Killers on the Road of Emerging Start-ups – Implications for Market Entry and Venture Capital Financing

Heli Koski, Otto Kässi and Fabian Braesemann

No 81, ETLA Working Papers from The Research Institute of the Finnish Economy

Abstract: Abstract This paper empirically studies the effect of acquisitions made by the large US-based technology companies on the entry dynamics and venture capital financing in different product markets. We use data from 742 product markets globally, distinguishing the US and European markets, for the years 2003-2018. The estimation results based on the difference-in-differences estimation suggest that the technology giants’ buyouts subsequently reduced market entry rates and decreased available venture capital funding in the target product markets of tech giants’ acquisitions. In other words, the acquisitions of technology giants seem to generate the so-called kill zone effect. Our empirical analysis further suggests that this effect was strengthened during the 2010s when large technology companies gained increasing access to user data. Furthermore, we find that technology giants’ acquisitions of platform companies have decreased market entry in non-platform markets. In the US, unlike in the EU area, also available venture capital financing has declined in such non-platform markets from which technology giants have acquired companies.

Keywords: Acquisitions; Venture capital funding; Competition; Technology giants (search for similar items in EconPapers)
JEL-codes: G24 G34 L1 L41 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2020-07-01
New Economics Papers: this item is included in nep-cfn, nep-com, nep-ent, nep-ino and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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