Washington — An economic analysis of the merger and acquisition restrictions in House and Senate legislation finds the provisions would have blocked a significant source of spending on tech startups and resulted in more of them failing. The study, “Irreplaceable Acquisitions: Proposed Platform Regulation and Venture Capital,” looks at sources of spending on acquisitions of venture-funded startups from August 2002 through the first quarter of 2020. It found the legislation would ban 21 percent of the sources of spending on tech startups.
Data on venture activity shows that since 2006 venture capitalists “are funding a consistently increasing number of startups with consistently rising amounts of capital.“ The rise is especially dramatic recently, with 2021 levels of deals and funding nearly double those of 2020. This would indicate startups are not facing a so-called “Kill Zone,” but that Congress’s legislation to eliminate a so-called “Kill Zone” could create one by discouraging investment in startups. Acquisitions are the most common avenue through which venture investors realize a return on their investment. With these inhibited, they would be less likely to invest in startups.
The House and Senate platform bills that would impact money available to startups include: the Platform Competition and Opportunity Act, American Choice and Innovation Act Online, and Ending Platform Monopolies Act.
The following can be attributed to Dr. Susan Woodward, economist at Sand Hill Econometrics, who authored the paper:
“The proposed legislation would be a serious and pointless blow to startups and venture capital investing. The drafters of the bills seem to have little familiarity with how venture capital works or what its outcomes are. I hope my contribution is persuasive that interfering with the acquisition process in this coarse, broad-brush way is a bad idea. The amount of funding being invested and the number of companies being started right now is larger than ever. These investment levels show that the concerns reflected in the bills are not generally an issue, and that the venture capital world does not expect legislation like this to pass.
“Continuing scrutiny of acquisitions for anti-competitive activity is always appropriate. But broad prohibitions on acquisitions are an unproductive way to avoid the difficult and worthy work of identifying business combinations that harm consumers.”
The Computer & Communications Industry Association commissioned the study. The following can be attributed to CCIA Director of Research and Economics Trevor Wagener:
“As Congress considers changing the rules for mergers and acquisitions, we thought it would be useful to better understand the current flow of venture capital investment and what is driving this trend of increasing investment in startups. That way policymakers can better determine if their legislation would actually help get new tech startups into the market — or discourage it by putting a key source of start up money at risk.”