As for the effect this has on other start-ups, I think there are two interconnected issues here, one on the buyer side and one on the seller side.
On the seller side, VC investments are to blame, I think, because of their ROI expectations. We are missing a good investment model for successful tech/web businesses that aren't the huge windfalls VCs want, like most businesses in other fields. You could say that angel investment is that model - the problem is that VCs want to invest in many companies, and it's sometimes hard to reject their offer. Once you do take their money, it's hard justifying slow growth and good though less-than-stellar success, and in that case, both the company and its users are "doomed".
And why do VCs want to invest in so many companies? This has to do with the buyer side (see http://news.ycombinator.com/item?id=3546629 for an interesting discussion about acquihires from the buyer's perspective). I think they have to invest because they have so much money, they can't accurately identify the stellar companies (well, obviously), and acquisitions give them a good enough ROI to continue doing what they're doing.
On the seller side, VC investments are to blame, I think, because of their ROI expectations. We are missing a good investment model for successful tech/web businesses that aren't the huge windfalls VCs want, like most businesses in other fields. You could say that angel investment is that model - the problem is that VCs want to invest in many companies, and it's sometimes hard to reject their offer. Once you do take their money, it's hard justifying slow growth and good though less-than-stellar success, and in that case, both the company and its users are "doomed".
And why do VCs want to invest in so many companies? This has to do with the buyer side (see http://news.ycombinator.com/item?id=3546629 for an interesting discussion about acquihires from the buyer's perspective). I think they have to invest because they have so much money, they can't accurately identify the stellar companies (well, obviously), and acquisitions give them a good enough ROI to continue doing what they're doing.