In a recent Business 2.0 article (subscribers only), Om Malik identifies a new trend  that has largely gone unnoticed until now: giant tech companies buying up very small tech startups once they start to get some traction. He points to:
“…an emerging breed of here-today, bought-tomorrow startups that are sprouting with minimal funding, flowering briefly, and being gobbled up by far bigger companies. In many instances, these built-to-flip outfits forgo — or sometimes can’t get — money from venture capitalists. They instead create shoestring operations focused on the rapid development of narrow technologies to plug gaps in existing product lines or add useful features to existing products. Then they look to a deep-pocketed patron to scoop them up.
The phenomenon has gone largely unnoticed because most of the deals are too small to make news. But the trend is accelerating. By the end of September, there will have been more than 5,300 tech acquisitions in 2004, based on research from Mergerstat. The average reported selling price was $12 million; in two-thirds of the transactions, the prices were so small that buyers didn’t disclose them. At this point in 2003, also a big year for small deals, there had been 4,500 tech acquisitions, averaging $12.5 million. Microsoft alone has bought 46 companies in the past four years; factor out the $100 million-plus deals, and most of Microsoft’s acquisitions average a few million dollars.”
Jeff Cornwall at The Entrepreneurial Mind approves, pointing out how this trend differs from the “get rich quick” attitudes during the dotcom boom:
“True entrepreneurship is about addressing real needs, building value, creating jobs, fueling the economy, building strong communities, and creating real wealth for those who take on the risk of investment. *** Instead of raising money just because they can, these folks are now looking for real opportunities, bootstrapping them, and finding a way to help them grow. While I am a little concerned about the “flipping” part, at least they are getting the first steps right this time.”
I would add this thought: it is a lot more satisfying to build a business through bootstrapping than through VC money. Seeking venture funding is itself a full-time job. Tech entrepreneurs have to ask themselves: would I rather spend my time pitching VCs to invest in my company, or would I rather spend my time on the things I love, like developing new technology?
Because, when it comes down to it, very few companies are good candidates for venture capital. As I reported a few months ago, according to the Global Entrepeneurship Monitor, globally fewer than 38 out of 100,000 companies were funded by venture capital  in 2002. Out of those, fewer than 10 were seed-stage and even fewer were newly started companies.