The Effect of Venture Funding on Killer Acquisitions

The subject of killer acquisitions is capturing the ever-increasing attention of antitrust scholars and agencies. Several reasons explain this trend. One, tech giants are generating gigantic profits that allow them to buy startups without feeling the burn. Two, leaked emails show that big tech CEOs and top executives actively seek to acquire startups early, in order to avoid competing with them. And three, the acquisition of startups often falls below merger control thresholds—as startups may have little to no turnover—which makes the process easy.

But how frequent are killer acquisitions in practice? In Exit Strategy, Mark Lemley and Andrew McCreary highlight that “while 1 in 2 exits was by IPO as recently as the 1990s, only about 1 in 10 is today”. This change gives potential room to more killer acquisitions than before. Lemley and McCreary explain that the change is due to venture funding, as there is a correlation between the number of exits by acquisitions and VC. They note that VCs favor acquisitions to benefit from big tech companies’ network effect. VCs also prefer acquisition over IPOs because acquisitions’ median value is higher. I strongly recommend you read their article or their contribution to the Network Law Review.

What does that tell us about killer acquisitions? My point is that: more acquisitions do not necessarily correlate with more killer acquisitions when there is a strong VCs market.

The term “killer acquisitions” is a misnomer because startups have to agree to be bought. Although they can be under the impression their product won’t be discontinued after the acquisition, the fact remains that they cannot be forced to sell, even by venture capitalists who typically hold minority shareholdings. There are plenty of examples where startup CEOs have refused “impossible-to-refuse” offers, e.g., Mark Zuckerberg famously refused Yahoo’s 1 billion dollar offer. Now, it seems reasonable to think that startup owners are less likely to sell when there are many VCs ready to invest hundreds of millions of dollars and compete on the terms, as opposed to when startups have to make quick profits to survive and/or to rely on just a handful of VCs who can then impose their conditions. In other words, competition between venture capitalists matters. A strong venture capital market reduces the opportunities to killer acquire because it makes VCs compete to offer better conditions instead of imposing their strategy to cash out quickly.

The intuition seems to hold when looking at the numbers. We have never seen so much venture capital investment (i.e., average monthly investments by venture capital firms are 10 times higher in 2021 than in 2011), and we see a correlation between total venture capital investment and late-stage investment. VCs are part of a complex adaptive system: the more VCs, the more startups can bargain, the more VCs (are forced to) invest in long-term strategies; which logically reduce killer acquisitions (made at earlier stages). The fact that we are in the middle of VCs’ golden age suggests that the era of great acquisitions is—at least in part—behind us despite the high percentage that exits by acquisition represents (i.e., around 90%).

Source: Crunchbase. Includes seed, venture, and private equity for venture-backed companies.
Period 2010 – 2021 (to be updated at the end of 2022 when the data becomes available).
© Thibault Schrepel, 2022



Let us consider not one but the example: Facebook’s acquisition of Instagram. The Acquired Podcast lists this acquisition as the best of all time—it generated an absolute dollar return of $152 billion as of March 2020. What was the prime reason Instagram accepted Facebook’s offer? Money. As the Instagram CEO once said, “[w]hen someone comes and offers you a billion dollars for 11 people, what do you say?” But should several VCs offer 1 billion in exchange for a minority shareholding and be willing/forced by competition to keep investing in later stages, it seems reasonable to think Instagram would have turned the offer down. At the very least, some (most?!) companies will.

If that holds true, killer acquisitions may still be possible, but great ones (i.e., acquiring a startup with the potential to completely disrupt the incumbent) may be mostly behind us. Now, to test this intuition, complementary research is needed. I suggest we document whether the exit strategy by acquisition of startups whose VCs have invested hundreds of millions—also in later stages—is as high as the average exit strategy by acquisition. In the meantime, I note that small agencies with scarce resources have asked me what they could do about killer acquisitions while other subjects—for which we have more evidence—are pressing them…

Thibault Schrepel

I’d like to thank Mark Lemley for his comments on a draft version

January 2010 6,899
February 3,202
March 4,008
April 4,629
May 4,122
June 4,980
July 4,060
August 3,182
September 4,075
October 4,876
November 4,079
December 5,713
January 2011 8,265
February 5,097
March 6,882
April 6,844
May 5,138
June 6,210
July 6,015
August 5,545
September 7,788
October 5,009
November 5,433
December 5,503
January 2012 6,181
February 4,433
March 5,068
April 6,042
May 5,822
June 7,202
July 5,869
August 6,376
September 7,465
October 4,383
November 4,984
December 5,867
January 2013 10,353
February 5,190
March 5,440
April 6,764
May 6,617
June 6,615
July 7,152
August 6,976
September 8,113
October 7,552
November 6,979
December 13,392
January 2014 14,640
February 7,404
March 10,817
April 13,383
May 10,857
June 12,729
July 9,875
August 9,917
September 13,637
October 11,888
November 9,300
December 17,788
January 2015 20,789
February 11,306
March 15,244
April 14,061
May 14,408
June 23,269
July 20,453
August 15,090
September 17,856
October 14,382
November 13,799
December 15,723
January 2016 24,565
February 12,740
March 14,668
April 19,619
May 19,278
June 16,585
July 12,002
August 14,821
September 17,870
October 11,370
November 16,000
December 15,465
January 2017 17,326
February 13,116
March 40,277
April 22,280
May 21,528
June 17,856
July 19,888
August 24,930
September 21,261
October 25,341
November 26,362
December 30,805
January 2018 28,848
February 25,671
March 24,802
April 32,281
May 27,151
June 40,547
July 32,841
August 27,787
September 27,739
October 31,040
November 25,877
December 43,556
January 2019 29,345
February 23,629
March 24,946
April 26,394
May 35,197
June 28,374
July 31,303
August 19,794
September 26,560
October 23,491
November 27,378
December 32,297
January 2020 26,232
February 19,041
March 28,154
April 27,319
May 30,361
June 28,302
July 33,058
August 25,114
September 36,172
October 31,930
November 29,230
December 45,869
January 2021 58,432
February 47,574
March 63,223
April 55,402
May 51,130
June 69,527
July 67,342
August 56,146
September 56,562
October 60,945
November 74,884
December 60,266


Citation: Thibault Schrepel, The Effect of Venture Funding on Killer Acquisitions,
Network Law Review, Fall 2022.

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