Half of VCs will slash investment if Government clamps down on takeovers

Nearly a quarter of VCs say they would stop investing in British tech start-ups completely if competition watchdog restricts start-up acquisitions

Half of venture capitalists would “significantly reduce” the amount they invest in UK tech start-ups if the Government interferes more in takeovers.

And 23 per cent say they would stop investing in British tech entirely if the competition watchdog imposes tough new rules on takeovers of digital start-ups.

The Competition & Markets Authority has launched the Digital Markets Unit (DMU) to crack down on anti-competitive practices by tech companies.

>See also: Cheap deals drive bidding for UK firms to 14-year high

In 2019, a Government review by Jason Furman, a former adviser to President Obama, proposed the creation of the DMU after discovering that the five biggest US tech companies had made 400 UK acquisitions over a decade as part of their drive to suppress competition. The DMU has been established in an attempt to regulate US giants such as Facebook and Google.

But tech lobby group the Coalition for a Digital Economy (Coadec) is concerned that the DMU could also clampdown on bigger start-ups buying smaller rivals as part of their growth strategy.

Takeovers are the most desirable exit for investors, which support start-ups in their early years when they rarely turn a profit.

>See also: Companies raise 121% more in H1 2021 than the same period last year

Although founders dream of going public, the reality is that most start-ups are bought by rivals. In the US in 2018, for example, 85 venture-backed companies went public, whereas 799, or nearly 10 times as many, were acquired.

Coadec estimates that if unchanged, the Government’s proposals could create a £2.2bn drop in venture capital going into the UK, which, in turn, could shrink the UK economy by £770m.

The tech lobby group surveyed about 50 venture capital firms for its survey as part of the consultation into the setting up of the DMU.

Seedrs chairman Jeff Lynn, who also chairs Coadec, told the Sunday Times: “At Seedrs we’ve experienced first-hand the challenges of dealing with competition authorities. It’s not something I’d care to repeat — and instead of the DMU making things better for businesses like ourselves, we could see things getting worse. It’s not surprising that investors are worried. They are right to be.”

The CMA told the newspaper: “We don’t take decisions to stop deals lightly — blocking fewer than 2 per cent of deals initially looked at last year.

“The Digital Markets Unit will oversee a new pro-competitive regulatory regime for the most powerful digital firms.”

Further reading

Number of start-up funding rounds down 36% from 2018 peak





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