Microsoft-Skype Panned at TechCrunch Disrupt

NEW YORK (TheStreet) --Microsoft's (MSFT) $8.5 billion purchase of Skype makes no sense to famed investor Paul Graham of Y Combinator.

Graham, who called Microsoft "dead" back in 2007, criticized Microsoft's approach to the Skype acquisition as "out of control" and said the company should be looking for good value not big deals.

"I don't know what they are doing" with the purchase of Skype, Graham said.

In a revealing discussion at TechCrunch Disrupt 2011 in New York Tuesday, Graham spoke clearly about his portfolio of small companies like Loopt and Dropbox but offered no view on Cisco (CSCO), Facebook or where social media was going, telling interviewer Charlie Rose that he's been too focused on small, new companies.

On the questions around a possible tech bubble, Graham urged caution on the use of the term "bubble" but noted prices are high and that companies should raise money now before it goes away.

Graham expects this wave of cash infusion will fade due to either China's economy dropping off or any number of other reasons. On the overall venture capital landscape, Graham sees it shrinking, likening it to trash compactor with the "bad ones" dying off.

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