So rumor has it that yahoo is trying to acquire Metacafe for a reported $200 million. TechCrunch has reported $200 to $300 million while GigaOm is reporting that they heard the number is more around $700 million. Now, I gotta be fair, Google paid a whopping $1.65 billion for YouTube (which I’m not quite sure how they came up with that value), but still, do these sites really provide that much value?

I have a better idea for Google and Yahoo. Both companies should create their own venture capital companies. Imagine how much money they could be making with anywhere between $300 million and $1.65 billion. Granted, both companies are buying into websites that already have significant existing traffic but couldn’t they make a fortune investing in new startup concepts, let alone get some new ideas for their companies with the amount of money they both are spending?

Think about it this way: according to InformationWeek, $455 million in venture capital was invested in Web 2.0 in the first 3 quarters of this year. Now imagine, that just between google’s purchase of YouTube, and Yahoo’s rumored purchase of MetaCafe, a whopping $2 billion has been spent combined on only 2 web startups, 4 times the amount spent on all web venture capital. Who’s getting the better deal here? Well, according to a report by the National Venture Capital Association, the average annualized returns on venture capital investments in the first two quarters of 2006 was 17.7%. Perhaps Google and Yahoo will make more on their large acquisitions, but what type of turnaround time will those investments have before earning the same or greater rate of return? Unfortunately, I can’t answer that question. In my opinion investing in a vast array of new ideas is better than making such a large bet on one business, because society will receive greater benefits … but that’s just my opinion. Feel free to let me know what you think.