Center for American Entrepreneurship Warns that the Platform Competition and Opportunity Act Would Endanger America’s Startup Ecosystem

WASHINGTON, D.C. – John R. Dearie, President of the Center for American Entrepreneurship, today issued the following statement regarding the Platform Competition and Opportunity Act:

“On November 5, 2021, the Platform Competition and Opportunity Act (PCOA) was introduced in the U.S. Senate by Senators Amy Klobuchar (D-MN) and Tom Cotton (R-AR) “to protect competition and consumer choice online.”  The bill would prohibit certain acquisitions by ‘dominant online platforms.’

Competition and consumer choice are indeed critical to American innovation and a thriving U.S. economy – which is why the bill is of great concern to CAE.  As written, the bill would threaten competition, consumer choice, and innovation by endangering the nation’s startup ecosystem.  Moreover, an extremely high success rate – nearly 80 percent over the past ten years – makes clear that federal regulators already have the authority they need to block anti-competitive mergers.

Repeated research in recent years has demonstrated that new businesses – “startups” – account disproportionately for the innovations that drive productivity growth, economic growth, and net new job creation.  Startups are also extremely fragile – a third fail by their second year, half by their fifth.  But those that survive tend to innovate, grow, and create jobs at very rapid rates.

For fragile startups, there are three principal outcomes: fail, go public, or be acquired.  Given the risks inherent in launching a new business, failure is the most common outcome.  Many entrepreneurs dream of taking their company public, but accomplishing that goal requires scale that most startups never achieve.

Acquisition, therefore, is the most likely avenue for entrepreneurs and their employees to realize the value of what they have created over years of hard work and risk.  In 2019, ten times as many startups were acquired as went public, according to the National Venture Capital Association.  According to a recent report by Silicon Valley Bank, nearly 60 percent of startups expect to be acquired.

Acquisition is also the most common avenue of ‘exit’ for startup investors and, therefore, is an essential aspect of the entrepreneurial ecosystem.  Acquisitions enable startup investors to reclaim their invested capital, realize any gains on those investments, and recycle their capital into the next generation of startups – driving the innovation flywheel whereby one generation of startups helps fund the next, fueling the ongoing process of innovation-led economic growth and job creation.

As currently written, the bill poses another serious risk to America’s startup ecosystem – that it will achieve the opposite of what it intends by tilting regulatory circumstances in favor of larger companies.  As CAE board member and three-time entrepreneur Bettina Hein wrote recently in the Wall Street Journal:

“By dramatically raising the regulatory hurdles and compliance costs of acquisitions, the Act would benefit large incumbent companies that have money and teams of lawyers to navigate the new legal landscape.  Smaller companies would be shut out.  And the narrowing of the acquisition market to only the largest companies would drive down prices for smaller companies like mine.  In this way – ironically – the bill would likely deepen and widen the competitive moat protecting large incumbent companies from smaller, more innovative challengers.”

Thriving entrepreneurship is the essential pathway to the faster economic growth, job creation and opportunity expansion that the American people need and deserve.  Legislation that would virtually shut down a major avenue of exit for entrepreneurs and their investors, and potentially strengthen the competitive position of large companies, risks major damage to America’s entrepreneurial ecosystem at a time when policymakers should be taking every step to strengthen the post-COVID recovery.”

About the Center for American Entrepreneurship

The Center for American Entrepreneurship (CAE) is a nonpartisan research, policy, and advocacy organization whose mission is to engage and educate policymakers in Washington, and at state and local levels across the nation, regarding the critical importance of entrepreneurs and startups to innovation, economic growth, job creation, and expanding opportunity – and to pursue a comprehensive policy agenda intended to significantly enhance policy circumstances for new business formation, survival, and growth.

For more information, visit www.startupsUSA.org

Follow CAE on Twitter: @startupsUSAorg

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