South by Southwest is the best venue for startups to show off what they’ve got but with more startups doing that, it’s getting a bit crowded and startups are finding it hard to get noticed.

Five years back, SXSW was the go to place for startups.  Just ask the Twitter team, when they launched in ‘07 and all eyes were set on them.  But now, startups are not getting the same kind of attention since a lot of startups are launching at SXSW.

“It has become challenging to break out at SXSW because there’s so many great startups competing for the attention of thought leaders here,” said Kleiner Perkins Caufield Bowers partner Chi-Hua Chien.

But don’t get me wrong, it doesn’t mean that startups shouldn’t launch at SXSW.  But if they do, they should bring their A-game and then some, if they want to catch the attention of attendees.

Take for example Highlight, a new app for iOS that alerts you if someone who’s also using the app is near you and if you have any friends or interests in common.  It’s like a serendipity app.  The point of Highlight is to bring people closer.  In a world full of strangers, we often find ourselves amazed at how small it is like finding out that your current office mate is friends with your college crush.

“Nothing affects our happiness more than the people in our lives,” says Paul Davison, Highlight’s 32-year-old founder and CEO. “But the way we find these people and bring them into our lives always has been completely random and inefficient.”

“We don’t realize how bad it is because it’s always been that way,” Davison added. “Most people people walk around like ants hoping that by randomness they’ll intersect paths with the person of their dreams. Sometimes it happens, but many times you’ll never meet.”

While Highlight is celebrating at SXSW as the most downloaded app at the event, a company that launched at SXSW in 2009 has officially shutdown.  Gowalla, a location-based social network acquired by Facebook back in December, has officially closed today.

“Thank you for going out with Gowalla. It was a pleasure to journey with you around the world,” said Gowalla on their site.  “Download your check-ins, photos and lists here soon.”

But the greatest buzz at the SXSW is the rumor flying around that CNN will be acquiring Mashable, a social media blog, and the announcement is expected on Tuesday.

Representatives of both companies neither confirmed nor denied the rumor but the New York Times confirmed that talks about the acquisition does exist, though nothing has been finalized yet.  Also, CNET found it interesting that Mashable editor Adam Ostrow “liked” the Reuter’s story on Facebook.