Business Startups

From The Editor’s Desk: Regulatory Fervor Threatens To Sweep Up Startups Too

From the Editor's Desk

The bipartisan crusade against Big Tech is fully underway.

Earlier this month, Congressional Democrats released a 450-page report making the antitrust case against Apple, Google, Facebook and Amazon. A group of state attorneys general is moving forward with a probe of Google’s anticompetitive practices even as the U.S. Department of Justice gets ready to file an antitrust lawsuit against the search giant. 

Subscribe to the Crunchbase Daily

And Federal Communications Commission Chairman Ajit Pai, after long vowing to take a hands-off approach to regulation, last week said he will in fact pursue reform of Section 230, the bedrock internet law that provides online companies a limited legal shield against liability for user-generated content.

There’s a lot that’s lost in the clamor to “do something” about the tech industry, namely the impact on smaller companies and the overall innovation ecosystem of increased regulation. 

While Apple, Facebook, Google and Amazon are without a doubt extremely powerful players in their respective spheres, they hardly represent the entire tech industry. Thousands of smaller technology companies are founded in the U.S. each year, drawing billions of dollars of venture capital investment and employing tens of thousands of American workers in highly compensated roles. Yes, most of these ventures will fail and even those that succeed aren’t likely to become billion-dollar enterprises. That’s the nature of this high-risk, high-growth industry.

But the growth of Big Tech hasn’t coincided with a downturn in new startup creation—to the contrary.

Recent data suggests tech startups are actually on the rise. A 2019 Census Bureau report found that since 2007, the number of new technology startups in the country has grown by about 20 percent, even as overall new business creation in the nation has fallen. In other words, the tech startup industry has been a bright spot in an otherwise gloomy picture of American entrepreneurship.

Billions of dollars have continued to flow to innovative new companies, as underscored by our recent reports looking at global venture funding through the third quarter of this year. Companies that just a few years ago were small startups are entering the public markets at multibillion-dollar valuations, creating liquidity for thousands of employee-shareholders and early investors to again found and fund a new generation of ventures.

Of particular concern in the House antitrust report is lawmakers’ desire to curtail big companies’ acquisitions of startups. “Any acquisition by a dominant platform would be presumed anticompetitive unless the merging parties could show that the transaction was necessary for serving the public interest,” the report reads.

While the lawmakers argue that acquisitions serve as evidence of Big Tech’s monopolistic behavior, it’s also true that the promise of a successful exit in the form of a buyout from a larger company is the very thing that drives much of the investment and innovation in the startup sector. 

“Making it harder for startups to get acquired—or injecting uncertainty about acquisitions being unwound down the road—will hurt the ability of some new and small tech companies to raise funding and get off the ground,” notes Engine, an advocacy and policy group for the startup industry.

As the group further points out, there are plenty of ways for lawmakers concerned about the health of the startup ecosystem to address those issues directly: “If lawmakers want startups to be able to launch and compete against the biggest companies in the industry, they should create regulatory and legal certainty for small companies by passing a federal privacy framework, defending commonsense liability frameworks that protect startups from bad faith lawsuits, and ensuring entrepreneurs have the access to the capital and talent they need—especially during the current economic downturn.”

Our top-read stories

Among Crunchbase News readers’ favorite stories last week:

  • Sophia Kunthara wrote about Sutter Hill Ventures, the low-profile VC firm that has landed some wildly successful exits, and its “incubation playbook.” Its recent successes include Snowflake, the data warehousing software company that debuted as the largest-ever software IPO last month.
  • Christine Hall looked at the rise in funded startups in the elder care space. She found that VCs are increasingly backing companies that offer innovative ways for an aging population of baby boomers to comfortably “age in place” at home. 

Looking ahead

Illustration: Dom Guzman

Stay up to date with recent funding rounds, acquisitions, and more with the Crunchbase Daily.

Copy link