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Google (GOOG) closed yesterday at $422.86 giving the company a total market value of $125 billion. To put it in perspective, ExxonMobil’s (XOM) market value is almost exactly three times larger than Google’s, yet its free cash flow is roughly 25 times larger.

Google now has $7 billion in the bank, plus a highly-valued stock that can be used as currency in many transactions. In Silicon Valley, tech start-ups are no longer trying to make it on the Nasdaq, they want to be bought out by Google.

The Google effect is already changing the delicate balance in Silicon Valley between venture capitalists and startup companies. Instead of nurturing the most promising startups with an eye toward taking the fledgling businesses public, a growing number of VCs now scour the landscape for anyone with a technology or service that might fill a gap in Google's portfolio. Google itself and not the larger market has become the exit strategy as VCs plan for the day they can take their money out of their startups. Business founders have felt the tug as well. "You're hearing about a lot of entrepreneurs pitching VCs with their end goal to be acquired by Google," says Daniel Primack, editor of PE Week Wire, a dealmaking digest popular in VC circles. "It's a complete 180 [degree turn] from the IPO craze of five years ago; now Google is looked at like NASDAQ was then." Other entrepreneurs, meanwhile, are skipping the VC stage altogether, hoping to sell directly to Google.

Right now, Google and Microsoft (MSFT) are squaring off in a battle to buy AOL, which could be worth $20 billion. My guess is that Microsoft will win in the end. Still, it will be interesting to see what Google does with all its resources.

Posted by edelfenbein at November 24, 2005 2:39 PM