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However, venture capitalists warned CNBC that some of their proposals could actually hurt the small businesses they intend to protect.
Venture capital is particularly concerned Effort In parliament Limits Mergers and acquisitions through dominant platforms. Some of those proposals will work by transferring the burden of proof to those companies in a merger case to show that their transaction does not harm the competition.
Proponents argue that such a bill would prevent the so-called killer acquisition, which scoops up potential rivals before big companies grow, but Facebook’s $ 1 billion acquisition of Instagram is common. This is an example. Buy markets for start-ups and discourage further innovation.
Of course, venture capitalists and their representative groups are interested in maintaining a relatively easy route to end their investment. The National Venture Capital Association, a leading industry association of VCs, counts the venture divisions of several big tech companies among its members. (((ComcastHe is also a member of CNBC’s parent company, NBC Universal. )
But their concern is how antitrust changes will affect far beyond large corporations, and how small players will have to make adjustments if they pass. I emphasize it.
When venture capitalists invest in start-ups, their goal is to make a big profit on their spending. Most start-ups fail, but VCs rely on minorities who have large enough exits to justify the rest of their investment.
Exits can be caused by either acquisition or publication. If any of these events occur, investors can get back at least some of their money, and in the best scenario, they can reap big winds and rains.
According to NVCA, there are about 10 times as many startups as the ones exposed by the acquisition. Venture capitalists say the numbers show how important it is to keep the merger path clear.
It’s not just the top five tech companies that are scooping up tech deals. Amazon, Apple, Facebook, Google, Microsoft According to public data compiled by Dealogic, it has accounted for approximately 4.5% of the value of all US technology transactions since 2010.
Reform proponents have pointed to several acquisitions, such as Facebook’s acquisition of Instagram, as an example of a company that sells before becoming an independent rival of a large company. But VCs say that is often not the case.
“They all think they could one day become a publicly traded company, but in reality, most of these companies have to survive the public market as of today,” said general partner Michael Brown. Achieving scale and scale is not feasible. “ At Battery Ventures.
Often the goal is to make it public, but VCs say it can be impractical for startups for a variety of reasons.
First, some start-ups may not have products or services that will function as stand-alone businesses in the long run. That doesn’t mean that their skills and talents are worthless, but that they have the potential to be the most successful in a large company.
Kate Mitchell, co-founder and partner of Scale Venture Partners, gave an example of a company called Pavilion Technologies, which developed predictive technology for manufacturers and agriculture. Sold to manufacturer Rockwell Automation In 2007.
“It’s just a company that couldn’t escape speed,” she said of the pavilion. “They were selling globally to large factories, so they couldn’t figure out how to sell the technology in a cost-effective way.”
It was still a useful technology, but she said she needed the infrastructure of a large company to accelerate it further. After Rockwell acquired it, it was incorporated into the product and some employees stayed there for years.
From time to time, she said acquisitions were a last resort before bankruptcy, at least helping investors get back some of their money.
“It’s better to sell for $ 1.80 than to go bankrupt,” she said.
In addition, it can be difficult to publish. The IPO process is expensive, and VCs said small businesses often struggle in the public market, partly due to lack of analyst coverage for such businesses.
Clate Mask, co-founder and CEO of Keap, a venture-funded email marketing and sales platform, said tightening merger restrictions on large companies is likely to “change the calculation” of startups. But the shift is not between acquisition and acquisition and publication. Instead, he said, it could make it harder for entrepreneurs to think about whether to raise venture funding.
“When you have capital behind you, you can think and run differently,” he said, and entrepreneurs can take more risk with their support. I added that I can do it.
Some VCs have told CNBC that they are concerned about the trickle-down effect of merger restrictions on large companies across the entrepreneurial ecosystem.
Their fear is that if a company does not have enough viable exit routes, institutional investors supporting VCs (funds, pension funds, etc.) will move their funds elsewhere. As a result, VCs may provide less money to entrepreneurs, and entrepreneurs may have less reason to risk starting a new company.
They say the ultimate concern is the loss of innovation. That’s exactly what lawmakers want to dodge merger restrictions on the largest buyers.
Patrician Nakache, General Partner of The Trinity Ventures, said:
Limiting the acquisition capacity of the largest tech companies could actually discourage entrepreneurs from setting up companies that compete with their core businesses, Nakache said. That’s because many entrepreneurs prefer to have a backup plan that incorporates potential buyers if they can’t make it public. With greater uncertainty about whether big tech companies can become potential buyers, she said they might try to build a business outside the core products of the biggest players. ..
VCs also warned that without the biggest players, the selling prices of start-ups would drop significantly.
But outside the industry, some believe that these concerns are not as bad as VCs fear.
“If this kind of law works as intended, it’s generally a highly competitive market, so potential buyers,” said Michael K’s, head of market and competition policy for the nonprofit Washington. Will increase. ” A center for fair growth. “If you’re in VC today, I’m worried about what you’re worried about in the next few years or what your company can get, but increasing the number of potential buyers for a company … It also means that there are still dominant companies as well as a very prosperous market for this kind of acquisition. “
Bhaskar Chakravorti, Dean of Global Business at Tufts University’s Fletcher School, said venture capitalists could probably lower acquisition prices under new merger restrictions, but entrepreneurs are still motivated to innovate. have.
“Ultimately people will adapt, yes, some of the ratings, some of the bids may be stunting. Some of the acquisitions may be 10 to 20% cheaper,” he said. Said. “But in the end, entrepreneurs are pursuing ideas, building ideas, forming teams, and venture money needs space, so I don’t think it makes a big difference.”
Kades agreed that good ideas are likely to raise money, even if large companies are unable to bid or struggle to complete the acquisition. Limiting mergers from these companies is “trying to limit anti-competitive premiums,” he said.
VCs are also concerned that the new rules could accelerate the shift in venture investment outside the United States.
While other countries, including Canada, are adding incentives for entrepreneurs to come and stay at the border, regulations under consideration in the United States will keep them away, Mitchell said.
“We would be making it difficult when everyone else is trying to be attractive,” she said to be an entrepreneur in their country.
According to NVCA, the United States has lost its global venture capital share from 84% to 52% in the last 15 years. That’s why lawmakers argue that US venture capital shouldn’t rely on their glory to be able to catch up with other parts of the world under new strict regulations.
However, Chakravorti did not agree that the merger law would boost investment outside the United States, as many alternatives are worse.
“There are few alternatives,” he said. China’s exits require close scrutiny, and Europe is known for its stricter approach to business regulation.
Still, Mr Brown said that if a stricter merger law were passed, it would be necessary to consider casting a wider net for potential buyers when it was time to end the investment. It could include more international buyers than he thinks otherwise.
Nakache said potential acquirers may consider investing more in non-legal start-ups if the merger reforms pass.For example, for the following enterprise platforms Salesforce Or Oracle If they do not meet the criteria for tighter mergers, VCs may shift their spending from areas such as search and social media to software as a service.
Some VCs interviewed by CNBC felt that existing antitrust laws were appropriate, but others acknowledged that reforms other than mergers could be beneficial.
Limiting platforms that leverage the data they collect to compete with the companies that depend on them is one example that can help level the competition if done correctly.
Mitchell said the most beneficial change was to increase the consistency of antitrust enforcement, especially from one administration to the next.
Keap CEO Mask does not object to Congress taking any action to curb the power of Big Tech companies, but most entrepreneurs say they are “good for the ecosystem” overall. He said he was aware of it.
“These big tech companies help drive momentum across the sector,” he said. “And I don’t know if it would be great to split them in some extremely aggressive way.”
Start-ups will suffer from antitrust bills targeting Big Tech
Source link Start-ups will suffer from antitrust bills targeting Big Tech