The year of acquisitions...IPOs still cold

Microsoft acquired two small start-ups, SeaDragon Software and MotionBridge, this month. Oracle acquired Innobase and Sleepycat. Yahoo has acquired Flickr and Delicious. Google has acquired dMarc and MeasureMap. Acquisitions have been heating up for several years while the IPO market has been stone cold.

The trend is for acquisitions to be smaller and happen much earlier in the company evolution.  Many start-ups are being acquired before they take VC money, or after their first round. Many of the acquisitions are companies with 10 to 20 employees and most are less than $30M.

My experience is that large acquisitions rarely work. Witness AOL/Time Warner. The synergies were obvious but they were not able to execute. Once companies become very large and successful it is very hard to merge them with even larger companies and find the synergies. In most cases the fast growing company loses its edge, fails to find synergy, and spends more time on cultural clashes and political issues. This is why small acquisitions make a lot more sense and have significantly less risk.

Microsoft has a rich tradition of acquiring small companies and creating great products. Some of Microsoft's best know products were actually based on acquisitions. Take a look at this post "Microsoft will acquire my company". The names will surprise you.

SeaDragon has unique technology for handling and displaying large images.

Seadragon was founded in 2003 and has developed technology that can quickly display large images on computers and handheld devices. The company has 10 employees, but as early as last summer it began attracting interest from Samsung and other tech giants.

Seadragon initially talked to Microsoft about licensing its technology, but Microsoft decided that a marriage was in order, according to Tom Alberg, a managing director at Madrona Venture Group. Seattle-based Madrona invested $2 million in Seadragon's Series B round last summer and was deeply involved with the company.

MotionBridge is a French company focused on mobile search technology.

“The emerging field of mobile search is strategically important and crucial to delivering on our vision for Windows Live™ of providing a seamless and rich information experience for individuals and businesses across devices,” said Christopher Payne, corporate vice president of MSN Search at Microsoft. “With MotionBridge, we are excited to continue to offer mobile operators the tools to maximize the value of their content and data networks, and provide a powerful search engine for mobile users. By combining the mobile search solutions of MotionBridge with Microsoft mobile search instruments such as local and Web search, we will provide mobile operators and consumers with an even richer search experience.”