john battelle, fred wilson and silicon beat all talk about the current reality for startups (at least in the new media space) which is that smaller is safer. what they mean is that without a clear path for high dollar exits (called IPO market), a significant number of startups are selling to big players and many more hope to. however, this can only happen if they keep their valuations low.
what’s always been interesting is to realize that for a founder, the actual payout may be the same or more at much lower prices if they never raise big rounds of vc. this also implies that either they can create the same intended value without the big capital or that they do such a bad job deploying it that they dont achieve the intended results in revenue and cashflow.
to some degree this is simply enabling a beautiful mechanism for risk free, distributed r&d for google and yahoo. they dont have to bet on the next flickr. they can just wait and see who gets there, especially when these companies (like flickr) never achieve significant revenue, even when they get big audiences.
i think this may cause more seasoned entrepreneurs to raise outside capital in smaller chunks, selling less of their companies. they can play the option. low valuations enable this.