The Startup Boom: How VC Giants and Google Ads Crush Small Businesses

By Angelica Scott
The Startup Boom: How VC Giants and Google Ads Crush Small Businesses

The interplay between venture capital (VC) funding and digital advertising platforms like Google Ads has created a new paradigm in business. Startups, heavily funded by VCs, leverage vast sums to dominate industries through aggressive advertising, which raises concerns about market fairness, competition, and the role of corporate venture arms like Google Ventures (GV). This document explores the dynamics of this ecosystem, focusing on the case of Clutter and MakeSpace, and extends the discussion to broader implications.

Clutter and MakeSpace: A Case Study in Market Disruption

The Companies and Their Merger

Clutter and MakeSpace were two prominent players in the self-storage and moving industries, operating with innovative, tech-driven business models. Clutter raised approximately $96.3 million across multiple funding rounds, while MakeSpace garnered $141.8 million before their merger in 2022. The combined entity, operating under the Clutter brand, became a behemoth in the storage market, serving over 6,500 towns and generating nearly $200 million in annual revenue.

Funding Dynamics and Advertising Dominance

Both companies relied heavily on VC funding to fuel their growth. A significant portion of this funding was allocated to digital advertising, particularly on Google Ads. This heavy spending allowed them to outcompete smaller local storage providers, driving up costs per click (CPC) for relevant keywords and making advertising unaffordable for competitors.

Google Ventures’ Involvement

Google Ventures (GV) participated in Clutter’s Series C funding round in 2017. While GV operates independently, its investment in Clutter indirectly benefited Google’s core advertising business. Clutter’s substantial ad spend on Google Ads created a feedback loop: GV’s investment helped grow a company that, in turn, drove revenue back to Google through increased advertising expenditure. This ushered the forced exit of many smaller brands and service providers.

Suspicious Timing of Fundraising

Clutter and MakeSpace, both founded in 2013, began raising significant funding in the mid-2010s. Clutter raised $64 million in Series C funding in June 2017, while MakeSpace raised $30 million in April 2017. These investments coincided with a broader trend of VCs targeting traditional service industries like moving and storage. Instead of fostering innovation, these funds were directed at scaling operations and monopolizing markets through aggressive advertising. The timing and strategies raise questions about whether these moves were aimed more at market control than genuine value creation. The funding also fueled increased ad spending on platforms like Google Ads, where rising costs disproportionately harmed smaller, local competitors.

Implications of the Merger

The merger of Clutter and MakeSpace consolidated their market power, enabling the combined entity to reduce costs and increase margins. This strategy, while beneficial for the merged companies, amplified the challenges for smaller businesses in the storage industry, which struggled to compete in an environment dominated by VC-backed giants.

The Broader Ecosystem: Startups, VCs, and Digital Advertising

The Role of VC Funding in Market Distortion

Startups often allocate a disproportionate share of their VC funding to digital advertising. A study by 13 Ventures found that early-stage consumer companies spend over 50% of their capital on platforms like Google Ads and Facebook. This strategy prioritizes rapid growth and market dominance over sustainable business practices.

Market Implications

  • Increased Advertising Costs:
    • The aggressive ad spend by VC-backed startups inflates CPC rates for keywords, pricing out smaller competitors.
    • Traditional businesses, with limited marketing budgets, find it increasingly difficult to acquire customers.
  • Market Consolidation: The financial clout of VC-funded startups leads to industry consolidation, reducing competition and consumer choice.
  • Barriers to Entry: New entrants face significant challenges in competing against well-funded players with deep pockets for advertising.

Google’s Dual Role

Google’s position as both an advertising platform and a venture capital investor raises questions about potential conflicts of interest. Through GV, Google invests in startups that then spend heavily on Google Ads, creating a cycle that benefits Google’s bottom line while creating a disadvantage for smaller competitors.

The Feedback Loop in Question

The cycle wherein GV invests in startups that spend extensively on Google Ads underscores a broader issue. For example, Clutter’s advertising dominance is emblematic of how such financial loops impact smaller competitors. This arrangement not only drives up CPC for industry-specific keywords like “movers” and “storage solutions” but also gradually prices small businesses out of the advertising market entirely, effectively creating a catastrophic nose dive that most brands don’t have the funding to survive.

OneShotMove Los Angeles Movers

Review of Ad Spend Practices

In our review of ad spend from companies like OneShotMove, which had approximately $600k of ad spend analyzed, as well as others like Pure and Anywayz Moving, it became clear that increased ad spend worsened business outcomes for smaller players. The inflated CPC made customer acquisition more challenging and less profitable. Meanwhile, ad agencies managing budgets for Clutter and MakeSpace—typically paid as a percentage of ad spend—approached these funds with a blasé, "carefree, spend-it-guys" attitude, given the seemingly limitless VC backing. This culture of unchecked spending exacerbates the challenges faced by smaller, budget-constrained competitors.

Regulatory Concerns and Antitrust Issues

Scrutiny of Google’s Practices

Google has faced numerous antitrust investigations related to its advertising practices. Critics argue that the overlap between GV’s investments and Google’s advertising platform creates unfair market dynamics. Regulatory bodies in the U.S. and Europe have expressed concerns about Google’s dominance in the digital advertising market and its potential to stifle competition.

Calls for Transparency

Regulators and industry observers have called for greater transparency regarding GV’s operations and its relationship with Alphabet’s core businesses. Ensuring fair competition may require separating Google’s venture capital activities from its advertising operations.

Expanding the Analysis: Cases Across Geographies

Europe’s Push Against Google’s Dominance

The European Union (EU) has consistently challenged Google’s market dominance through antitrust actions, resulting in significant penalties:

  • Google Shopping (2017): €2.42 billion fine for favoring its own comparison shopping service in search results.
  • Android Operating System (2018): €4.34 billion fine for requiring manufacturers to pre-install Google Search and Chrome to access the Play Store.
  • AdSense (2019): €1.49 billion fine for restricting third-party websites from displaying search ads from competitors.
  • Google Shopping Appeal (2024): EU’s Court of Justice upheld the €2.42 billion fine, confirming Google’s abuse of its dominant market position.
  • AdSense Appeal (2024): While annulled, it was originally a €1.49 billion fine, reflecting ongoing scrutiny.

U.S. Antitrust Actions Lag Behind

In contrast, U.S. actions against Google have been less financially punitive. Despite a 2024 federal judge ruling that Google violated antitrust laws in online search, specific penalties remain undetermined. The leniency highlights a more permissive regulatory environment, allowing Google to continue practices that disproportionately harm smaller businesses.

Impact on Small Businesses and the U.S. Economy

Small businesses contribute approximately 43.5% to the U.S. GDP and employ nearly half the American workforce. Policies that enable monopolistic practices by dominant firms like Google undermine the foundation of the economy, effectively leading to potential nationwide economic collapse. Unlike VC-backed giants such as Clutter or MakeSpace, small businesses are the backbone of economic resilience and innovation.

Here We Are: A New Economic Paradigm

The case of Clutter and MakeSpace illustrates how VC funding, coupled with digital advertising dominance, can reshape industries in ways that disadvantage smaller players. When companies like Google Ventures invest in startups, the resulting financial and advertising power creates a feedback loop that consolidates market control and raises barriers for competitors.

This dynamic calls into question the fairness of the current system and highlights the need for regulatory interventions to ensure a level playing field. Without addressing these structural issues, the combination of VC funding and platform dominance risks entrenching monopolistic practices and stifling innovation across industries.