The State of Startups: Tech Experts, DOJ Officials Weigh In
By Brent Kendall
PALO ALTO, Calif. -- Top Justice Department antitrust officials
went to the heart of Silicon Valley to ask whether industry
dominance by a few large tech companies is hurting venture-capital
investment in startup firms that could be tomorrow's
"Antitrust enforcers and venture capitalists both depend on
making sure that these types of bets -- in good ideas and in great
entrepreneurs -- are encouraged and rewarded," the Justice
Department's antitrust chief, Makan Delrahim, said at an event the
department hosted Wednesday with Stanford University.
Mr. Delrahim said the department was interested in issues
including whether top digital platforms are so dominant that
investors aren't willing to fund the development of new products
that rely on those platforms. The department also wanted the VC
community's views on the likelihood that future disruptive
companies will be able to challenge today's current technology
giants, he said.
The conference came as the department is examining whether tech
companies such as Alphabet Inc.'s Google, Facebook Inc., Amazon.com
Inc. and Apple Inc. are using dominant market positions to suppress
competition. The event was attended by several Justice Department
lawyers running and overseeing the investigation.
In a discussion of whether big tech companies have created "kill
zones" in their relevant markets, making investments in new
startups in those markets no longer worthwhile, Switch Ventures
founder Paul Arnold said it is often easier and more attractive to
invest in fragmented industries than highly concentrated ones. For
businesses looking to develop a product in a market dominated by a
tech giant, "It's a really hard barrier to overcome," he said.
Dominant tech companies "are major dampeners to innovation in
certain areas," Mr. Arnold said.
Ram Shriram, an Alphabet board member who was one of Google's
early investors and is the managing partner of Sherpalo Ventures,
"I think the funding will be there if the idea is interesting
enough," Mr. Shriram said. Google, he said, underscored the point.
When the company was getting off the ground, some investors voiced
doubts, saying the search market was already taken by Yahoo, he
said. But, "there was an opening for a new entrant to come in and
do something different."
The Stanford event also came on the heels of an announcement
Tuesday by the Federal Trade Commission, which shares antitrust
authority with the Justice Department, that it would study 10
years' worth of past acquisitions by Google, Facebook, Apple,
Amazon and Microsoft Corp., to determine whether they bought up
fledgling firms to remove them as potential future competitors.
Some panelists Wednesday said more scrutiny of acquisitions by
powerful incumbent companies made sense.
Venture capitalists want to get paid, and in a world where there
are now fewer IPOs, that often means startups are going to be
bought by the dominant company in the market, said Stanford law
professor Mark Lemley. "The result is we're reinforcing
concentration in the tech industry," he said.
Tech strategist Ben Thompson, who writes the Stratechery
newsletter, warned against antitrust enforcers taking too dim a
view of established tech companies buying startups just because of
a high-profile example of a dominant firm buying the next big
"The reality is Instagram looms over the discussion," Mr.
Thompson said, referring to Facebook's purchase of the popular
photo-sharing service in 2012, a deal that was allowed at the time
by the FTC. It would be great if Instagram were still independent,
but most tech acquisitions of startups don't fit that pattern, and
the government needs to be careful not to "obliterate the
opportunities for the other 99%," he said.
Write to Brent Kendall at email@example.com
(END) Dow Jones Newswires
February 13, 2020 08:40 ET (13:40 GMT)
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