WASHINGTON, DC – The National Venture Capital Association (NVCA) opposes the Platform Competition and Opportunity Act of 2021 (H.R. 3826), which would bar acquisitions of many venture-backed companies and therefore foreclose a key liquidity pathway for entrepreneurs.
“Acquisitions contribute to the health of the startup ecosystem by allowing entrepreneurs to realize liquidity,” said NVCA President and CEO Bobby Franklin. “These entrepreneurs often go on to create new companies or invest in others, a dynamic that has supported the vibrant entrepreneurial ecosystem that sets our country apart. If acquisitions are made more difficult it will chill the creation of new high growth companies that produce new American jobs. We urge lawmakers to reject the Platform Competition and Opportunity Act.”
The Platform Competition and Opportunity Act would effectively bar acquisitions by companies with a market capitalization of $600 billion or more that have at least 50 million U.S.-based monthly active users or least 100,000 U.S.-based monthly active business users. For venture-backed companies there are effectively three outcomes: standalone company (often via initial public offering, or IPO); merger or acquisition; or bankruptcy. Company failure is the most common outcome, but the success stories are often hypergrowth companies with an outsized impact.
Many entrepreneurs and their investors begin the company building process with the hope of creating a standalone, public company. However, in most cases an IPO is not possible, and the only available exit opportunity becomes an acquisition by another company, with 58% of startups expecting to be acquired.1 Over the last decade, the average annual ratio of VC-backed acquisitions to IPOs is approximately 13:1.2 There are less acquisitions today relative to IPOs, with 886 venture-backed companies having been acquired in 2020, whereas 103 went public.3 Had H.R. 3826 been in place, it likely would have barred the acquisition or at least 100 venture-backed companies in just the last five years.4
1 “2020 Global Startup Outlook,” Silicon Valley Bank (2020) at 7, available at https://www.svb.com/globalassets/library/uploadedfiles/content/trends_and_insights/reports/startup_outlook_report/suo_global_report_2020-final.pdf.
2 “NVCA Yearbook,” National Venture Capital Association (2020) at 37-29, https://nvca.org/wp-content/uploads/2021/03/NVCA-2021-Yearbook.pdf.
4 Source: Pitchbook data