The market meter for Internet start-ups is pointing to somewhere between hot-hot-hot and frothy. Matt Marshall of the Mercury News points out that Yahoo! and Google, with all their cash, are going head-to-head with venture capital firms in the quest to acquire small, technology-oriented companies. Outsell analyst Marc Strohlein notes that a shift in attitude is indeed underway. In the old days, acquisitions of software companies were painful because of cultural issues, redundancies, etc. In the new world, the companies are very small, are too young to have a culture, and outsource everything, so there are no redundancies. Buying one of these outfits is more like adding a new R&D team than an acquisition, so the risk to the GYM (Google, Yahoo!, Microsoft) companies is pretty minimal. On the other side, Web 2.0 makes everyone a software genius, so companies are sprouting like mushrooms. The long-term challenge for VC types is that with the dramatically reduced costs of starting a company, many entrepreneurs will seriously rethink taking VC money when they can bootstrap themselves far enough along to find a suitor, keeping all the money for themselves. There is already a lot of “build to flip” going on in Silicon Valley, and Marc expects it to increase.