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

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 dif-ferent product markets. We use data from 742 prod-uct markets globally, distinguishing the US and Euro-pean markets, for the years 2003-2018. The estimation results based on the difference-in-differences estima-tion suggest that the technology giants' buyouts sub-sequently 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 increas-ing access to user data. Furthermore, we find that tech-nology 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.