Responding to Elizabeth Warren’s call to regulate and break up some of the nation’s largest technology companies, the venture capitalists that invest in technology companies are advising the presidential hopeful to move slowly and not break anything.
Warren’s plan called for regulators to be appointed to oversee the unwinding of several acquisitions that were critical to the development of the core technology that make Alphabet’s Google and the social media giant Facebook so profitable… and Zappos.
Warren also wanted regulation in place that would block companies making over $25 billion that operate as social media or search platforms or marketplaces from owning companies that also sell services on those marketplaces.
As a whole, venture capitalists viewing the policy were underwhelmed.
“As they say on Broadway, ‘you gotta have a gimmick’ and this is clearly Warren’s,” says Ben Narasin, an investor at one of the nation’s largest investment firms,” New Enterprise Associates, which has $18 billion in assets under management and has invested in consumer companies like Jet, an online and mobile retailer that competed with Amazon and was sold to Walmart for $3.3 billion.
“Decades ago, at the peak of Japanese growth as a technology competitor on the global stage, the US government sought to break up IBM . This is not a new model, and it makes no sense,” says Narasin. “We slow down our country, our economy and our ability to innovate when the government becomes excessively aggressive in efforts to break up technology companies, because they see them through a prior-decades lens, when they are operating in a future decade reality. This too shall pass.”
Balaji Sirinivasan, the chief technology officer of Coinbase, took to Twitter to offer his thoughts on the Warren plan. “If big companies like Google, Facebook and Amazon are prevented from acquiring startups, that actually reduces competition,” Sirinivasan writes.
If big companies like Google, Facebook, and Amazon are prevented from acquiring startups, that actually reduces competition. The reason is that if there is less M&A due to legal uncertainty, there is a reduced incentive for angels & VCs to fund those startups in the first place.
— Balaji S. Srinivasan (@balajis) March 8, 2019
A regulation that purports to reduce the power of a large company frequently ends up increasing it, by erecting barriers to entry for startups. Often that barrier is licensing. In this case the barrier would be reduced access to capital.
— Balaji S. Srinivasan (@balajis) March 8, 2019
“There are two separate issues here that are being conflated. One issue is do we need regulation on the full platform companies. And the answer is absolutely,” says Venky Ganesan, the managing director of Menlo Ventures. “These platforms have a huge impact on society at large and they have huge influence.”
But while the platforms need to be regulated, Ganesan says, Senator Warren’s approach is an exercise in overreach.
“That plan is like taking a bazooka to a knife fight. It’s overwhelming and it’s not commensurate with the issues,” Ganesan says. “I don’t think at the end of the day venture capital is worrying about competition from these big platform companies. [And] as the proposal is composed it would create more obstacles rather than less.”
Using Warren’s own example of the antitrust cases that were brought against companies like AT&T and Microsoft, is a good model for how to proceed, Ganesan says. “We want to have the technocrats at the FTC figure out the right way to bring balance.”
Kara Nortman, a partner with the Los Angeles-based firm Upfront Ventures, is also concerned about the potential unforeseen consequences of Warren’s proposals.
“The specifics of the policy as presented strike me as having potentially negative consequences for innovation, These companies are funding massive innovation initiatives in our country. They’re creating jobs and taking risks in areas of technology development where we could potentially fall behind other countries and wind up reducing our quality of life,” Nortman says. “We’re not seeing that innovation or initiative come from the government – or that support for encouraging immigration and by extension embracing the talented foreign entrepreneurs that could develop new technologies and businesses.”
Nortman sees the Warren announcement as an attempt to start a dialogue between government regulators and big technology companies.
“My hope is that this is the beginning of a dialogue that is constructive,” Nortman says. “And since Elizabeth Warren is a thoughtful policymaker this is likely the first salvo toward an engagement with the technology community to work collaboratively on issues that we all want to see solved and that some of us are dedicating our career in venture to help solving.”