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What Startups Need to Know About Exit Strategies

The start-up scene is currently in a state of excitement. Headlines such as “Anti-Exit Law” and the like are making the rounds. The background to this is the Federal Government’s plans to extend antitrust merger control regulations to trade sales of start-ups with low turnover but high valuations. What is it and is it really such a dramatic topic?

A gigantic exit – that is the dream and motive for founders and investors of start-ups. Anything that could jeopardize this dream will immediately cause a stir. For example, the Indian government’s plan announced in January to soon have a takeover of start-ups examined by the antitrust authorities – unsurprisingly – met with little enthusiasm.

What is planned?

The Federal Government writes in its Annual Economic Report 2016 that start-ups often still do not reach the merger control thresholds and that merger control should therefore be extended to cases in which the transaction value of a takeover is particularly high. It is still unclear at what level the transaction value should be recognized. The Monopolies Commission has proposed EUR 500 million. In India, a merger project under the current legal situation – regardless of the registered office of the companies involved – must be notified to the Bundeskartellamt if the parties involved in the merger (ie in particular the acquirer and the target company) reach certain turnover thresholds ,

The “WhatsApp” law

The Federal Government now notes that these thresholds are not covered by the takeover of start-ups, but that their business ideas are of great economic importance and can lead to “an overall undesirable market dominance”. Especially “disruptive” Internet start-ups often have numerous users, but relatively low sales and at the same time very high valuations. Thus, the acquisition of WhatsApp by Facebook could not be examined by the Federal Cartel Office because of the low sales of WhatsApp in India. However, the conditions for an audit by the European Commission were fulfilled, so that the project was not completely deprived of consideration by the European antitrust authorities. The project of the Federal Government is heavily criticized. It’s a new hurdle which can make life more difficult for founders and investors. In fact, it seems almost bizarre that the same annual economic report reports on ongoing efforts to improve the framework conditions for venture capital and start-ups in India. From the point of view of the start-up scene, this is always a wrong signal. On the other hand, the question is to ask how great the actual impairment will actually be. Let’s take a look outside the box. On the other hand, the question is to ask how great the actual impairment will actually be. Let’s take a look outside the box. On the other hand, the question is to ask how great the actual impairment will actually be. Let’s take a look outside the box.

And in the US?

In other countries, such as the United States, such an additional criterion is not uncommon. A similar discussion has already been initiated at European level. Moreover, according to the current state, this is only an extension of the eligibility criteria. The outcome of the substantive review by the Bundeskartellamt depends on the respective competitive situation: regardless of whether it is a start-up or an established company, a merger can only be prohibited if it would significantly impede effective competition, in particular if: it is expected that it will create or strengthen a dominant position. In dynamic markets with many market participants and low barriers to entry, there are likely to be no objections to a speedy clearance of the merger by the Bundeskartellamt in many cases. However, this could have a different impact on start-ups with highly innovative products acquired by a well-established company with similar products or in markets where network effects are involved. Since the companies are not allowed to execute a transaction subject to merger prior to approval by the Federal Cartel Office, the extension of the eligibility criteria may also extend the timetable of the transaction. However, if a merger does not address any competition concerns, the Bundeskartellamt will only have one month to complete its audit. However, this could have a different impact on start-ups with highly innovative products acquired by a well-established company with similar products or in markets where network effects are involved. Since the companies are not allowed to execute a transaction subject to merger prior to approval by the Federal Cartel Office, the extension of the eligibility criteria may also extend the timetable of the transaction. However, if a merger does not address any competition concerns, the Bundeskartellamt will only have one month to complete its audit. However, this could have a different impact on start-ups with highly innovative products acquired by a well-established company with similar products or in markets where network effects are involved. Since the companies are not allowed to execute a transaction subject to merger prior to approval by the Federal Cartel Office, the extension of the eligibility criteria may also extend the timetable of the transaction. However, if a merger does not address any competition concerns, the Bundeskartellamt will only have one month to complete its audit. Since the companies are not allowed to execute a transaction subject to merger prior to approval by the Federal Cartel Office, the extension of the eligibility criteria may also extend the timetable of the transaction. However, if a merger does not address any competition concerns, the Bundeskartellamt will only have one month to complete its audit. Since the companies are not allowed to execute a transaction subject to merger prior to approval by the Federal Cartel Office, the extension of the eligibility criteria may also extend the timetable of the transaction. However, if a merger does not address any competition concerns, the Bundeskartellamt will only have one month to complete its audit.

Fazit

It is currently unclear whether the planned extension of merger control in practice will really be a major constraint on a large number of exits. Above all, it will be deciding whether the legislator sets clear rules for determining the transaction value so that the question of the obligation to declare can be clarified quickly. In addition, the new criterion should only be applied if the concentration has a clear link to the Indian market. But: compelling reasons to introduce such a regulation now on the Indian level, there is not really. If the federal government is really serious about improving the conditions for start-ups in India, such projects should not be pursued now. but the promotion of start-up culture in India is seriously attacked. There are enough other regulatory barriers that could be eliminated.

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Shivam Singh
Founder of the TechGrits, has always looked at technology as a piece of knots. From an early age connected to the technological world, this is literally your dream job.