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What Google, Yahoo, Microsoft look for when buying a start-up

At the TieCon conference in Santa Clara, Calif., corporate development officers from the three Internet giants discuss their acquisition strategies.

Start-ups and venture capitalists often dream of the multimillion-dollar buyout, if not the lucrative IPO. So technology upstarts might perk up to hear the inside scoop from Google, Yahoo, and Microsoft on their acquisitions.

On Saturday at the TieCon conference in Santa Clara, Calif., corporate development officers from the three Internet giants discussed their acquisition strategies on a panel with Tod Francis, managing director of Shasta Ventures. Sandeep Aggarwal, senior Internet research analyst at Collins Stewart, recapped the panel in a research note Monday.

From Google: The start-up needs to be ahead of Google's internal curve in a given market, such as video (YouTube) or display advertising technology (DoubleClick), according to David Lawee, Google's vice president of corporate development. Lawee, former co-founder of Xfire.com, said the search company bought 19 start-ups in 2007. (Wikipedia's informal list reports 17, so at least two buyouts flew under the public radar last year.)

From Microsoft: The software giant is scouting for advertising platforms that can augment its own technology, as well as networks that aggregate audiences, according to Tivanka Ellawala, general manager of Corporate Development at Microsoft. (Sounds like Yahoo rolled into one.) He said that 10 of Microsoft's last 20 buyouts were related to the Internet and that the company is also interested in mapping technologies.

From Yahoo: The Internet company casts a wide net when it comes to scouting for start-ups, but it looks for "really good companies," according to Michael Burnett, senior director of global mergers and acquisitions for Yahoo. Last year, he said, the company looked at 500 companies, put 50 on a short list, fully examined 20, and finally acquired 9 companies. (Wikipedia reports six acquisitions.)

If talks keep up with Microsoft and Yahoo, start-ups and VCs will have one less buyer in the mix.