Over the past two decades, start-ups have increasingly turned to acquisition as their preferred exit strategy, but the impact of such acquisitions on innovation is unclear. This column analyses start-up acquisitions across 60 countries and 200 industries between 2001 and 2021 and finds that, on average, acquired start-up innovation declines following an acquisition, especially when the acquisition occurs within the same industry and country or when the target has technologies that diverge from the acquirors’ core focus. The challenge is to sustain an environment where acquisitions contribute to innovation diffusion and scaling rather than its disappearance.

Start-ups play a crucial role in driving technological advancement and economic development. By challenging incumbents and experimenting with new ideas, they are a key engine of the creative destruction process, which, as shown in the seminal paper by Nobel laureates Aghion and Howitt (1992), drives economic growth through innovation and the reallocation of resources (Klenow 2025). Over the past two decades, the preferred exit strategy of start-ups has significantly moved from IPO to acquisitions (Ederer and Peregrino 2023). This trend has sparked debate: are these acquisitions a way to scale up promising technologies ‒ or to stifle potential competitors in their infancy?

This trend gained momentum after evidence of ‘killer acquisitions’ emerged – cases in which incumbents acquire young rivals mainly to suppress their innovation potential (Cunningham et al. 2021). The increasing importance of start-up acquisition unfolds concurrently with two other broader dynamics. First, the competitive pressure in the markets seems to have decreased, as suggested by the increasing evidence showing that industry concentration has risen (Calligaris et al. 2025a) and business dynamism among market leaders has reduced (Calligaris et al. 2025b). Second, it is becoming increasingly challenging to create novel and radical innovations (Bloom et al. 2020), a domain where start-ups play a leading role. Understanding the impact of start-up acquisitions on innovation is of utmost importance for designing effective innovation and competition policies.

A new global dataset on start-up acquisitions

In a recent paper (Berger et al. 2025), we provide the first comprehensive, cross-country analysis of how start-up acquisitions affect innovation outcomes. While there is mounting evidence regarding established acquisition targets or on specific sectors – mainly pointing to a negative impact (Lefouili and Madio 2025) – evidence for start-ups has remained scarce. Start-ups differ fundamentally from established companies and merit closer examination. They are typically small, pre-revenue ventures that invest heavily in new technologies but may not pose an immediate competitive threat to incumbents. While the static gains from acquiring them may be limited, their long-term potential is substantial.

Acquiring such firms can serve two distinct purposes. It can help acquirors to scale up and commercialise start-up innovations more effectively. But it can also remove potential future competitors from the market. For these reasons, the motives and the consequences of start-up acquisitions may differ significantly from those involving more mature firms.

To shed light on this issue, we combine data from multiple sources to build a new global dataset of start-up acquisitions from 2001 to 2021. Tracking start-ups at scale is notoriously difficult ‒ they are small, private, and often short-lived ‒ and most existing evidence focuses on US venture-capital-backed firms. To overcome these issues, we resort to the OECD/STI Start-ups Database, which integrates information from Crunchbase and Dealroom ‒ two leading sources on start-ups and their ecosystems (for further details on the database, including benchmarking exercises with other sources, see Berger et al. forthcoming). We further restrict the sample to companies that either received venture capital or filed a patent before reaching 10 years old, thereby capturing young growth-oriented and innovation-oriented firms. We augment this with data on mergers and acquisitions from Orbis M&A and patent data from the European Patent Office’s PATSTAT database, yielding information on more than 90,000 start-ups across 60 countries and 200 three-digit industries, and around 18,000 acquisitions. The breadth of global coverage broadens our ability to study acquisition effects beyond a handful of countries and industries featured in prior work.

Main findings

Our first finding is that both start-ups and acquirors are highly innovative before a transaction takes place. Acquisitions tend to occur between firms operating in the same country and industry, and between those developing similar technologies. Overall, the results suggest that the opportunity to acquire new technologies can be an important factor driving these transactions.

Next, we study how innovation outcomes of both acquirors and targets change after an acquisition. We compare the evolution in innovation outcomes among acquired start-ups (or acquirors) with that of a suitable control group. The main finding is that the start-up innovation performance declines following an acquisition (Figure 1). Specifically, differences in new patent filings between acquired and non-acquired start-ups fall by 1.5 times their pre-acquisition level. This drop is largely explained by start-ups that cease patenting altogether after being acquired. Before the acquisition, about one in two start-ups in the sample file a patent; after being acquired, only one in ten continues to do so.

Figure 1 The effect of acquisitions on patent filings of acquired start-ups

Sources: Author’s calculations based on OECD/STI Start-ups Database, PATSTAT, and Orbis M&A.

Acquisitions are not random events and may be influenced by unobserved factors related to innovation, yielding a biased estimation. To deal with the endogeneity of the relationship, different exercises are performed. First, we use propensity score matching to compare the patent filings of acquired and never-acquired start-ups with similar characteristics. Second, we exploit information on acquisition bids withdrawn for reasons exogenous to innovation. Under this assumption, firms receiving these withdrawn bids represent a good counterfactual for the innovation path that acquired start-ups would have had, had they not been acquired. Comparing the evolution of the patenting activity of start-ups with completed versus withdrawn acquisition bids qualitatively confirms the results presented in Figure 1.

Importantly, this decline in the innovation rate is not offset by an increase in follow-on innovation by the acquirors, nor by improvements in patent quality (measured by citations or technological radicalness). In other words, acquisitions tend to reduce the overall innovation output of targets and acquirors rather than merely shifting it from the former to the latter.

Therefore, our findings suggest that, on average, acquisitions tend to stifle start-up innovation rather than scale it. This does not mean all acquisitions are harmful; however, at an aggregate level, the evidence points to a systematic post-acquisition decline in innovative activity.

We also provide suggestive evidence of the potential underlying channels that might be at play. The reduction in patenting experienced by acquired start-ups is stronger in transactions that happen within the same industry (three-digit NACE level) and country, where the acquiror may view the start-up as a competitive threat (Cunningham et al. 2021). This decline is even more pronounced when the target’s technologies differ relatively more from the acquiror’s core focus, suggesting that some acquisitions may aim to neutralise potentially disruptive innovations (Hoberg and Phillips 2016).

In our paper, we also assess other potential explanations, for which we do not find any supporting evidence. For instance, we look at whether the results are driven by a change in intellectual property strategies upon acquisition or a shift from the development to the commercialisation stage of the innovation process.

Policy recommendations

These findings call for a nuanced and forward-looking approach to competition and innovation policy. Reducing acquisitions per se would not be the right goal. Acquisitions can provide valuable resources and infrastructure for scaling innovations, and the prospect of being acquired remains a key incentive for entrepreneurial entry and early-stage investment (Fons-Rosen et al. 2023). Our results also abstract from additional general equilibrium effects of acquisitions, such as on investment and innovation (Kamepalli et al. 2020, Gugler et al. 2025).

The challenge is to discourage acquisitions that suppress innovation while preserving those that enhance it. Policymakers should therefore focus on the quality, not the quantity, of acquisitions. Governments might pursue this balance, for instance, by the doing the following:

• Strengthening merger assessment tools to better identify potentially ‘killer’ acquisitions ‒ especially in high-tech and innovation-intensive sectors ‒ and to consider long-term innovation effects, even when transactions fall below traditional size thresholds.
• Evaluating serial acquisitions collectively, since multiple small transactions by the same firm may cumulatively reduce competition and innovation incentives.
• Encouraging collaborative forms of innovation ‒ such as open partnerships, co-development programmes, and minority venture capital investments ‒ that allow start-ups to benefit from incumbents’ resources while maintaining autonomy.
• Diversifying exit opportunities for start-ups, such as by facilitating access to IPOs, growth equity, and private capital markets, thereby reducing dependence on acquisitions as the dominant exit path and limiting the prevalence of killer acquisitions.

The ultimate goal should be to sustain an environment where acquisitions contribute to the diffusion and scaling of innovation, rather than its disappearance.

Source : VOXeu