Wouldn't it be perfectly legal for these people to sit around a table an agree to merge and start a fund? If that's the case, how could it be unlawful for them to work on a joint venture? Just because I don't like the JV doesn't make it unlawful!
Any time individuals or businesses get together to collaborate on a strategy that restrains trade or supply, thus artificially skewing prices, this runs afoul of antitrust law.
Collusion between angels to keep valuations low and prevent newcomers from participating sounds like a textbook case. In this case, they're artificially inflating their cost of capital by reducing the overall valuations of the businesses they fund. They artificially reduce the supply of capital by conspiring to keep out new participants.
Similarly, the Department of Justice is looking into Valley hiring, since companies have a gentlemen's agreement not to poach from one another:
http://www.forbes.com/feeds/ap/2010/09/17/technology-special...
In this case, the argument would go that the companies are artificially constraining the supply of paying work for qualified applicants, while reducing the competitive landscape that would drive up their salaries.
"Price fixing is an agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand. The group of market makers involved in price fixing is sometimes referred to as a cartel.
The intent of price fixing may be to push the price of a product as high as possible, leading to profits for all sellers, but it may also have the goal to fix, peg, discount, or stabilize prices. The defining characteristic of price fixing is any agreement regarding price, whether expressed or implied.
...
Colluding on price amongst competitors is viewed as a per se violation of the Sherman Act regardless of the market impact."
Are we just stuck on the fact that they're "angel investors"? The law doesn't recognize any such sector of the venture capital business.
Shouldn't the DoJ be going after Kleiner and Sequoia first?
Don't hundreds of doctors and dentists already do stuff like this?
Right. And I'm sure they're all doing it out of the kindness of their hearts. They're definitely not intending to make money off of the deal.
Regardless, Arrington accuses them of discussing:
* How the group can act together to keep traditional venture capitalists out of deals entirely
* How the group can act together to keep out new angel investors invading the market and driving up valuations.
This is definitely sounds anti-competitive to me (assuming it's true of course).
Yes. That would effectively make SACP a cartel. Price fixing is price fixing if it was done by a group of entities or one entity.
</sarcasm>
I think in buyer's market it only makes sense when the supply of buyers is artificially limited. Not only it doesn't look like there's any shortage of capital, the conversation in question specifically discussed excluding new angel investors, furthering the point.
Explicit cooperation in restraint of trade is always illegal, though.
I don't know anything about the collusion arguments though.
The difference is that explicit collusion is ALWAYS illegal. Otherwise innocuous activities that may have an anticompetitive effect (e.g. forming a joint venture) are sometimes legal, depending on what the FTC thinks.
That said, while their market share is certainly larger than 10/250,000, it probably doesn't even approach 10%. So you're probably right.
It is still very much illegal for them to collude against US customers.
I don't know how the antitrust laws apply, not even if what they are doing collude with any law at all, despite preventing healthy competition, but your questions come from the wrong premises.
Broaden the word "antitrust" to "laws against all contracts in restraint of trade", and re-ask the question to yourself. These people are investors. Investors are allowed to work together, aren't they?
I was just arguing against "legal to ... agree to merge and start a fund?", because yes, it would be legal.
You're saying they are one step of becoming something we all agree it's ok to do. But they haven't take this step.
Again, I'm not saying they're doing something illegal. Just that you can't apply the "joint-venture/company" operating rules for them, because this is not what they are.
Bringing "what if" conditions to a situation doesn't change it. You have to analyze for what it is.
Sorry if it looked like I disagree with you about the legality. I just didn't think you had a strong backup for the questions.
But it is a much more ambitious claim to say that they're breaking federal laws by doing it.
IANAL though - even if not illegal, it's still pretty stinky, and a big part of me hopes it's not illegal. If it's not illegal, I hope they're outed and shamed if this is true. If it is illegal, it give the government reason to step in and screw everything up.
Are you suggesting that 10 angel investors have control over all the money? Is one of them Lex Luthor?
If you think the only requirement to being an angel investor is having a big bank account, you haven't been paying attention.
Frankly, I think the feds would jump at the chance to have an excuse to jump in and more tightly regulate/tax/etc the entire system, including angel investors.
You could very well be right; admittedly, I'm not the smartest tool in the shed when it comes to understanding FTC and government investment regulations, as well as the legal status of angel investors.
Heck, I really hope this is all wrong, because the last thing I want is the feds meddling in this industry even more. I make my living on startups; the last thing I want is the federal government to make it wither and die.
Semantically yes. But is every joint deal bad for the market?
"The market will find other people to take these deals."
Don't be naive. Anticompetitive practices are specifically meant to prevent the market from functioning normally.