The Importance of Exit via Acquisition to Venture Capital, Entrepreneurship, and Innovation
SSRN, December 14, 2021
In their white paper titled “The Importance of Exit via Acquisition to Venture Capital, Entrepreneurship, and Innovation,” Vice Presidents Devin Reilly and David Toniatti, and Professor D. Daniel Sokol (USC Gould School of Law and Marshall School of Business) describe how the venture capital (VC) ecosystem’s cycle of funding, development, exit, and reinvestment has stimulated entrepreneurship and innovation across many industries.
Focusing in particular on the UK Competition and Markets Authority’s (CMA’s) stated goal of “driv[ing] dynamic innovation” in digital markets, the authors describe the VC cycle’s important role in stimulating innovation and growth. They discuss the many consumer benefits derived from acquisitions of small companies by larger companies, and document the regulatory, academic, entrepreneurial, and business environments that have led to the UK, and London in particular, becoming established as one of the leading locations for start-ups and VC investment.
The authors note that, in recent years, antitrust regulators in many countries have been critically reexamining the acquisition of start-ups and smaller businesses by much larger companies, particularly in digital markets. However, given the importance of exit via acquisition for providing incentives for VC, the authors conclude that failing to consider how policy changes may disrupt the VC ecosystem could result in unintended harm to investment, innovation, and ultimately, consumers.
The white paper, originally published on SSRN, is also the basis for “Why Exit via Acquisition Is Essential to Entrepreneurial Investment,” published on Columbia Law School’s Blue Sky Blog; “No Exit: A Threat to Venture Capital, Entrepreneurship, and Innovation,” published by Competition Policy International; and “Risk and Repeat: How the Venture Capital Ecosystem Drives Entrepreneurship and Innovation,” published on the Oxford Business Law Blog.
Read the CLS Blue Sky Blog post
Read the Oxford Business Law Blog post
Authors
Reilly D, Sokol D, Toniatti D