Is The Tug-of-War Between VC and M&A New? Or Even Real?

Venture capitalist Fred Wilson today wrote about “DST deals,” or later-stage VC investments for companies that have rejected corporate takeover offers. Think Facebook, Twitter and Yelp.

Fred positions this as a new phenomenon, and an indication that “VCs are starting to compete directly with the M&A market.” I’m not sure I agree on either count.

First, we’ve seen this show before. Russia’s DST is certainly a new player, but Advanced Equities has been doing this sort of thing for years. So was Tudor Ventures for a while. And remember that explosion of big-dollar corporate venturing in 1999-2001, in which ROI was considered more important than strategic alignment? Or big buyout firms dipping into the VC market?

Second, the companies Wilson talks about are not the typical VC-backed IT rabble. They are startups that want to be actual companies (gasp!), rather than solitary product makers desperate to get scooped up before something better comes along. They also are among the best in what they do, so they have options.

Taking late-stage money makes sense for these companies, because it can serve as a bridge to IPO — while also providing some option liquidity for early employees. In fact, some of them might already be public had there been an actual VC-backed IPO market in 2008 or 2009. I know the NYT says that “IPO” is a dirty word in Silicon Valley, but so is “millionaire” in a house full of folks making $15k per year. 

The “tug” Wilson describes may not be between M&A and VC, so much as it is between selling out and aspiration. Not saying it’s always an easy choice, but it shouldn’t surprise us that celebrated entrepreneurs often consider their futures to be brighter than their presents.

Here are some more thoughts on the matter, as part of my weekly small biz video spot with Reuters: