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Why is tech M&A booming?

L-R 
James Lee, Vice Chairman, JPMorgan Chase & Co.
Josh Kopelman, Managing Partner, First Round Capital
Jim Breyer, Partner, Accel Partners
Moderator: Dan Primack, Senior Editor, Fortune.comL-R 
James Lee, Vice Chairman, JPMorgan Chase & Co.
Josh Kopelman, Managing Partner, First Round Capital
Jim Breyer, Partner, Accel Partners
Moderator: Dan Primack, Senior Editor, Fortune.com
L-R James Lee, Vice Chairman, JPMorgan Chase & Co. Josh Kopelman, Managing Partner, First Round Capital Jim Breyer, Partner, Accel Partners Moderator: Dan Primack, Senior Editor, Fortune.comStuart Isett/Fortune Brainstorm TECH

The speed and volume of mergers and acquisitions large and small in the technology industry has ramped up. Global tech M&A volume in the first half of this year was up 55% over last year, reaching its highest level since 2000.

Part of the reason for the buying spree is because tech companies have massive cash piles on their balance sheets. There’s also the acqui-hire trend, where tech companies are created cheaply, raise seed funding easily, fail, and then “sell” to Yahoo (YHOO), Facebook (FB), or Google (GOOG) – which merely want the employees.

But that’s not all. As vice chairman of JPMorgan Chase, Jimmy Lee has a front-row seat to the deal action. And he’s been increasingly pushing the firm into tech deals, most notably, the much-anticipated initial public offering of Chinese e-commerce giant Alibaba.

Speaking on stage at Fortune’s Brainstorm Tech conference in Aspen on Monday, Lee pointed to another sign of a tech M&A boom: Shares of publicly traded tech companies going up, not down when they announced acquisitions in recent years. Traditionally, companies that acquire another lose value because of the expense along with the uncertainty about making the deal pay off.

“So the buy side is saying, we’re going to pay for growth, and it’s okay if we pay a premium,” Lee said. “A lot of it is a growth challenge that companies now want to go after, and attack it hard.”

See a video of the discussion here.

Lee cited Facebook’s success with its $1 billion Instagram acquisition (recently outlined in the latest issue of Fortune magazine) and Google’s success with buying YouTube eight years ago as examples of successful growth by acquisition.

Companies have been hoarding cash, Lee said, and the cost of capital “is virtually zero.” The rise of tech companies with massive balance sheets has created another interesting wrinkle for venture capital world. Aside from buying up portfolio companies, they’re also competing. Google built up has a formidable venture capital practice, and large media companies from Comcast to Time Warner have also ramped up their startup investing.

Jim Breyer, CEO of Breyer Capital, noted that these corporate venture arms, which weren’t always viewed as serious players in the VC game, are now “competing very effectively.” That has increased the competitive risks to venture investors, Breyer added. The competition is global, too, with Asian conglomerates from Alibaba and Baidu to Tencent bidding up deals.

And about those valuations: Yes, they’ve gone up. Josh Kopelman, a partner at First Round Capital, says seed deals have increased in price by around 20% to 30% in recent years, which makes his job difficult. “We have tried to maintain price sensitivity,” he said. “But you’re also talking to a VC who passed on Twitter … because of price.” He noted that he decided not to do the same thing when Square knocked on his door.

Breyer had a similar philosophy around valuations: If the founding team is good enough, he’s happy to pay up. All of his best deals, including Facebook, which he invested in at a $78 million pre-money valuation, have come at prices high enough to give some investors pause. “If it’s a 50x or 100x [return], I caved on price,” he said.