Updated at 3 p.m. ET on August 30, 2024
Reid Hoffman’s Support for Kamala Harris and His Request to Fire Lina Khan
Reid Hoffman, the renowned founder of LinkedIn and a significant Democratic donor, has expressed his enthusiasm for the Biden administration’s policies. His support extends to Kamala Harris, for whom he has pledged $10 million to back her presidential campaign. However, Hoffman has one notable condition: he wants Harris to remove Lina Khan, the chair of the Federal Trade Commission (FTC), should she become president. Hoffman has been critical of Khan, accusing her of "waging war" on American businesses during a July interview with CNN. Another prominent donor to Harris, media and technology executive Barry Diller, has similarly criticized Khan, calling her a "dope" who opposes policies that could aid business growth. Both Hoffman and Diller have significant financial interests tied to the actions of the FTC, with Hoffman serving on Microsoft’s board and Diller’s companies also under FTC investigation.
The Debate Over Antitrust Policy and Its Impact on Startups
Hoffman’s criticisms of Khan are part of a broader debate within Silicon Valley about the impact of antitrust enforcement on startups and venture capital (VC) investment. Hoffman argues that the FTC under Khan’s leadership has become too aggressive in blocking acquisitions, particularly by tech giants. This, he claims, could deter investors from funding startups, as the possibility of a profitable exit through acquisition becomes less certain. Hoffman’s concerns are shared by other venture capitalists and tech industry leaders, who argue that limiting acquisitions could stifle innovation and investment. For instance, Marc Andreessen, a Trump-supporting venture capitalist, has complained that regulators are "punitively blocking startups from being acquired by the same big companies the government is preferencing in so many other ways." The National Venture Capital Association (NVCA) has also warned that expanding antitrust law to restrict acquisitions could "chill investment into startups."
The Historical Context of Antitrust Enforcement and Venture Capital
The debate over antitrust enforcement and its impact on startups is not new, but it has taken on new urgency under the Biden administration, which has made strong antitrust enforcement a key part of its economic agenda. For most of the 20th century, businesses looking to expand typically aimed to go public, a process that rewarded employees and long-term investors for building sustainable enterprises. However, the venture-capital model that emerged in recent decades has prioritized rapid growth over profitability, with the ultimate goal of finding a buyer. According to an NVCA survey from 2020, 58% of American founders hope to sell their company, and acquisitions now make up about 90% of venture-backed exits, compared to just 30% in the early 1990s. This shift has made the venture capital industry particularly sensitive to changes in antitrust enforcement.
The Impact of Antitrust Enforcement on Mergers and Acquisitions
Critics of Khan’s FTC argue that the agency’s increased scrutiny of mergers and acquisitions has already had a chilling effect on investment. Since Khan and Jonathan Kanter, the head of the Department of Justice Antitrust Division, took office in 2021, merger activity has decreased by about half, and VC investment has dropped significantly, with the number of deals declining by 20% and deal value cut in half, according to PitchBook. Susan Woodward, the founder of Sand Hill Econometrics, told me that "the cage-rattling has had an impact." However, some experts argue that the current level of VC investment is still healthy compared to historical standards. The latest report by Silicon Valley Bank notes that "there is still more money flowing to founders than 26 of the last 30 years," and the boom in investment in 2021 was likely an anomaly driven by interest-rate cuts. Bradley Tusk, a political strategist turned investor who supports Harris, acknowledges that the current landscape may represent a "healthy correction" rather than a crisis.
The Argument for Strong Antitrust Enforcement
While Hoffman and other critics of Khan’s FTC argue that aggressive antitrust enforcement could harm startups and investors, advocates of strong enforcement argue that it is necessary to prevent monopolistic practices and promote competition. Antitrust advocates point out that lax enforcement over the past few decades has led to the emergence of tech giants that dominate their respective markets, stifling innovation and limiting opportunities for smaller competitors. They argue that the FTC’s efforts to block mergers that reduce competition are essential to ensuring that startups have the opportunity to grow and compete with larger companies. For example, a well-known study published in 2021 estimated that about 6% of acquisitions in the pharmaceutical industry were "killer acquisitions," in which a larger company buys a smaller rival to eliminate competition. John Kwoka, an economist at Northeastern University who has advised the FTC, told me that "the structure of the acquisition market gives the big players an incentive to catch and kill." By blocking such acquisitions, the FTC can help create a more level playing field for startups.
The Implications for Kamala Harris’s Potential Presidency
The debate over antitrust enforcement has significant implications for Kamala Harris’s potential presidency, as it raises important questions about how she will approach economic policy. The Biden administration’s commitment to strong antitrust enforcement has been a key part of its populist economic agenda, but Hoffman and other critics are challenging this approach on its own terms. By calling for Khan’s removal, Hoffman is essentially asking Harris to abandon a core component of the administration’s economic strategy. The outcome of this debate could say a great deal about how Harris will govern, particularly when it comes to balancing the interests of big business and small startups. While Hoffman and other venture capitalists argue that the current approach to antitrust enforcement is harming startups, advocates of strong enforcement argue that it is necessary to promote competition and innovation. As the 2024 election approaches, this debate is likely to take on even greater significance, both for Harris’s campaign and for the future of the tech industry.
