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.