On September 13, seven venture capital firms filed a “friend of the court” brief in support of the Microsoft-Activision deal, highlighting the crucial role of mergers and acquisitions in the innovation and investment ecosystem. These seven firms filed the brief before the Ninth Circuit Court of Appeals in opposition to the U.S. Federal Trade Commission’s (FTC’s) appeal of the district court decision that cleared the deal.
An additional group of 31 venture capital firms and investors, who collectively manage assets exceeding $130 billion, sent a clear message that the FTC’s continued opposition to the Microsoft-Activision deal threatens the cycle of investment and entrepreneurship that drives America’s innovation economy.
In their statement, the 31 venture capital firms fully endorse the positions stated in the original “friend of the court” brief. In that brief, venture capital firms argue that the Ninth Circuit should reject the FTC’s proposed watered-down legal standard that would give it extraordinary powers to block transactions.
Venture capital investments create a ripple effect. They create jobs and shape the economy of the future. Exits through mergers and acquisitions fuel the cycle of innovation – a cycle of risk and reward. These transactions provide a return on the critical investment needed to support innovation – which is, in turn, what incentivizes venture capital firms and entrepreneurs to invest in the first place.
Every dynamic startup founder takes a risk to launch a company and bring something new to the market. This drives innovation and increases competition. While many startups fail to make it beyond their first year, those that succeed have a choice to make: keep their company independent or sell their innovation. Without the option of an exit through a merger or acquisition, both startups and the firms that support them are less able to take that initial risk.
The venture capital firms’ statement contains a dire warning that the FTC’s efforts to change the legal standards would chill investment in startups and ultimately harm competition:
If the FTC’s approach were adopted, many more acquisitions would be subject to lengthy and expensive regulatory review and litigation that few if any transactions would be able to withstand. As a result, many transactions will be abandoned upon challenge or never pursued, grinding American innovation to a halt. This will be particularly harmful to the current generation of entrepreneurs – who are more diverse and reflective of America as a whole – who will not have the same opportunities as those who came before them.
The 38 firms and investors who have spoken up (i.e., the seven who signed the original brief and the 31 who signed the statement of support) are significant contributors to the U.S. innovation economy, hailing from the nation’s most promising technology hubs – from Silicon Valley to Boston’s Route 128, from El Paso’s burgeoning startup scene to Greater Green Bay’s dynamic innovation ecosystem. And, together, they’re urging the FTC to consider how its legal arguments may inadvertently stifle the innovation it is striving to protect.
Among these firms, a dozen are founded by or led by traditionally underrepresented investors, embodying the next generation of American innovation and entrepreneurship. They represent a diverse range of industries, many of which are critical to U.S. geopolitical and socioeconomic strength. Their investments in sectors like health care, financial services, energy, transportation, defense, and technology help define and advance American innovation on the global stage.
The voice of the venture capital community has joined the chorus of support for Microsoft’s stance in the appellate review, adding to the 31 signatories across eight other “friend of the court” briefs. These briefs represent a broad and diverse range of people who oppose the FTC’s appeal, including businesses, labor unions, independent game developers, and former enforcement officials.
Today’s statement of support underscores the need for regulators to consider how their legal arguments in one case can have a far-reaching negative effect on innovation and those who enable it. Competition law and policy affects not just the companies directly involved in a case, but also those who rely on the investment economy to nurture their ideas and create innovative technologies. These investors, and the companies they help support, deserve a regulatory environment that helps them grow new businesses and create jobs, not one that stymies innovation.
The full list of signatories and their statement of support can be found here. On behalf of Microsoft, I’d like to thank them for their support and, in particular, I’d like to thank the seven venture capital firms (Launchbay Capital, Madrona Venture Group, Marque Venture Capital, Origins Fund, Spice Capital, Symphonic Capital, and Trilogy Equity Partners) that catalyzed this effort with their outstanding “friend of the court” brief.
Editor’s note: 12/8/2023, 8:00 a.m. PT: The blog has been updated to reflect additional signatories.