Whacking startup valuations is bipartisan!
This was going to go on TechCrunch, but then it got killed, so I'm putting it here!
This was not edited by anyone but myself, and in a hurried fashion, so there will be a typo or two below.
Today Senator Hawley, infamous for his role in the recent insurrection in the American capital, is making news today by proposing a way to limit technology company acquisitions.
The proposed amendment, shared on Twitter by TechCrunch alum and present-day Washington Post technology policy reporter extraordinaire Cat Zakrzewski, is blunt. Its text indicates that Senator Hawley wants to "restore competition in digital markets by imposing a presumptive prohibition on all mergers and acquisitions by companies that operate dominant online platforms."
Aside from a repetition of the point, and regular legal faff associated with normal Congressional lawmaking, that's all it says. You can read the full text here.
It appears that Senator Hawley wants to block all M&A activity by major tech shops -- though, of course, how you define "dominant online platform" is frighteningly flexible -- of other companies.
This is not the Senator’s first foray into tech policy. He is also skeptical of key planks of Internet policy like Section 230 of the Communications Decency Act, which prevents platforms from being liable for content that users post, and provides them with the ability to police what is posted on their services.
The impact of his latest proposal, if enacted, would be the limitation of the purchase of startups by the largest tech companies, a key exit route for many upstart firms. The impact of that would be a decline in M&A activity the startup landscape, harming the exit potential of a great number of startups, especially those in verticals with strong incumbent competition.
In turn, the scenario would lower the potential value of many startups, harming their ability to attract capital, scale, and grow their private-market valuations.
Aside from being possibly good for the SPAC market, it's hard to tell who this idea is for, except perhaps for the Senator himself. Senator Hawley is mad about purported censorship of his ideas by tech companies amongst others, something that you can read him discussing in newspapers like the NY Post, and hear him discuss on the Fox network where he's a regular guest, and, of course, on his Twitter account. Or on the Senate floor. Or via any number of other outlets. He’s mad.
The Senator also proposed a bill in 2019 that would block "a large social media company from moderating information on its platform from a politically biased standpoint," which was a terrible idea, as "no Nazis" is a politically biased viewpoint, and a good one at that.
Regardless, Senator Hawley is not alone in coming up with big-tech targeting laws that could wind up harming the startups fighting to take on the larger companies.
Just last year TechCrunch covered a proposal from Senator Elizabeth Warren and Congresswoman Alexandria Ocasio-Cortez called the "Pandemic Anti-Monopoly Act." As we wrote at the time, it "would enact a moratorium on mergers and acquisitions from companies with more than $100 million in revenue, financial institutions with a market capitalization of more than $100 million, private equity companies, hedge funds and companies that private equity companies or hedge funds have a majority-ownership stake in."
The bill would have had an impact on startup valuations for similar reasons as the new Hawley concept. Though, in this case, I would argue that the $100 million in revenue threshold would prove even more punitive than Senator Hawley's own bar for being barred from making M&A transactions.
I don't particularly care what happens to startup valuations, not really. I do own some stock in my former employer Crunchbase, which is a private company that could exit to a bigger company. Whatever.
But what does matter in Senator Hawley's latest push to get attention is that it underscores how bipartisan not liking big tech companies is amongst American political leaders today. Dislike that, by hoping to limit them getting larger through inorganic growth, could wind up cutting the worth of the smaller tech companies that want to take their spot one day.
Of course, any startup that is bought by a big tech company fails to take it on by definition. But I do wonder if the impact of a Hawley-like law would, instead of really harming the biggest tech companies, instead merely make it harder to fund the smaller firms that might challenge them in time.
Who knows! But it is impressive that America's leading industry has managed to earn such opponents on both sides of the American democracy-fascism political divide.