The Effect of Big Tech Acquisitions on Venture Capital Funding for Tech Startups

INTRODUCTION.

In recent years, the technology industry has experienced a notable surge in high-profile acquisitions by major tech giants such as Apple, Alphabet (Google), Microsoft, Amazon, and Meta (formerly Facebook). These companies, with their massive market valuations exceeding a trillion dollars, have increasingly leveraged their immense financial power and market dominance to acquire startups. For instance, Microsoft has completed 210 acquisitions with an average deal size of $3.85 billion, and in 2018 alone, it acquired 20 companies. Over the past decade, the five major U.S. tech companies have collectively acquired over 800 startups. This aggressive acquisition strategy not only bolsters their portfolios but also allows them to capture emerging market opportunities. However, these acquisitions have a profound impact on the startup ecosystem, particularly on venture capital (VC) funding. This article explores the effect of Big Tech acquisitions on VC funding for tech startups.

BACKGROUND ON BIG TECHS ACQUISITION.

The term ‘Big Tech’ refers to a group of technology companies distinguished by their size, influence, and financial success. These companies are characterized by their capacity to gather, process, and monetize vast amounts of data, along with their substantial global reach. The primary entities typically categorized as Big Tech include Amazon, Apple, Facebook (Meta), Google (Alphabet), and Microsoft. However, other large technology firms like Alibaba, Tencent, Tesla, Salesforce, and Oracle also fall into this category. Startups, by their nature, face uncertain futures. While some grow into successful enterprises, many end up being acquired by established tech giants. The focus on these acquisitions has attracted significant attention from media and policymakers, especially given the concentration of the tech sector. Based on available data from the U.S. Federal Trade Commission, from 2010 to 2019, the major Big Tech companies acquired over 600 smaller firms.