. All-in-all it is an interesting time for tech entrepreneurs if they can scale quickly and prove their business model.

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