Startup Spotlight: Here’s why venture capital group opposes Big Tech legislation

Editor’s note: The National Venture Capital Association (NVCA) acts as a voice of the U.S. venture capital and startup community, NVCA advocates for public policy that supports the American entrepreneurial ecosystem. Startup Spotlight is a regular part of WRAL TechWire’s Startup Monday package which includes our Triangle Startup Guiode updates, multiple calendars of events and a list of Triangle area tech meetups. 

WASHINGTON, D.C. – NVCA President and CEO Bobby Franklin says threatening American made innovation is the wrong way to address Big Tech. The newly introduced Platform Competition and Opportunity Act from Senators Amy Klobuchar (D-MN) and Tom Cotton (R-AK) would bar acquisitions of many venture-backed companies and therefore be a major disincentive to entrepreneurship.

“Startups are the source of American innovation. Instead of embracing this activity, this bill discourages entrepreneurship by blocking many acquisitions even when there is no anti-competitive behavior. The entrepreneurial ecosystem strongly opposes this misguided policy and urges Congress to focus its energy on making the United States the best place in the world to launch a high-growth company.”

NVCA opposed the House version of the Platform Competition and Opportunity Act, which narrowly passed the House Judiciary Committee after attracting “no” votes from prominent Democrats and Republicans on the panel.

The Platform Competition and Opportunity Act would effectively bar acquisitions by companies with a market capitalization of $600 billion or more that have at least 50 million U.S.-based monthly active users or least 100,000 U.S.-based monthly active business users. Acquisitions are an incredibly part of the startup ecosystem. For venture-backed companies there are effectively three outcomes: standalone company (often via initial public offering, or IPO); merger or acquisition; or bankruptcy. Company failure is the most common outcome, but the success stories are often hypergrowth companies with an outsized impact.

Many entrepreneurs and their investors begin the company building process with the hope of creating a standalone, public company. However, in most cases an IPO is not possible, and the only available exit opportunity becomes an acquisition by another company, with 58% of startups expecting to be acquired. Some have argued that acquisitions have become too commonplace, but an analysis of Pitchbook – NVCA data shows there are actually less acquisitions today relative to IPOs than they have been in the past. NVCA analysis also shows that had H.R. 3826 been in place, it likely would have barred the acquisition of at least 100 venture-backed companies in just the last five years, leaving company founders with reduced opportunities.

In October, Bettina Hein, a serial entrepreneur wrote in the Wall Street Journal that the Platform Competition and Opportunity Act “risks hurting the startups it aims to benefit. . .by obstructing the most common positive outcome for entrepreneurs and their investors, short-circuiting the process by which value-creating innovation helps fund the next generation of new businesses.” Later that month, Bobby Franklin joined other industry association executives in writing: “By fundamentally altering antitrust laws, Congress will punish American businesses by taking away incentives for entrepreneurs and investors. Congress would make it less attractive to start a new business or invest in a new company.”

(C) NVCA.org