Global fintech and funding innovation ecosystem

Lobbying: it’s high time startups up their game

Sifted | Nicolas Colin | Apr 14, 2021

Startups and lobbying - Lobbying: it’s high time startups up their game

The Greensill debacle shows that startups have a lot to learn when it comes to winning friends and influencing people.

Startups are getting stuck into some highly-regulated industries — and they need to start taking those regulations seriously. Long gone are the days when founders could “move fast and break things”, to echo Mark Zuckerberg’s famous words. Now startups are handling people’s money; they’re responsible for children’s education; and some of them are even taking our lives in their (healthtech) hands.

But staying on the right side of regulation is not easy. Most rules were designed a long time ago, well before the internet came about and made it possible to solve old problems with new solutions. Many things that are now possible don’t exactly fit in the old regulatory boxes that we inherit from the past — whether it’s rules that relate to taxi medallions or the 1835 Highways Act that effectively prohibits anyone in the UK from riding an electric scooter on the road. For some startups to take off while strictly complying with existing regulations in sectors such as transportation, financial services or healthcare, the sequence would have to be: first, change the regulations, and second, grow the business.

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In practice, however, many founders are so obsessed with moving forward that they are often oblivious to the fact that legacy regulations effectively stand in the way. Investors might be more clearsighted about the regulatory context, but they often assume that regulators go with the flow and upgrade their framework as it becomes obvious that new approaches are possible.

What needs to happen

First, founders need to embrace a less naive view of regulations and regulators. Too often, they don’t realise that many government officials are not that sensitive to the promises of technological progress. Rather, their focus is on maintaining order, creating jobs, appeasing various constituencies with conflicting interests — and, yes, winning the next election.

Second, investors need to realise it’s up to them to do the heavy lifting. In the US, the most prominent VC firms have seen enough regulatory issues in their portfolios to decide that they need to have their founders’ backs. They do it by investing in thought leadership and engaging with prominent regulators, as Andreessen Horowitz has been doing for years through their media operation.

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Finally, government officials themselves need to wake up and remember that adapting regulations is a powerful lever from an industrial policy perspective. This one, by the way, is especially true in Europe. China has the sheer size of its domestic market. The US has the unrivalled power of a financial system able to funnel vast amounts of money into the startup world. What Europe has, in comparison, is powerful governments able to pull the regulatory lever as they see fit. Too often, they do so to protect legacy corporations by maintaining backward-looking regulations. Instead, they should seek to lower barriers to entry and make room for the new business models that technology now makes possible.

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