Start-ups Come Begging to MySpace's Door
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MySpace, the online social network owned by News Corp, sees opportunities to buy start-ups for a fraction of what they would have cost six months ago as the economic slump slices millions of dollars off their price tags.
MySpace Co-founder and Chief Executive Chris DeWolfe said companies worth between $200 million and $300 million just six months ago are now running out of money and willing to sell themselves for less than one-tenth of that value.
Many Web 2.0 start-ups -- so-called because they develop interactive websites and applications -- have begun knocking on his door recently, looking to sell themselves, DeWolfe told the Reuters Media Summit via video conference on Monday.
"At the lower levels the money dries up, everyone's looking for some kind of exit and the valuations we're seeing out there are definitely a small, small fraction of what they were even five or six months ago," he said, adding that he expects these companies to become even cheaper in the next few months.
DeWolfe said acquisitions are central to MySpace's growth strategy, which includes expanding its presence in international markets, building its music offering and developing applications for mobile phones.
MySpace, which media mogul Rupert Murdoch bought for $580 million in 2005, looks at start-ups in each of these areas when deciding to buy, build or partner with another company.
"Certainly we're interested in expanding in key markets internationally and there may be some opportunities on the music side at some point, but right now we don't have any particular companies directly in our sights," the MySpace CEO said.
DeWolfe said MySpace also was not interested in Twitter, the micro-blogging site which gained mainstream popularity after President-elect Barack Obama's campaign used it to communicate with supporters.
"We're not actively interested in Twitter," DeWolfe said in response to a question about whether MySpace wanted to buy it. MySpace's rival Facebook earlier held talks to buy Twitter, according to media reports.
Twitter is a "great service" but MySpace provides a similar service and would rather focus on acquisitions related to its core growth areas, he added.
Many start-ups in Silicon Valley, the stretch of land in northern California that is home to top Internet and technology companies like Google Inc (NASDAQ: GOOG), are struggling to stay afloat as the economy teeters on the edge of recession.
Top venture capital firms have warned start-ups to be cautious with their use of cash and to cut excess fat to survive the downturn.
Venture capitalists fund start-ups in hopes of making several times their investment once these companies go public or are sold to a bigger competitor.
Venture capital investment in start-ups fell seven percent in the third quarter compared to the second quarter. The National Venture Capital Association expects investment to dip further in coming quarters as pension funds and institutional investors distribute fewer dollars among venture capital firms.