What are the first things you think about when you hear “government regulations”? In the tech community, most people associate it with “slow”, “inefficient”, or a host of not-so-nice adjectives. And compounded with companies like Uber and Zenefits using the “move fast and break things” approach to regulation, people really just see government(s) as a nuisance that tech should be breaking through.
But this wave of regulation-bending startups like Uber and AirBnB alongside the generally increasing speed of technological breakthroughs is forcing legislation to adapt. Not only are governments reviewing more laws, but they also operate and react in a quicker time span. The tech/government relationship is changing, this excerpt from an interview with Ted Ullyot highlights this:
As tech proliferates in society as well as governments themselves, many politicians are not only forced to react but they see the advantages of using tech. And the regulations that these politicians pass can create new opportunities for companies. A few of the ways new laws can do this:
- They force individual entities into doing something that benefits the greater good
- They outline rules and regulations for entirely new industries
- They end up creating a bottleneck in a process, which creates an inefficiency
- They manage distribution of a common/social good (healthcare, utilities, etc.)
Some regulations are good and necessary, some regulations are costly and inefficient. I’m not a political analyst, and am not a good person to weigh an opinion on legislation. Rather, my goal here is to see where opportunities might exist once new laws pass.
Let’s take a look at some examples of more recent regulations that created new markets:
Obamacare: Not only do companies like Oscar Health only exist because the Affordable Care Act allowed people to shop for their own insurance outside of employers/government programs, but an entire industry of preventive care has taken the spotlight as hospitals want to better manage population health to work within the new CMS (Center for Medicare & Medicaid Services) guidelines which penalizes hospitals with poor care quality and incentivizes those that deliver high-quality, coordinated care. Medicare recently agreed to reimburse diabetes coaching programs like Omada Health for certain cases, and we can expect to see more involvement from the CMS going forward.
ELD: The Federal Motor Carrier Safety Administration recently passed the Electronic Logging Device (ELD) rule. This mandates that certain carriers and drivers must have an electronic system for better logging of hours, route efficiency, and driving behavior (a system previously noted using pen-paper for many). Tech companies like Telogis and KeepTruckin are rolling out their own ELDs and analytics solutions, while the newly digitized data provides opportunities for other use cases, such as Zendrive with insurance.
Dodd-Frank: After the recession, the Dodd-Frank act put a chokehold on the number of loans that were given. Because of this, a need emerged for smaller loans since even credit worthy borrowers couldn’t find viable sources. Companies like Lending Club and Prosper filled this by providing P2P loans.
Those were opportunities created thanks to new pieces of legislation and some of the companies who were well-positioned to take advantage of them benefited greatly. Can we use that same framework and analyze some upcoming legislation that might create their own markets?
Here are a couple that I’m looking at:
FCC Regulation re: Cable Boxes: The White House made it clear in a blog post that it wants to open the playing field for those who can build and sell cable boxes. This is obviously a huge boon for Apple and Google who want to own your TV screen, but do opportunities exist for other companies to build a new type of TV/content model?
Title III Equity Crowdfunding: On May 16th, the part of the JOBS act kicks in that allows for companies to raise money via crowdfunded equity from non-accredited investors. Certain companies like SeedInvest, Crowdfunder.com, and FundersClub are positioned to become platforms for the new lenders. But what other opportunities might exist? Diligence companies to assess risk, prevent fraud, and follow-up on delayed projects on behalf of investors? Create private company ETFs based on certain thresholds? Tracking investor performance so you know which professionals you might want to invest alongside you? Looking at how the UK crowdfunding market is playing out might give some insight into where new opportunities might be, Dr. Avtar Sehra has a great post about them here.
FAA Drone Regulations: The FAA has slowly been rolling out rules for regulated drone use. While certain projects receive ad-hoc permission through Section 333 of the FAA Modernization and Reform Act of 2012, widespread regulations are expected to take place in 2017. Once that happens, many opportunities will be open, including ones that startups are already operating in such as mapping airspace (Airmap), drone disabling (SkySafe), and licensed drone pilot projects (Dronebase). But new opportunities might exist in the future, like image analysis of drone footage, or bidding platforms for efficient air routes.
Legalization of marijuana — Alaska is the latest state to legalize recreational marijuana use. As research continues to better inform the public about the positive effects of marijuana (and state governments realize the tax benefits), we can expect to see more states allow for controlled recreational use of the substance. Proliferation will give rise to an industry of the same scale as alcohol, including an already rising array of weed-themed restaurants and branded products. However, companies will also be able to find opportunities to essentially build an entirely new CPG infrastructure (banking, packaging, tracking, data analysis, shipping, quality inspection, and more).
The Cadillac Tax — The Cadillac Tax is a part of the ACA that intends to curb healthcare spending by preventing businesses from offering exorbitant health benefits which encourages unnecessary use by employees (a good explainer is here). The tax has been pushed back to Jan 1, 2020 for implementation, but may even be shot down before implementation. The idea shifts the cost from insurance companies to employers, who in turn could shift it towards employees. Should the tax kick in, we could see the rise of more concierge medicine and corporate wellness programs through employers as a means of retention and keeping their employee populations healthy (as employees take more strides to stay out of hospitals). Also, as employees take higher deductible plans, the need for short term health related borrowing programs could increase for people that need to cover the costs of their deductible.
Pre-Tax Benefits — A bill has currently been proposed to allow $5,500 in pre-tax income to be used to pay off student loans. Companies like Gradifi and CommonBond have already positioned themselves to work closely with employers to help their employees pay their debts. Could there be other societally beneficial uses of pre-tax income, and will platforms/programs be necessary to facilitate those changes? This is definitely a tricky one, because offering pre-tax income to use for anything could simply exacerbate the underlying behavior (ie. paying off student loans as a benefit could lead to less price sensitivity in choosing universities leading schools to boost tuition further.
These are just a few of the spaces where I believe there could be opportunity, but understanding the changing landscape of regulation could be crucial in being a first mover. This is the only reason I stay friends with people who are lawyers (just kidding).
If there are particular pieces of legislation you think I should be keeping an eye on or have your own opinions about the above, feel free to reach out to me on twitter @nikillinit.