Sigh, survivor bias taints this analysis so hard it hurts. There are lots and lots and lots of innovative startups that don't get acquired and go through the whole process without all that much press. You don't see them, it's boring to read "Startup that changes the ways machine tools are stocked at machine shops turns in another year." The really crazy ones (either crazy funding like Color, or crazy exits like WhatsApp) get lots of press, and so one things "oh they are all like that."

Acquisitions are a way that investors get their money back, so they encourage investors to invest in startups, and by its nature that encourages innovation. Perhaps not as much as random $100K grants given out on the street corner would, but it does encourage company formation and execution. IPOs do the same thing.

What investors don't like is a company they invest in, own a big chunk of the equity and it never goes anywhere. So called "zombies", companies that are nominally profitable, but not not enough cash flow to support M&A, too much cash flow to just roll them up. Those companies need an innovative way to 'cash out' their investor over time so that they can get on with their lives.