The U.S. startup ecosystem is defined by dynamism. Startups are constantly being founded, earning investment, growing, exiting, and—yes—failing in cities and towns all across the country. Startup exits and investment are two intimately related and important drivers of this dynamism critical to economic growth and innovation in the startup ecosystem. Startup exits—both those that are profitable and those that are not—promote the building of knowledge, recycling of talent, and flow of capital through the ecosystem. Each of those components are key to building new startups and stimulating the investment needed to grow them to scale.
Last April, we released a report on the State of the Startup Ecosystem intended to give policymakers an overview of the health of American startups and facilitate detailed benefit-cost analyses for individual policy proposals across a range of issues. Through that report, Engine, together with Startup Genome and the Charles Koch Institute, demonstrated the health and tremendous growth of the ecosystem, the relationship between exits and investment, the especially strong and positive relationship between acquisitions and startup investment, and the particular importance of exits via acquisition in more rural ecosystems.
Over the past year, policy conversations focused on the technology sector have turned into legislative proposals, and new leadership at the antitrust enforcement agencies have begun the process of rewriting the merger guidelines. Effective antitrust enforcement against truly anticompetitive mergers and acquisitions is necessary for a thriving startup ecosystem, but imbalanced competition policy that leads to too many “false positives” is likely to harm the startup ecosystem. Recent policy developments like these could lead to overzealous enforcement and threaten to restrict the ability of startups to exit, particularly if they want to be acquired by a larger firm.
Through this report, Engine and Startup Genome build upon the previous report by further demonstrating the relationship between startup exits, investment, and talent; the particular importance of startup acquisitions in the startup ecosystem; and how these relationships in the U.S. compare to non-U.S. ecosystems. This report also seeks to emphasize the startup experience with acquisitions with data and through a series of startup founders’ firsthand experiences. Taken together, these reports should give policymakers the solid foundation they need to advance policies that will lift up startups and avoid potential pitfalls and unintended consequences.
You can find the full report here.
