Dec 15, 2021 - Economy & Business

Senate hearing to examine impact of M&A on innovation


Illustration: Brendan Lynch/Axios

In a hearing Wednesday, the Senate's judiciary committee will attempt to examine the impact of large and dominant companies on "American innovation" — that is, startups — and their ability to acquire smaller ones.

Why it matters: Whether Big Tech is preventing startups from realizing their full potential remains a key debate within the tech industry.

  • The industry benefits from a thriving competitive market where new companies have a shot a creating fresh products, yet struggles to fully reject big companies' dominance as they are the ultimate expression of winning at the capitalism competition.

Flashback: Sen. Amy Klobuchar (D-Minn.), who chairs the committee, recently introduced the "Platform Competition and Opportunity Act of 2021" along with Sen. Tom Cotton (R-Ark.) as an attempt to curb Big Tech's efforts to remain dominant by acquiring smaller companies.

  • The bill aims to make M&A much harder for companies with a market cap of $600 billion or more that have at least 50 million U.S.-based monthly active users or at least 100,000 U.S.-based monthly active business users. (It applies to Amazon, Apple, Facebook, Google and Microsoft, while exempting others like Walmart, at least for now.)

Between the lines: As we've written about before, much of startupland is horrified at the idea that being acquired by a larger company could no longer be a viable option for upstarts that don’t make it all the way to an IPO.

  • "If I'm a founder or I'm an investor, and I'm thinking about starting a company in a core market of an incumbent ... what if Plan B (M&A) is not an option? That changes things," Trinity Ventures' Patricia Nakache said last year during a DOJ event in Silicon Valley.
  • The argument is: Big Tech gobbling up startups isn’t a deterrent to entrepreneurship — it s an enabler.

Yes, but: Not everyone agrees, even within the tech industry, and some investors and entrepreneurs do want to see Big Tech's M&A activities limited.

  • Their argument is that large companies are so big that many startups can never take them on successfully with newer products.
  • They're also so rich that they can make acquisition offers that startups can't refuse — even if it means they'll have to shut down their businesses.

The bottom line: It's unlikely that startupland will ever see eye-to-eye with Klobuchar on this issue — M&A is too integral to what keeps the ecosystem running.

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