Why would they have to get big, let alone extremely large?
That's an assumption on your part. There are lots of companies in the $1 to $10M pear year in turnover and 20...40% net margins range that make their owners consistent fortunes. And by your standards they would qualify as 'tiny'. But that doesn't mean they are bad companies for their founders.
Simply put, we have different definitions of what a 'good business' is.
37signals and Atlassian are just as much outliers as dropbox and airbnb are.
In Silicon Valley these sorts of businesses are often derided as "lifestyle businesses." The Valley -- especially the big VC ecosystem -- wants big sector-conquering victories. That's because the VC industry is driven and financed by mega-hits.
Building a respectable, profitable business might be fine from a traditional MBA or bootstrapper's point of view but it's actually a failure in VC-land since it will not yield a monster exit.
What cankers about reading your comment isn't that it isn't true, so much as the implicit approval of the assumptions that (1) small businesses are small by choice rather than ambition, (2) all businesses have viable ways to raise money on equal terms, (3) funded competitors do NOT distort the market in a way that penalizes their unfunded competitors.
Jacquesm is rightly irritated at how funding unsustainable businesses distorts the revenue-getting potential of sustainable but unfunded ones (#3). Another example is the difficulty of bootstrapped companies ranking for any competitive search terms or getting decent press without venture capital and a PR engine. It is a LOT harder to organically grow into multiple distribution channels in a short period of time if you have to fund everything out of a limited slice of the market because you are competing against funded competitors who don't have those limitations.
Jacquesm's point is dead on. The entire point of raising capital is to buy competitive advantage. So if a VC doesn't think the money is being well-spent, they shouldn't have invested in that business or market in the first place. It is ironic to be in the position to buy competitive advantage, then get upset because people act like that is how you run a business.
That's an assumption on your part. There are lots of companies in the $1 to $10M pear year in turnover and 20...40% net margins range that make their owners consistent fortunes. And by your standards they would qualify as 'tiny'. But that doesn't mean they are bad companies for their founders.
Simply put, we have different definitions of what a 'good business' is.
37signals and Atlassian are just as much outliers as dropbox and airbnb are.