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The law of unintended consequences is a familiar concept to policymakers and regulators. Set rules in order to tackle one set of problems or create a particular type of opportunity and invariably there will be side-effects that hadn’t been anticipated – very often adverse ones.
This is the anxiety underpinning new research from the Coalition for a Digital Economy (Coadec), an independent advisory group that represents the UK’s start-up and scale-up technology businesses in policy discussions. It warns venture capital investors in these firms are increasingly concerned about getting caught up in the backlash against big technology.
The research is published amid growing calls for action against Google, Facebook, Amazon and their peers on a number of threats. Many countries are seeking to work more closely with each other in order to increase the tax take from digital businesses or introducing digital taxes individually. Several initiatives are designed to force technology platforms to take greater responsibility for what their users publish online. There are even suggestions competition regulators should intervene to break the biggest companies up.
However, Coadec’s research warns investors fear that any attempt to tackle the largest technology companies on these issues could unwittingly damage smaller businesses at an earlier stage in their growth trajectory. In many cases, these start-ups and scale-ups would actually suffer more damage than their larger counterparts, investors warn.
Overall, 86 per cent of the UK investors surveyed by Coadec agreed that policy or legislation designed to target specific companies could lead to poor outcomes that inadvertently hurt or hinder smaller technology players. Some 71% of investors warned that introducing digital taxes on sales would prompt entrepreneurs to consider setting up new businesses in other geographies. And 73% feared making digital businesses more responsible for online content would be more burdensome for smaller companies – and therefore allow the dominant technology companies to tighten their grip on the market.
Dom Hallas, executive director of Coadec, argued that with growing businesses in the UK now facing a range of other challenges, from the uncertainties of Brexit to digital skills shortages, they could not afford to be excluded from the debate about regulation and legislation in the technology sector.
“There are a lot of open questions for the Government – from the platform liability to immigration – and not enough satisfactory answers,” Hallas warned. “Crucially, investors are clear that a policy conversation about the future of tech dominated by the biggest companies in the world risks squeezing out everyone else – including even our most successful start-ups and scale-ups; this isn’t good enough.”
The warning is particularly significant since it comes from the venture capital sector, which has been the main funder of very early-stage technology businesses in recent times. Were venture capital investors to be spooked by new legislation, they could withdraw from the technology sector, damaging businesses’ prospects of raising funding.
“Access to finance is a prime factor for start-up success in Europe,” said Lenard Koschwitz, director of Allied for Startups, which lobbies on behalf of new businesses across Europe and collaborated on the research.
“This survey shows us that investors are highly conscious of policy decisions; changes such as a unilateral tax or disproportionate liability rules will impact their decisions leading to less capital available for start-ups in Europe. We urge policymakers to understand the start-up ecosystem as a whole.”
December 13, 2018 at 07:01PM
Forbes – Entrepreneurs