Are Buyers Bipolar?

David Beisel is quickly becoming one of my favorite VC bloggers because his posts are so good.

On Monday, he gave us this chart in a post he called Bipolarization of Internet Acquisitions in 2005:

I think the data is essentially correct and I agree that "undisclosed" deals are probably under $50M.

If you add undisclosed to Under $50M, you'll get something that looks more like this:

Sorry about the lack of titles, legends,and data labels, I am lazy this morning, but they would be identical to David's chart above.

I think there isn't really a bi-polarization going on in the Internet acquisition market, there is something slightly different happening.

I heard some say this summer that Yahoo! "was thinking that $25M is about the right price for these web services things".  That is not a direct quote, but directionally correct.

Buyers are either picking things up before they have a business model, scale, and significant VC investment, or much later.  The middle ground (between $50M and $500M) is where the effect of VC comes into play.

If an entrepreneur chooses to raise $10M of venture capital and take significant dilution, then the price at which he can sell and make a decent return goes up.  And the price at which the VCs will want to sell goes up too.

That's why there is this valley in the middle of these charts.

Comments

[Shivering Timbers]

Before you read too much into these graphs, I'd suggest that you investigate the choice of categories.

The cutoffs seem arbitrary, and lumping everything $500M+ into a single category may have the effect of compressing a long tail into a single bar which looks unnaturally large.

Try graphing it again, except with categories spaced evenly every $50M or $250M until the last data point. I bet what you'll discover is a fairly ordinary power law.