ICYMI: Acquisitions Of Tech Startups Would Be One Of The Many Casualties Of Misguided Anti-Tech Legislation
Geoffrey Manne, president and founder of the International Center for Law and Economics (ICLE), highlights how the American Innovation and Choice Online Act (AICOA) would imperil the tech startup ecosystem. Here are the highlights:
While AICOA doesn’t explicitly prohibit acquisitions, it would decrease the incentives that drive many to acquire startups. “Of course, AICOA doesn’t directly restrict startup acquisitions, but the activities it would restrict most certainly do dramatically affect the incentives that drive many startup acquisitions.”
By prohibiting common business practices such as cross-platform integration and promoting a companies’ products and services on their own platform (so-called “self-preferencing”), companies could lose motivation to make a purchase in the first place. “If a platform is prohibited from engaging in cross-platform integration of acquired technologies, or if it can’t monetize its purchase by prioritizing its own technology, it may lose the motivation to make a purchase in the first place. This would be a significant loss.”
— “As investor and serial entrepreneur Leonard Speiser said recently, ‘if the DOJ starts going after tech companies for making acquisitions, venture investors will be much less likely to invest in new startups, thereby reducing competition in a far more harmful way.’ Going after self-preferencing may have exactly the same harmful effect on venture investors and competition.”
The practical effects of these prohibitions would be to “diminish competition and reduce consumer welfare” as well as “impoverish the startup ecosystem more broadly.” “[I]t seems clear not only that an AICOA-like regime would diminish competition and reduce consumer welfare across important dimensions, but also that it would impoverish the startup ecosystem more broadly.”
— “Even if you think, in the abstract, that it would be better for ‘Big Tech’ not to own these startups, there is a real danger that putting that presumption into force would drive down acquisition prices, kill at least some tech-startup exits, and ultimately imperil the initial financing of tech startups. It should go without saying that this would be a troubling outcome. Yet there is no evidence to suggest that AICOA’s proponents have even considered whether the presumed benefits of the bill would be worth this immense cost.”
Read the full piece here.