The Center for American Entrepreneurship Urges the Federal Trade Commission to Consider the Impact of its Decisions on the Nation’s Startup Ecosystem
August 2, 2022
Washington, DC — On July 27th, the Federal Trade Commission (FTC), by a vote of 3-2, authorized staff to seek a temporary restraining order and preliminary injunction to block Meta from acquiring Los Angeles-based virtual reality startup Within Unlimited and its fitness app Supernatural. In a press release, the FTC acknowledged that Meta already competes in the virtual reality fitness space with its Beat Saber app, but argued that the company has the resources and capacity to build its own virtual reality fitness app to compete directly with Supernatural, yet chose instead to acquire Within.
John R. Dearie, president of the Center for American Entrepreneurship, today issued the following statement:
“While the Center for American Entrepreneurship takes no position on the details or merits of the FTC’s action against Meta, the case nevertheless raises significant concerns regarding the implications for metaverse startups like Within Unlimited, and the nation’s entrepreneurial ecosystem generally. More specifically, acquisitions are an altogether legitimate — indeed, essential — aspect of a thriving entrepreneurial ecosystem, for several important reasons.
“First, entrepreneurship is risky. For fragile startups, there are three principal outcomes: fail, go public, or be acquired. Failure is the most common outcome — a third of new businesses fail by their second year, half by their fifth. Many entrepreneurs dream of taking their company public, but few startups achieve the success and scale that a public offering requires. Acquisition, therefore, is by far the most likely avenue for entrepreneurs and their employees to successfully realize the value of what they have created through years of hard work and sacrifice. In a typical year, ten times as many startups are acquired as go public. Indeed, according to a recent report by Silicon Valley Bank, nearly 60 percent of startups expect to be acquired.
Second, acquisitions enable startup investors to reclaim their invested capital, realize any gains, and recycle their capital into the next generation of startups. In this way, acquisitions drive the ongoing flywheel of innovation-led economic growth, job creation, and opportunity expansion whereby each generation of innovative new companies helps fund the next.
Third, acquisition and incorporation into a larger and more diverse company with greater resources and capacity is often necessary for an innovative product or service developed by a startup to achieve the scale necessary to reach a broader market and thereby improve consumer choice, promote society-benefiting innovation, and incentivize a competitive response from market rivals.
At the end of the day, it must not be the case that companies who seek to be metaverse leaders are, based solely or principally on that corporate strategy, effectively disqualified from acquiring metaverse startups. If such a policy posture were ever articulated by the FTC, or even credibly signaled, the impact on the metaverse-related startup ecosystem would be severe, as the incentives for metaverse entrepreneurs to take the risk of launching new companies — and for investors to provide the capital that new ventures require — would be significantly undermined.
With these important realities in mind — and understanding the importance of thriving entrepreneurship to economic growth, job creation, and strengthening the post-Covid economic recovery — the Center for American Entrepreneurship urges the FTC to proceed thoughtfully and cautiously, with the importance of acquisitions to the startup ecosystem and the risk of unintended consequences firmly in mind.”
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 across the nation regarding the critical importance of entrepreneurs and startups to innovation, economic growth, and job creation – 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
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