The M&A Lotto

In 2005, Google submitted a 10-K filing with the SEC which revealed that it had acquired nine companies and substantially all of the assets of another six companies. The combined purchase price for these 15 companies was equal to $130.535 million USD
(SOURCE: http://en.wikipedia.org/wiki/List_of_Acquisitions_by_Google)
2005 Google Acquisitions - 15

According to Wikipedia, Yahoo made 11 acquisitions in 2005 –and Yahoo’s 10K states that in addition to their investment in Alibaba, the purchase of the remaining outstanding shares of Yahoo! Europe and Yahoo! Korea, and the purchase of Verdisoft...Yahoo “acquired four other companies which were accounted for as business combinations. The total purchase for these four acquisitions was approximately $79 million…[and] the Company also completed immaterial asset acquisitions that did not qualify as business combinations.”
2005 Yahoo Acquisitions - 11

So why is it that every single startup that I see expects to sell to Google and Yahoo?

More people were drafted in the first round of the 2005 NBA draft than were acquired by Google and Yahoo. (Perhaps I should be scouting talent around North Carolina instead of Stanford?)

In fact, you have better odds of winning $5M in the NY Lottery than you do of selling your company to Google (or Yahoo) - in 2005, there were 19 prize claims of $5 Million or more in the NY Lottery. (Honest.  The information wasn’t readily available on their website – so I sent an email to them at questions [at] lottery.state.ny.us and they responded within an hour.)

Moral of the story – entrepreneurs should focus on building real, long-term value. An exit opportunity only exists if you build a company that has differentiated technology, a strong team, offers customers real value, demonstrates traction in the marketplace, and/or solves a real need for the acquirer. You can’t build a company to sell it – I’ve never seen it work. If you are playing the odds for a quick flip to Google or Yahoo, buy a lottery ticket.