Benedict Evans discusses big tech’s acquisition of small tech companies.

The Impact of Big Tech Company Acquisitions on Startups

Small Acquisitions: Competitive Threat or Talent Acquisition?

The tech startup market has experienced a surge in funding in recent years, making it one of the hotbeds of investment in history. The question that arises is whether startups that have been purchased by big tech companies for a nominal price were seen as competitive threats or their business model provided limited scope for growth. Given that half of VC-backed startups fail, it is possible that the acquisition was aimed at acquiring talent rather than industry-disrupting technology.

The Rat Race in the World of Tech Startups

Investors are on a constant lookout for the next unicorn in tech startups. The competition in the startup market is so intense that even if a startup has a chance at building a billion-dollar company, investors may refuse to invest in their future growth. If a startup decides to take a small payout from a big tech company, it speaks volumes about its potential to grow into a major company.

The Flawed Logic of ‘Crush and Buy’

The rationale behind big tech companies buying out startups at a bargain price is often attributed to their ability to squander the competition. However, there isn’t always evidence to back up this claim. The presence of a ‘must’ justifies the possibility but fails to offer proof. Tech pundits suggest that advocates of ‘crush and buy’ need to intervene to prevent such practices from crushing the competition in the first place.

The Context of Bigger Acquisitions

The FTC report provides evidence that bigger acquisitions of over $50m are the only deals that have yielded any profit for investors. Given the structure of the VC business, anything less than $25m would be a failure for most venture capital funds. There were 86 US exits to GAFAM for over $50m from 2010 to 2019, representing only 4% of decent-sized exits.

Tech Startups Market Context

There is a lack of understanding of the vast number of startups being created. In 2010–2019, YCombinator alone supported 1,561 US companies, and there were 32,000 companies in total raising their first funding in the US market, giving the context for 400 US GAFAM acquisitions. Silicon Valley is a hotbed of ideas, and most of the experiments don’t work, which is an integral part of the experimental culture.

Complexities of Ecosystems

Every acquisition of a tech startup by big tech has an impact on the broader market ecosystem. It is difficult to predict how regulators will view future tech acquisitions, considering the complexities of DAOs, and how they will handle DAO mergers without any legal entity. The regulations will need to catch up to the pace of change.


The acquisition of small tech startups by big tech is not always seen as a competitive threat to their business model. Given the number of startups being created, most of the experiments don’t work, and the majority of acquisitions represent the recycling of talent and capital from ideas that failed and those that have the potential to transform into new ideas. The complexities of ecosystems make it difficult for regulators to keep pace with the changes, and they need to find ways to upgrade their regulations to support a thriving startup ecosystem.

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