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TheStreet Open House

Tech Banquet Gone Before Investors Get a Bite

Stocks in this article: PCLN AMZN AAPL GOOG FB YHOO

NEW YORK (TheStreet) -- Technology is always eating its young. This week's leaked information on an Apple (AAPL)-Beats Electronics deal points to what would be only the latest in a string of exciting new companies gobbled up before then went public.  

Small investors don't get a taste of many such deals, either on the front end or the back end. They won't learn about it until the bubble pops and supposedly safe investments crash.

Systems like Crowdfunder, which offer small investors the chance to get in on the ground floor of start-ups, claim they can plug the gap. But Stanford research indicates nearly 90% of venture capital investments fail. 

Want to fight those odds? If you don't, you may not get a sniff of today's hot deals.

Back in the 1990s, venture capitalists quickly took investments public in order to cash in on their successes and recycle the money. But that carried significant downside. After the dot-com bubble popped, small investors had to eat some failures, like Pets.com, Webvan, and CMGI. Some, like Priceline (PCLN - Get Report) and Amazon  (AMZN - Get Report), returned to glory, but that came years later, and these were the exceptions rather than the rule.

I personally remember getting stuck with one such "investment," when a site I was writing for, which had been acquired by Andover.Net, was in turn acquired by a company called VA Linux in early 2000. I was offered stock options, which I should have flipped, but instead I held the shares and rode them to disaster.

Lesson learned. But will I ever get a chance to apply it?

These days venture capital has merged into private equity, which does its own forms of financial engineering. Private equity companies don't need to recycle their cash like VCs do. They are large enough to take over, not just large private companies, but public ones as well.

As a result many start-ups now routinely get multiple rounds of capital, each at a higher valuation. As these companies mature, private equity will take a bigger position, so the VCs can recycle their cash, but the company may still not come public.

Whether or not it they become profitable, today's tech start-ups can also be recycled into larger tech companies as never before.

During 2013, for instance, Apple made 13 acquisitions, including four in the mapping area, two in semiconductors, and a company called WiFiSlam involved in something called "indoor location." 

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