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Summary:

Technology companies have a wad of cash burning a hole in their pockets and in the last few weeks haven’t been shy about spending it acquiring venture-backed startups. In last week 15 startups were acquired, according to data cited by the Wall Street Journal.


Technology companies over the last few years cut costs to the point that they now have cash surpluses — which they haven’t been shy about spending to acquire venture-backed startups. The Wall Street Journal has picked up on this trend with a story this morning that cites data from Venture Source showing that 15 startups were acquired in the last week alone, and another 14 have gone public in the last year.

The ability for larger firms to go public may be driving some of the acquisitions of more mature startups, as any acquirer that can buy before an initial public offering has a less complicated deal on its hands — although the threat of an IPO can also drive up the price. But smaller, younger companies are getting offers as well because tech firms — after almost two years of cutting costs — have both the cash and an interest in sparking growth.

However, as the New York Times notes, this deal activity isn’t widespread — and may be short-lived. VCs are still smarting from all the dogs they invested in over the last few years.

Large tech firms are buying technology in markets that are growing, which makes it a great time to be a solid cloud computing startup, for example. A focus on clouds, especially managing clouds in ways enterprise customers (GigaOM Pro, sub req’d) might want has led to several acquisitions so far this year on the part of big tech vendors like IBM, VMware and CA, all of which are looking to add new functionality in order to broaden their business. Hear more on these companies’ acquisitions strategies at our Structure 2010 conference June 23 and 24.

Back on earth, collaboration and social media buys are occurring with smaller companies like Success Factors picking up CubeTree, which made a Yammer-like company collaboration platform, for up to $50 million. Other deals include several buys by Google as it moves into mobile and seeks to bring in more engineers and entrepreneurs. The excitement around mobile computing is leading to other deals as well, with Motorola reportedly purchasing an OS maker and PocketGear buying Handago.

Obviously the hope is that the free-spending tech buyers continue shelling out for an advantage on cloud computing, mobile and social/collaboration startups, allowing VCs to exit their investments and post better returns. That way everyone wins. Big companies get to buy their way into growing markets while entrepreneurs get a payday and venture firms continue to justify their existence and keep the virtuous cycle of tech investment going.

  1. Great post on this trend. I’m Anna Brown, a marketer for SAS, and wanted to add my perspective. Indeed, the acquisitions are “win-win-win’s” for big companies, small guys and VCs. But what about for the customer? Are the expanded organizations really integrating their new purchases into the overall business strategy, or keeping them as appendages for the sake of adding to their portfolio? I could see reasons for doing both, but wondering what’s best for the end user. The classic case of specialty versus all-in-one packages.

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  2. [...] week Stacey pointed out the sudden spurt in acquisitions, especially in the cloud computing arena. A focus on clouds, especially managing clouds in ways [...]

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  3. Great article. I was curious about the correlation of VC investing with the public markets and ran this analysis:http://expostfacto.posterous.com/vc-investment-correlation-to-the-public-marke

    The results are intriguing.

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