Paul Graham recently wrote that Google & Yahoo are now buying startups wholesale, pre-first round:

...the acquirers have begun to realize they can buy wholesale. Why should they wait for VCs to make the startups they want more expensive? Most of what the VCs add, acquirers don’t want anyway. The acquirers already have brand recognition and HR departments. What they really want is the software and the developers, and that’s what the startup is in the early phase: concentrated software and developers.

Google, typically, seems to have been the first to figure this out. “Bring us your startups early,” said Google’s speaker at the Startup School. They’re quite explicit about it: they like to acquire startups at just the point where they would do a Series A round.

On the heels of that article comes news that Riya, a photo search startup using facial recognition technology, is being acquired by Google for around $40 million—PRE-LAUNCH

It really highlights (and heightens) the difference between, on the one hand, startups as planting and growing a viable business, and on the other, startups as product development roll of the dice.

These obviously aren’t mutually exclusive—Riya could very well have built a beautiful business.

But building a single cool thing with acquisition as the only exit is like sitting on a time bomb that’s ticking very loudly. Product development efforts and the chance of an acquirer “getting it” are both racing against your bank account.

Additionally, and perhaps more importantly, the chances of a product succeeding—being adopted and changing a small part of the world—are infintesimally small with this approach.

First, the products developed have to be blue-sky, way ahead of an adoption curve that will pay for them. By nature, they’re high-risk.

Second, once acquired, the fate of the product is out of the hands of the inventor and in the hands of “senior corporate executives.”

I want to see my invention take flight—not be subsumed by a corporate behemoth that prioritizes its success according to an agenda that I can’t control.

Some may say I’m risk averse. That’s ok with me. Peter Drucker wrote that entrepreneurs were by nature risk-averse.

Count me as a fan of Slow-Tech: building companies that create real value that people are willing to pay for, that actually generate wealth over time.