This post is part of the serialisation of my academic research into big tech / venture financing kill zones.
The origin of the term “kill zone” – with regard to startups, big tech and venture financing that is – can be pinpointed pretty easily. In 2018 Albert Wegner of Union Square Ventures was involved in a panel on startups and innovation as part of an antitrust series being run by the University of Chicago’s Stigler Centre. While talking about some of the problems large digitial platforms create, Wegner mentioned that, when in discussion with another investor about their investment strategies, they said they were:
…only investing in things that are not in the Facebook, Amazon, Apple, Google kill zone.
From this point on a wider discussion about big tech or venture financing kill zones took off. Getting mainstream press in the Guardian, New York Times and The Economist. As well as yielding many academic papers on the topic. Amongst this examination of the topic was my own research, and as part of my work my supervisor encouraged me to interogate what exactly a kill zone was. As it turned out, there was little alignment on this.
Into the kill zone(s)
As part of my research I read 15 academic papers whose subject specifically concerned venture financing kill zones. These papers were authored by a range of academics, but typically from the legal or economic disciplines. Three different definitions of a kill zone emerged.
In the first definition a kill zone exists shortly before a startup is acquired by larger technology platform, typically one of big techs apex predators: Google, Amazon, Meta, Microsoft or Apple (GAMMA). In this scenario one of the GAMMA set offers to acquire the startup but should they refuse, they’ll simply turn their product into a feature on their already dominant network. The Simpson’s episode in which Bill Gates offers to “buyout” Homer’s Compu Hyper Global Mega Net is funny take on this. Moreover, if you think a startup is likely to be bought for a low-ball price because of the looming threat of big tech, you might well pass on the investment.
In the second definition a kill zone is created shortly after an acquisition. Here the innovative startup has been acquired meaning the market has been “killed” thus resulting in fewer VC dollars flowing in. Personally I think this is more of a dead zone than a kill zone, but that might just be me nitpicking.
The final definition has little to do with acquistion and instead, a kill zone occurs when a startup operates within the “orbit” of big tech and thus could easily be replicated. Investors in Tile, the bluetooth tracker startup, know this story all too well.
To complicate matters further still, in 2021 the excellent, and highly cited Killer Acquistions paper was published in the Journal of Political Economy. This study looked specifically at the pharmaceuticals industry, and found examples of smaller companies being acquired simply to shut down projects that may compete with the existing products of the acquirer.
While there may well be examples of this kind of behaviour within the world of tech, it is not what the kill zone phenomenon concerns. What binds all of the above definitions together is the reduction of venture financing into startups as a result of the presence or behaviour of big tech.
Why does any of this matter?
So your startup gets bought, poor you, why does any of this matter?
It’s a reasonable question, but misses the important role startups play with respect to innovation in the economy. If your startup doesn’t get funded because a monopolist looms overhead. Or, if investors stay away becasue they believe your only option will be to sell for a low price, that’s not fostering innovation.
Indeed, what I learned while conducting my own research is that, even if you take a positive view of monopolies and the economy, you’ll still acknowledge the importance of startups. Becasue, without startups, there are no winds of creative destruction that push leading firms to innovate as well. To reframe as Clayton Christensen would, there is no innovators dilema if distuptive innovation isn’t getting funded.
Up next… the inconsistent findings of kill zone research.