Effects of Big Tech Acquisitions on Start-up Funding and Innovation

48 Pages Posted: 22 Mar 2021 Last revised: 25 Aug 2021

See all articles by Tiago S. Prado

Tiago S. Prado

Quello Center at Michigan State University

Johannes M. Bauer

Michigan State University-Department of Media and Information

Date Written: August 17, 2021

Abstract

This paper investigates the effects of acquisitions by “big techs” on venture capital (VC) funding for start-up companies. Because of the strong association between VC investment and innovation, this approach also sheds light on the repercussions of big tech start-up acquisitions on innovation. We analyze observations on more than 32,000 venture capital deals in 173 different segments of the technology industry and nearly 400 tech start-up acquisitions made worldwide between 2010 and 2020 by Google, Facebook, Amazon, Apple, and Microsoft. Results obtained with fixed effects panel and differences-in-differences estimators reveal a positive, causal impact of big tech start-up acquisitions on venture capital activity. However, the findings suggest that the effects are transient and fade away after several quarters. These insights are relevant for the current policy discussions on limiting the ability of big tech companies to acquire start-ups.

Keywords: kill zone, digital platform, big tech, venture capital, start-up, innovation

JEL Classification: G11, G24, G32, G34, L41, L44

Suggested Citation

Prado, Tiago S. and Bauer, Johannes M., Effects of Big Tech Acquisitions on Start-up Funding and Innovation (August 17, 2021). Quello Center Working Paper No. 04-21, Available at SSRN: https://ssrn.com/abstract=3787127 or http://dx.doi.org/10.2139/ssrn.3787127

Tiago S. Prado (Contact Author)

Quello Center at Michigan State University ( email )

406 Communication Arts Building
404 Wilson Road
East Lansing, MI 48824-1212
United States

HOME PAGE: http://https://quello.msu.edu/tiago-s-prado/

Johannes M. Bauer

Michigan State University-Department of Media and Information ( email )

409 Communication Arts Building
East Lansing, MI 48824-1212
United States
517-355-8372 (Phone)
517-355-1292 (Fax)

HOME PAGE: http://www.msu.edu/~bauerj

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