Congress has stepped up its focus on large technology platforms. The current emphasis is how our nation’s antitrust laws can be changed to address the power of these companies. One of the proposed solutions is restricting or forbidding acquisitions of smaller companies, which would hurt VC-backed companies due to the importance of acquisitions to the startup ecosystem. Instead of making the startup ecosystem collateral damage in this fight, Congress should encourage the creation and growth of new companies across a broad range of industries. This is the most effective way to increase competition in the U.S. economy.
What Washington Wants From Big Tech
The House of Representatives Judiciary Committee recently passed the Platform Competition and Opportunity Act (H.R. 3826), which is effectively a ban on acquisitions by Apple, Alphabet, Amazon, and Facebook. The bill made it out of committee but with “no” votes from three key Democrats – Representatives Zoe Lofgren (D-CA); Eric Swalwell (D-CA); and Lou Correa (D-CA)—and all but a few Republicans. Other prominent acquisition restriction bills include the Competition and Antitrust Law Enforcement Reform Act from Senator Klobuchar (D-MN) and the Trust-Busting for the Twenty-First Century Act from Senator Hawley (R-MO).
New Antitrust Analysis
I have written in TechCrunch about how the proposals from Senators Klobuchar and Hawley would harm the entrepreneurial ecosystem. Recently, two academics, Professor Daniel Sokol of the University of Southern California and Gary Dushnitsky of the London Business School, released a new report that raises serious concerns with legislation that restricts or bans acquisitions. It offers a compelling look at the data to underscore why acquisitions are a vital part of new company formation. In addition, the report delivers four key lessons that policymakers should consider before moving forward with acquisition restrictions.
1. Acquisitions are vital to the entrepreneurial ecosystem
The congressional debate around antitrust and acquisition restrictions is heavily tilted toward how reforms will impact large tech companies. NVCA has championed the perspective of VC-backed companies and encouraged policymakers to consider how changes in the law would impact growth companies. The report underscores the importance of acquisitions in this way:
Without the ability to exit as well as having that ability reduced by having one major off-ramp closed off (i.e., acquisition), neither founders nor investors will be able to reap the gains of the appreciation in the valuation of the business. Increasing difficulty in entrepreneurial exits for founders and investors makes future investment in such ventures less likely, since founders and investors cannot reap the rewards of a timely exit at acceptable valuations.