John Fingleton, former regulator, on startup and regulatory strategy
Welcome back to The Form Playbook, our newsletter supporting founders building the future of regulated markets.
This month:
🎙️Interview with John Fingleton, Chair of Fingleton Associates, former CEO of the UK’s competition regulator, and business/startup adviser
📰 News & Views: Andrew’s essay on reforming regulators to help startups scale
⏰ Form Updates: Announcing 2 new deals, Infact Systems and Rodeo, in credit data and gig work
John Fingleton, business adviser & former regulator, on startup strategy
Having once led the UK’s competition regulator (the OFT, now the CMA), John Fingleton founded an advisory firm supporting companies on novel regulatory issues, is on the board of UK Research & Innovation, and is also an adviser to us here at Form Ventures. There are few people more experienced and articulate about the challenges with the UK’s regulatory system, the opportunities for reform, and how startups can navigate an increasingly complex system. So we caught up to discuss what founders need to know when building in these complicated markets:
John’s Advice for Founders:
Don’t just think of regulation as merely a ‘hygiene factor’. Instead, consider the strategic implications of your regulatory positioning, especially if your company operates on the boundary of existing regulations, needs policy change to succeed, or risks scrutiny once you put your head above the parapet.
Lots of startups think about what success looks like, but fail to prepare for the potential political and regulatory reactions if your company becomes as successful as you think it can be. Identifying areas of concern, understanding how regulators might react to your success, and getting ahead of those risks where you can can help to proactively build a more resilient business.
Expect to navigate under-resourced regulators with limited incentive for risk, and fundraise accordingly. Many regulators are ambitious but face their own legislative barriers, while other issues are fragmented across multiple agencies which slows things down. Even if it’s not ideal, you should not find this surprising and should plan your resourcing and runway appropriately.
Find the full interview transcript at the bottom of this email.
News & Views
Startup founders today are increasingly being held back: no longer just by visa reforms or investment, but by a slow-moving regulatory state.
Today, Andrew has a piece in Operation Innovation, a new essay collection launched by The Entrepreneurs Network, on exactly this:
Most of the UK’s startup successes today have been in regulated markets. These are ‘markets that matter’, where policymakers and founders can partner in the public interest. And now, the next generation are bringing much-needed innovation both to traditional regulated markets – think real-time credit data or personalised health care – or building in new sectors where the policy framework is still taking shape – think carbon markets or cultivated meat.
But too often, we are subject to endless ‘red tape challenges’ or ‘one in, one out’ deregulatory mantras, instead of building a continuous, durable capability to understand the frontier of innovation, identify appropriate regulatory reforms, and deliver them as quickly as possible.
Technology and policy are the twin engines of progress, and we will need both to solve our most pressing problems. For years, startup policy has rightly focused on setting the right ‘horizontal’ incentives and letting a thousand flowers bloom. But now we need a different capability. The next era of innovation is going deep into ‘vertical’ sectors, promising breakthroughs that could directly improve both our lives and our planet. Our regulatory state must be up to the task.
Operation Innovation features short essays & ideas on regulation, clinical trials, energy abundance, food innovation, AI, startup procurement, R&D, and more, also featuring John Fingleton. Check out the full piece and essay collection here, and if you’re in London tonight join the launch event — hosted in collaboration with TxP, a community for folk in tech & policy co-founded by Andrew.
Form Updates
We backed Infact Systems, a new credit referencing agency bringing real-time data to modern credit, alongside Albion and Outward. Infact are putting an end to incomplete, outdated and inaccurate credit data — supporting responsible lending and vulnerable consumers in the process.
We also backed Rodeo, which is helping gig workers analyse and optimise their work across multiple platforms, alongside by LocalGlobe. As on-demand delivery grows, Rodeo are empowering riders and drivers and highlighting the importance of earnings data as Gig 2.0 emerges.
As always, if you know anyone building the future of regulated markets — or you’re an investor thinking about how policy affects your portfolio, get in touch.
Full Interview with John Fingleton:
FORM: How well understood is policy & regulation by early stage companies? Can you share any examples of startups who have navigated regulatory change or investigations well and what they did right?
JOHN FINGLETON: Startups’ primary goal is to get investors and customers on board, with most just considering regulation as a hygiene factor. But there are 5 categories for whom it matters more:
1. Startups who play outside the existing regulatory boundary (e.g. BNPL)
2. Those inside the boundary who need a licence to operate (e.g. fintech)
3. Those for whom regulatory change could help dislodge entrenched incumbents (e.g. credit information)
4. Those who may face a regulatory backlash in future if they’re as successful as they hope (e.g. Uber)
5. Those whose path to exit might be blocked by competition or national security investigations (e.g. semiconductors)
If you’re doing something profoundly innovative, you probably hit one of these criteria. It’s worth understanding the strategic implications early on and positioning the company appropriately.
How well are regulators set up to engage with and enable innovative companies, especially when they do overlap or fall between the cracks of existing regulators? What can companies in this position do to make progress?
Regulators try to be supportive of innovation but often face their own legislative barriers, a limited incentive for risk, and fragmented responsibilities within industries. The FCA Sandbox has largely been encouraging of startups, but this is rarely about profound industry disruption. Similarly, no matter how supportive the Civil Aviation Authority would like to be, they ultimately have one job — to keep people and planes safe — so the risk:return profile of that narrow remit does not support innovation.
As a former head of a regulator and having recently given a major speech on economic regulation and productivity, how have you seen the UK’s regulatory environment change over the last decade? Where do you see reasons for both optimism & concern going forward?
The UK’s regulatory environment has become excessively fragmented and piecemeal over the last decade, hampering innovation. But just giving regulators more innovation or growth duties isn’t helpful either.
Instead we need a new, cross-sector, innovation regulator that pools risk. Akin to pension fund consolidation, the bigger its portfolio the more it can afford to take risks. This is also increasingly important as many emerging technologies naturally span different sectors, so a cross-sectoral approach would also reduce the disproportionately high upfront regulatory costs they face early on.
How do you explain the disconnect between political attempts to scrap ‘red tape’ often proving unproductive, and startups who are increasingly taking on regulated markets that do not enable disruptive new business models or product innovations? Are we failing to convert the political ambition, or is it looking in the wrong place?
Red tape persists due to ever-positive public appetite for regulation and rent-seeking by incumbents, in the process creating an enormous industry of people focused on unproductive activity.
Many deregulation attempts, like the “one in one out” rule, haven’t been effective, but ironically, having stronger consumer rights and regulations could provide a foundation for reform elsewhere, creating an environment that supports innovation without favouring incumbents.
The trend towards sector-specific rules is understandable, but the more we go down this path the more we get incumbent capture, with regulations only understood by experts. Instead, stronger and more consistent consumer rights would support people but also make it simpler for companies bundling multiple regulatory permissions or moving across different markets.