When government makes it hard for a start-up company’s investors to sell up and move on, it simultaneously warns other investors to steer clear.  

Or, as economists sometimes put it, barriers to exit are barriers to entry.  

Last week, the Competition Law and Policy Institute of New Zealand held its annual workshop.  

Academics and practitioners compare notes on local and international developments in areas like merger control and utilities regulation – the kinds of things with which the Commerce Commission busies itself.  

One of the presented papers, from a competition and consumer law practitioner, made the case for a de minimis threshold for merger applications. De minimis simply means things that are too minor to be worth dealing with. 

The Commerce Commission, like everyone else in the world, has limited resources. It needs to be able to choose where its efforts are best deployed.  

A Commerce Commission review is probably not worth the hassle if two merging firms are small. Similarly, if the affected New Zealand market is tiny, the Commission ought to have higher priorities. 

The case was timely. That morning’s edition of The Post included a column by Terry Allen, a former Chair of Serato.  

Serato is a New Zealand success story. Founded in Auckland in 1998, the company developed software for DJs. Their software became very popular among hip-hop artists so much so that music hardware maker Pioneer’s parent company wanted to buy Serato.  

The hip-hop DJ software market in New Zealand is not large. Documents filed as part of the Commission’s merger evaluation process suggested that the domestic market’s annual turnover amounted to a single day’s revenue for a large supermarket.  

In a sane world, it would not have been worth the Commission’s attention. 

Instead, the Commerce Commission took a year to decide to block Pioneer from buying Serato. 

Growing start-up companies often need funding from venture capital. Those investors help young companies grow, then sell their equity so that they can help the next company. They do not want to stick around forever. 

Banning sales of New Zealand start-ups to larger international tech companies effectively tells those investors to steer clear of New Zealand, as Allen’s column in The Post pointed out. 

A de minimis threshold on mergers could help the Commission better focus its attention.  

It could also help make New Zealand a safer place for tech start-ups.