WASHINGTON, DC – At a Senate hearing today, National Venture Capital Association (NVCA) Board Member Patricia Nakache, General Partner at Trinity Ventures, testified on the competition in digital technology markets and how venture capitalists think about acquisitions of early-stage companies by larger competitors. Testifying before the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy, and Consumer Protection at a hearing entitled, “Competition in Digital Technology Markets: Examining Acquisitions of Nascent or Potential Competitors by Digital Platforms,” Nakache shared with lawmakers the considerations of venture capitalists as they invest and partner with entrepreneurs that are taking on large companies. She also outlined the diverse views the VC industry has regarding using antitrust law against large digital platforms and made recommendations as policymakers consider action in this area.
“Recent inquiries by the Federal Trade Commission and the Department of Justice have been noticed by venture capitalists like myself, though there are diverse views about how applying antitrust law to technology platforms might help, hurt, or hold harmless innovative startups,” remarked Nakache in her prepared testimony. “Certainly, there are some venture capitalists who have grown frustrated by practices of large technology companies that can have an outsized negative impact on startups. For example, through periodic changes to their algorithms, large technology companies that have significant consumer reach can dramatically affect overnight the traffic flowing to startup websites and mobile apps.”
“At the same time, other venture capitalists believe the startup ecosystem benefits in many ways from large technology incumbents. These VCs point out that startups often view larger companies as potential customers or distribution channels, and that talented employees at these incumbents sometimes go on to start their own companies in pursuit of their entrepreneurial dream. Finally, M&A activity has always been an important avenue for liquidity for risk-taking entrepreneurs and investors, and as discussed below, it has become even more so in recent years, with technology incumbents the most active acquirers of technology startups.”
“Venture capitalists are not necessarily in one or the other of the two camps I have described. In my experience, the vast majority of VCs see both sides of this argument: we are passionate about the startups we invest in and want them to get a fair shake in the marketplace as they take on incredible challenges; at the same time we recognize that large incumbents sit adjacent to startups in the tech ecosystem and that action against these companies could have adverse and unforeseen consequences for young companies.”
In her testimony, Nakache made key recommendations for policymakers:
- Policymakers should educate themselves on the broader aspects of new company creation.
- It is critical that policymakers understand that not all M&A is the same.
- Encourage policymakers to act deliberately, as changes could produce many unforeseen consequences.