. -- If Microsoft Corp. gobbles up Yahoo Inc., it would leave one fewer Internet giant to ignite a bidding war for young companies such as Meebo Inc.
But if Meebo's Seth Sternberg is worried, he isn't acting like it. "Freakin' awesome," was how he described his reaction to the potential merger.
"More churn in the market opens the door for a lot of innovation," said Sternberg, who helped start the 30-employee instant messaging company three years ago.
Silicon Valley is buzzing with debate over how such a blockbuster merger would affect the high-tech landscape.
Yahoo plans to reject Microsoft's $44.6-billion offer today, saying it undervalues the Internet company, a person close to Yahoo's management said Saturday. But many analysts believe Microsoft will sweeten its offer and close the deal, which would be the biggest acquisition in the software giant's 33-year history.
Start-ups play a key role in the ecosystem here. They are de facto research and development labs for bigger companies, which often capture innovations by acquiring small firms, said Jonathan Miller, a former AOL chief executive who is now founding partner of Velocity Investment Group.
"As they get bigger," he said, "they need to buy more."
There's no superstition that prevents people from talking about when and how a young company can cash in its chips. Buyout? Initial public offering? These ideas are woven into decisions about how much financing to take and from whom.
Discussion about the proposed merger's effect hasn't been limited to whether it would change the number or prices of acquisitions. As at Meebo, talk often turns to the state of innovation and company creation.
Some investors and entrepreneurs argue that the hot Internet sector is bound to heat up even more if there is a battle between Google Inc. and a stronger Microsoft. Other Internet companies might also feel the need to bulk up, including Time Warner Inc.'s AOL and EBay Inc.
There's also a new class of buyers on the Web, including NBC Universal, Comcast Corp., Viacom Inc. and CBS Corp.
"The pie is getting bigger and bigger, and the number of players who want a piece of the pie is getting bigger," said Sergio Monsalve, a principal with Norwest Venture Partners.
Some Silicon Valley denizens say many of the people leaving Yahoo and Microsoft via layoffs or resignations -- and there could be a flood -- will start new companies to pursue their ideas.
Then again, others say, very young companies with little more than a cool feature will have trouble drumming up interest from Yahoo and Microsoft, which will be too distracted by the merger to pay much attention to start-ups.
"Clearly the fewer buyers, the harder it is to sell something," said Bill Burnham, a managing partner at hedge fund Inductive Capital.
One investor who requested anonymity said he was in talks to sell an Internet company in his portfolio to Yahoo when Microsoft made its move. Yahoo executives put the deal on hold last week because, they said, the start-up might overlap with some of Microsoft's businesses.
Sunnyvale, Calif.-based Yahoo has been long viewed as a friend to start-ups, willing to buy tiny companies and spread their ideas across its online properties. Although Yahoo had a reputation for not overpaying, Burnham said it often tried to keep up with moves Google made. Yahoo's shopping offered hope to small companies.
"It's created a very vibrant market for these very early-stage start-ups that don't have much revenue," Burnham said.
Microsoft hasn't been viewed as much of an exit strategy for entrepreneurs, said Brian Lakamp, a former executive at Sony Pictures who has his own online music start-up called MediaMaster. But Yahoo hasn't been an ideal suitor either because of its slowing growth and slumping stock price, which left it vulnerable to Microsoft.
"Lately Yahoo has been seen as a wounded soldier," he said.
In recent years, bigger companies have been buying experimental start-ups way too early, said Monsalve, the venture capitalist.
He predicted that a quieter merger market would take pressure off entrepreneurs to sell and give them more time to build their businesses. That could be a boon to entrepreneurs and investors who want to make an impact.
"We'll have more of a chance to prove out the dream of the start-up," he said.
Mark Goldstein has sold five start-ups and is working on his sixth. As chief executive of Loyalty Lab, an Internet advertising firm, he takes a Darwinian view of Microsoft's bid for Yahoo and its effect on the Internet industry.
"Unhealthy companies simply don't survive," he said. "Yahoo had no employee retention. It was a bureaucratic culture. We've got to root for the long-term."
As for start-ups, he said, "we can dream we'll end up as a button on someone's website. In the end, all of us disappear. That's the nature of the Internet."