Silicon Valley’s acquisition fever is bad for innovation

Buyouts are actually the /engine/ of innovation. They're the fuel. The oil.

You know this yourself. Just take a quick look at Silicon Valley - it's a hotbed of innovation. If you believed this argument, you'd expect to see a dirge of new businesses & a desert of new ideas. That's just not true. We have wearable tech. Quantified self. Bank challengers. News extractors. And things that don't even have names. The place is full of vibrant startups & new ideas. Just compare it to the energy, banking or agriculture sector.

So, why is the argument wrong?

Because buyouts /liberate/ innovative entrepreneurs from their old companies so they can go onto to found new startups - new startups that push the envelope again. San Fran is full of serial entrepreneurs who skip from one place to the next - first, revolutionising auctioning. Then, payment processing. Then, something else.

Just look at the PayPal mafia: http://en.wikipedia.org/wiki/PayPal_Mafia

What if PayPal hadn't been bought out. YouTube might not have existed. Nor LinkedIn. Nor Palantir. SpaceX. Yelp. Yammer.

Buyouts lets these innovative people sell-up - at the right price - and move on. Not only that, but they allow them to move on with additional capital that they can plough into their next venture.

If buyouts didn't happen as often, entrepreneurs would have to wait another 3-5 years - or even longer than that - for an IPO. It would lock in capital, and enterprise would suffer. Plus, an IPO is mighty expensive & just not right for some businesses.

Entrepreneurs would be locked into their first companies.

This 'lock-in effect' is exactly what happens when Governments raise Capital Gains Tax - the tax on the profits of selling a business. If it's harder (or more costly) for an entrepreneur to cash out and move on, they stagnate - and so does innovation. This is a well-known and studied phenomena: http://www.fas.org/sgp/crs/misc/R40411.pdf‎

Acquisition don't suffocate innovation.

Acquisitions are the oil of the economy.

They're hoarding it within their own closed social network. The new purpose of VC is to make trust-fund kids look legitimate (see: Snapchat, Summly, Clinkle). It's the same effect: the ecosystem doesn't die, but gradually becomes uninspiring.

Acquisitions aren't the problem. If the alternative is hard-stop failure, meaning the work and acquired knowledge is effectively thrown away, I think M&A is far better. What is a step down is the replacement of R&D by M&A, but that's the fault of shortsighted executive fuckheads all over the country-- not limited to the Valley.

If you see the Valley as another Wall Street-- with a similar corporate ladder (engineer -> VP/Eng -> CTO -> founder -> investor)-- it will piss you off less. But you will also realize that it's a much crappier Wall Street-- worse pay and bonus structure, less prestige outside of the Bay Area echo chamber, more project-management bullshit (e.g. "iterations" and extreme closed allocation and "story points"), less autonomy, and more age discrimination-- and wonder why the fuck anyone would go into the startup game (unless born into VC connections).

The danger of startups (by the way) is that if you play that game for too long, you end up stuck in it because the "job hopper" stigma makes it hard to move back to hedge funds. This might have been OK when engineering roles at startups had real upside, but now that engineer equity allotments are in the pathetic 0.01-0.1% range, it's a shameful and wasteful trap.