At February Roundtable, Entrepreneurs Warn Antitrust Legislation “Potentially Catastrophic”

On January 20^th, the Senate Judiciary Committee voted on a bipartisan basis to approve the American Innovation and Choice Online Act, despite significant reservations expressed by many Senators regarding the details and implications of the bill.

The bill is one of a number introduced over the course of 2021 intended to address antitrust and competition concerns associated with large technology companies.  The bills would, among other things, potentially break up large technology companies, mandate a fundamental reworking of their highly successful business models, disassemble valuable digital tools, and impose severe restrictions on their ability to acquire smaller companies in the future.

To assess the likely implications for new and small businesses of the various antitrust bills, the Center for American Entrepreneurship conducted a roundtable of six entrepreneurs from five states on February 23, 2022.  The principal conclusion of the discussion confirms the concerns of Democratic and Republican Senators alike: If enacted, the antitrust legislation currently before Congress would have profound and far-reaching implications for the nation’s entrepreneurial ecosystem – at a time when the economic growth and job creation driven by thriving entrepreneurship is more important than ever.

Since their introduction nearly three decades ago, the digital platforms and marketplaces provided by companies like Amazon, Apple, Google, Meta – along with the various data analysis, marketing, advertising, and sales tools they provide – have helped spawn, nurture, and support thousands of new and small businesses.  The Covid-19 pandemic has only heightened the importance of digital platforms and tools.  Forced by Covid-related restrictions to limit foot traffic in stores or to close physical locations entirely, businesses have increasingly turned to online platforms like Amazon, Google, Facebook, Ebay, and Shopify to open digital storefronts, social media sites like Instagram, Twitter, and LinkedIn to communicate with and market to customers, video conferencing platforms like Zoom and Microsoft Teams to interact with suppliers and investors, and digital payment tools like PayPal, Venmo, and Square to facilitate sales.

According to a recent analysis by consulting firm McKinsey & Co, the Covid pandemic has accelerated the transition to technology-powered commerce by at least a decade.  As a result, America’s post-Covid economic recovery depends in large part on new and small businesses operating, selling, growing, and thriving online.

The businesses launched by the entrepreneurs who participated in our recent roundtable represent a wide variety of industry sectors and, while all still young, are at various stages of their growth and development.  Participants were provided with background material on the various antitrust bills introduced into Congress from a number of public sources prior to the discussion.

The major insights and observations generated by the roundtable discussion included:

• The problem the antitrust bills intend to address has not been clearly defined, and the bills do not reflect an accurate understanding of the operational realities and needs of technology-era new and small businesses.

“My concern is the downstream impacts of the legislation that aren’t well understood by the people pushing the legislation,” said Donald Boone, founder and CEO of BoxedUp, a Seattle, WA-based startup that provides equipment to content creators.  “The lack of knowledge, research, and information that’s going into legislation that will impact companies like ours is my biggest concern.”

Boone also added: “Broadly speaking, almost always, any impact [of legislation] has an outsized effect on people of color.”

• The major digital platforms and technological tools provided by large technology companies are enormously important – even critical – to the operation and success of modern new and small businesses.

Rudy Ellis, CEO of Philadelphia-based Switchboard Live, a video platform for content creators and publishers, explained: “Our platform is built on Google’s cloud platform and we rely on publishing video to Facebook, YouTube, Twitter, and Twitch.  So, we’re heavily dependent on cloud products that allow us to scale and manage costs.”

Several participants shared that they could not have even launched their business without the analytic, marketing, and sales tools provided by large technology companies.  “Our platform is built on AWS, which has helped us grow and scale to over a million registered students,” said Edna Martinson, co-founder of Boddle Learning, a Tulsa, OK-based education platform providing game-based adaptive practices and assessment tools for parents and teachers of kids in kindergarten through sixth grade.  “AWS is such an important part of our growth and our ability to do it at such low cost – there’s no way that we would be able to do it otherwise.  We use a lot of Google Services as well.”

• The integration of digital tools is immensely valuable to modern startups.

Rudy Ellis of Switchboard Live explained: “Having packages, or suites of products, that allow for you to pull data, pull analytics, and use that data for other activities and initiatives, that’s crucial.”

Donald Boone of BoxedUp agreed: “For example, YouTube is valuable when combined with search results for finding new customers pulled from other aspects of Google.  In aggregate the tools are valuable – if you take them apart, I don’t know that they would be…Ninety-five percent of our customers we’ve never seen – they’re 100 percent digital.  The business is in Seattle, I’m in South Carolina, our investors are in LA, Sacramento, two in Atlanta – this just does not happen without the digital tools.”

Edna Martinson of Boddle also agreed: “To Donald’s point, when it’s integrated things just work better.  For example, if you think about YouTube videos and Google search results, a lot of our growth came from the educational videos that we provide.  During the pandemic, parents and teachers were looking for resources for their kids and they’re Googling and finding our videos.  They’re getting value and we’re able to support them better.  Breaking those tools up would have a big impact on both consumers and entrepreneurs like us.”

• Participants also agreed that legislation to restrict acquisitions would threaten the startup ecosystem by obstructing the most common positive outcome or “exit” for entrepreneurs and their investors, thereby short-circuiting the process by which value-creating innovation helps fund the next generation of new businesses.

“The legislation and its impact on acquisition, for the entrepreneurs I spend time with, there’s real concern there,” said Adam Klein, Director of American Underground, a startup accelerator in Durham, NC.  “It’s potentially catastrophic.”

Luis Suarez, founder and CEO of Chicago-based Sanarai, an online mental health platform for Spanish speakers, agreed.  “What’s most scary to us is the part about M&A deals – limiting the outcomes.  We’re a venture-backed company and investors are looking for potential exit opportunities.  Our job is to get to those positive outcomes and acquisition is an important one.  When investors are evaluating whether to invest in you, they’re thinking is the only outcome an IPO?  And if so, would I even consider investing in this company?  Honestly, this would impact whether many VC-backed companies even survive.”

Despite the enormous value of the digital platforms and the various tools they offer, our roundtable participants made clear that problems related to terms of access and certain policies and procedures do occur and can cause significant challenges for new and small businesses.  But such issues are best addressed by the FTC and the Justice Department’s Antitrust Division, which have the authority to act and have been very effective when they do.  Indeed, between 2010 and 2020 regulators prevailed in 79 percent of challenges to mergers in federal court, according to the Review of Industrial Organization.

Thriving entrepreneurship is the essential pathway to faster economic growth, job creation, and opportunity expansion the American people need and deserve – particularly in the wake of the Covid-19 pandemic.  Legislation that would break-up the major digital platforms, mandate a wholesale restructuring of their business, require the divestiture of critical products and services, and severely restrict a major avenue of exit for entrepreneurs and their investors risks major damage to America’s entrepreneurial ecosystem and the post-Covid recovery.