Tech Banquet Gone Before Investors Get a Bite

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, Webvan, and CMGI. Some, like Priceline (PCLN) and Amazon  (AMZN), 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." 

Google (GOOG) made 18 acquisitions during the same year, including seven in the area of robotics alone. Facebook (FB) bought nine companies. Amazon mainly stayed out of it, buying only three firms. 

Yahoo! (YHOO) topped them all, taking over 26 companies in 2013. Tumblr was the biggest deal at $1.1 billion, but CEO Marissa Mayer also splashed out $50 million for Qwiki video production, $40 million for Xobni, a customer relationship management company, and $30 million for Summly, a news aggregator, and its 17-year old founder, Nick D'Alosio. 

Some of these were doubtless "acqui-hires," bought in order to gain the teams running them rather than the products they were producing. Acqui-hire companies are often closed once they're acquired.

Some of the biggest techs, notably Google, now have their own venture capital units which let them create their own start-ups, like Uber, practically from scratch, and bring them to multi-billion dollar valuations without selling out.

In 2014, the hits just keep on coming. Big tech is taking out small, successful tech and you're not getting a taste of any of it.

Oculus Rift was bought by Facebook. Google, which had backed Nest, bought it.

At this writing, Apple is still considering a $3.2 billion deal to buy Beats, which makes headphones and runs a streaming music service, Beats Music. Beats' last funding round, $60 million in March, was headed by Ukranian-born industrialist Len Blavatnik. The latest rumor is the deal will be announced at next month's WorldWide Developer Conference. Time thinks Amazon could swoop in but given the few acquisitions the company has made so far, that seems unlikely.

Thus, if there is a tech bubble, small investors are not profiting from it. Many of the IPOs filed in the last month had nothing to do with technology. They include several energy-related companies, a bank and a company that buys and operates farms in the Pacific Northwest. 

So when this latest tech bubble pops, how will you know? Maybe when your Google shares collapse, weighed down by buying out the private equity boys who sold them their garbage. Or maybe it will just be the sound of a slow leak, as your safe investments are burdened by acquisition dilution. 

>>Read More:

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5 Things Apple Doesn't Want You to Know

Pinterest, Uber Eye Fresh Funding on Sky-High Valuations

At the time of publication the author owned shares of GOOG, AAPL and AMZN.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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