America long has been the Land of Entrepreneurial Opportunity. In fact, U.S. entrepreneurship serves as a major competitive advantage in the global marketplace.
One essential ingredient to America’s startup ecosystem is connecting the dreams and creativity of entrepreneurs to the capital and resources required to scale and enhance innovation. Who benefits from this synergistic system? Ultimately, consumers at home and around the world.
Policymakers and regulators should be doing all they can to preserve and protect the U.S. system that incentivizes and empowers entrepreneurship, including our merger and acquisition (M&A) system.
Indeed, this unique and proven framework is the envy of the world. It has produced impactful and transformative technologies, live-saving drugs, and goods and services few previously could have imagined. America’s cycle of breathtaking advancements in technology also serves to further advance entrepreneurship and small business growth, such as when platforms like Meta’s Facebook and Instagram, and Amazon.com provide access to integrated services, technology tools, and customers. For new business owners, such access is the leading driver in their decision to launch an enterprise – 89% cited access to tech platforms and services as the most important factor in helping them launch their business, according to our most recent survey of startups.
Unfortunately, some elected officials and their appointees seem bent on toppling this crown jewel of America’s enterprise system. The business and startup community are perplexed, for example, by the Federal Trade Commission’s (FTC’s) dogged activity in this regard. Chair Lina Khan’s pursuit of arbitrary and costly lawsuits against big tech players would actually cause significant disruption for small businesses. And, upending the currently clear set of merger guidelines with an illogical new set of complex and costly ones – released on December 13 - will vastly raise costs and uncertainties for startup entrepreneurs and investors. These actions undermine a productive M&A framework that put U.S. entrepreneurship and innovation at risk.
The link between innovative entrepreneurship and M&A is strong. A National Small Business Association survey found that “Nearly half of small-business owners, 43%, say a merger or acquisition is important to their business exit strategy.” Our organization’s survey of new entrepreneurs found that 13% looked to M&A as an exit strategy from their launch. As a business grows and gains traction, the goal of exiting via M&A steadily increases. Indeed, creating and building the next “big thing” remains the dream of countless entrepreneurs. And for many, connecting them to the resources, capital and expertise to fully leverage their creation or technology to the benefit of many is critical to that end.
Which brings us back to the FTC and their dubious activity, including efforts to undo two previously approved startup acquisitions.
In 2012, a bipartisan FTC approved Meta’s (then Facebook’s) acquisition of Instagram by a unanimous 5-0 vote. The current FTC is now leading a revisionist do-over of the acquisition. In its lawsuit filed two years ago (December 2020), which has been joined by various state attorneys general, the FTC is seeking to force Meta to sell Instagram. The same for WhatsApp, which the company acquired in 2014.
The 2023 version of Instagram is far different from the app acquired by Meta eleven years ago. Back then, the promising mobile-sharing app had 13 employees, no revenue, and about 2% of the users it has today Many features that are now central to the Instagram community – Direct, Live, Shopping and Stories- were built on Meta’s core technology and infrastructure following the acquisition.
These features have become essential for many creators and small businesses. In fact, according to our regular surveys, including the most recent Small Business Checkup Survey Q3, Instagram was second to Facebook in being identified as the most important social media platform for small-business branding and income generation.
The vast investments made by Meta into Instagram and its digital synergy with Facebook have enabled more consumer choices, not fewer. It is hard to imagine a more successful pro-consumer merger, which – again – has boosted the visibility and revenue of millions of small businesses.
This retroactive undoing of an acquisition, if successful, would not only be harmful for the startup ecosystem that relies on certainty for investors and innovators, it would be harmful for millions of small businesses that have come to rely on digital connectivity through these platforms to engage with and service customers.
Yes, M&A opportunities are vital for investment in startups. Actions by government that increase costs and uncertainties to M&A send investors and entrepreneurs the wrong message: Don’t innovate, don’t take risks, don’t invest. Retroactive do-overs and creating new barriers for startups to scale and connect with resources would destroy America’s competitive advantage. Preserving the U.S. startup ecosystem and long-functioning M&A framework must stand as a priority for all policymakers and elected officials. They must hold accountable those whose misguided actions are working to destroy it.
