TPRC2021: 49th Research Conference on Communications, Information, and Policy

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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 thus do not have lasting impacts on innovation incentives beyond the acquired companies. These insights are relevant for the current policy discussions on limiting the ability of big tech companies to acquire start-ups.