Google, Microsoft Execs Advise on Exit Strategies During a Recession

During a recession, it's common for industry watchers to wonder what will happen to startups looking to get off the ground.

MySpace CEO Chris DeWolfe told Reuters companies are knocking on the leading social network's door to get bought. Startups worth between $200 million and $300 million six months ago are now running out of money and willing to sell themselves for $20 million or $30 million, he said.

Conversely, some companies that were once candidates for acquisition are going it alone. For example, Digg CEO Jay Adelson told BusinessWeek Digg's goal is to build an independent business that reaches profitability as quickly as possible.

Clearly some companies are suffering and seeking exit strategies. TechCrunch's dreaded deadpool is beginning to thicken, a nasty stew of misery and shattered dreams. Others, such as Digg, are moving forward.

This means companies that don't go under are ripe for the picking, right? Not necessarily, according to a panel of corporate development experts cobbled together for the Venture Summit Silicon Valley 2008 show in Half Moon Bay, Calif., Dec. 2.

Moderator Richard Hanley, a principal at KPMG, asked executives from Microsoft, IBM, Sun Microsystems, Google and Symantec if the M&A experts have changed the way they evaluate target companies in the last few months.

Claudia Fan Munce, managing director for IBM's Venture Capital Group, said price tags for companies plummet when their banker's call to make a quick sell. As long as Munce feels IBM can reap the level of revenue it is comfortable with regardless of the economic climate, the target has a shot at a lifeline.

However, vendors such as Sun take its own declining business into consideration when looking at acquisitions, Sun's Brian Moriarty, vice president of corporate affairs, said. He added:

The environment for targets right now is very dislocated, and so when you talk to a company about their projections and what they think they can do, it was a little suspect but now it's even more so. That makes pricing and having a principle discussion and negotiation much more difficult. We're being a lot more selective, the hurdle has gone up for us. 

However, he said companies that are well funded and have a good business don't have to sell and are less inclined to do a deal at a time when their valuation will be lower because of the recession. Digg, which banked $28.7 million in new venture capital this past September, fits this description.