#11: The UK's new competition regime, with the CMA's Will Hayter
Welcome back to The Form Playbook, our newsletter supporting founders building the future of regulated markets.
This month:
🎙️Interview with Will Hayter, the UK’s leading regulator on digital competition, on startups, exits, and innovation
📰 News & Views: How new competition rules will affect startups and VC
⏰ Form Updates: Sylvera’s Series B, Thymia’s seed, and Mayowa’s a rising star 💁♀️
Will Hayter, competition regulator, on how the CMA thinks about digital markets, exits, and innovation
The CMA, the UK’s competition regulator, is due to get some new powers. Will Hayter, a senior UK official with experience across No 10, Cabinet Office, Ofcom and the CMA, is now a key figure in this regime as Senior Director of the CMA’s new Digital Markets Unit—earning him a mention in POLITICO’s 2023 Power 40 list.
The new unit will be able to designate a few major tech companies with ‘Strategic Market Status’ and intervene in markets where it judges these firms to be acting unfairly, with knock-on effects for startups. Naturally, the CMA hopes that the net effect of all this will be to help companies scale and compete with large incumbents. But the jury is still out.
We caught up with Will to hear more about their plans. Read on for our view below.
Will’s insight on the CMA’s plans:
The CMA is setting up a new Digital Markets Unit to address concerns about excessive market power among the largest tech companies. It will set out binding codes of conducts for these largest firms, with further interventions possibly including blocking mergers that limit innovation and undermine competition, removing restrictions on third-party services, or making it easier for consumers to switch services
The aim is to retain competitive markets that help startups to grow — including preventing Big Tech from ‘insulating themselves from the entry and growth of would-be competitors’ and keeping markets contestable — while recognising that acquisitions are not necessarily problematic and can be benign or even beneficial
The CMA is also looking into AI foundation models, aiming to build an early understanding of a market that’s rapidly evolving and what the implications may be for competition and consumer protection
Check out the full interview here: Will Hayter, CMA, on the UK’s new competition regime [The Form Playbook Interview]
News & Views: How new competition rules will affect startups and VC
Will the new competition regime help startups? The CMA’s new toolkit will include powers that could help markets work more fairly, like encouraging third-party app stores or requiring big companies to give smaller businesses more notice about product changes. But the hypothesis that tighter merger control will make markets more contestable has not yet been tested — it’s at least as possible that this could break the cycle of capital that underpins the wider ecosystem, weakening innovation and competition in the long run.
These new rules don’t exist in isolation — tighter M&A scrutiny will add further complexity to late stage companies preparing for an exit: At some point, as startups scale, they come to a 3-way junction: i) keep fundraising privately, ii) exit by going public, or iii) exit via M&A. To make the first two options more viable, the UK is looking to reform public markets and unlock more late-stage capital. But we are a long way from material improvements for either route, particularly after the contraction of the last 18 months. That leaves the acquisition route, which may get harder not only due to increasing competition scrutiny but also tighter screening around national security risks.
Although this new CMA regime has much in common with new EU rules, schisms are still possible. In theory, the new DMU is philosophically similar to Europe’s Digital Markets Act, which now enforces new rules on ‘very large online platforms’. Both jurisdictions approved Broadcom’s takeover of VMware, while they’re both reviewing Adobe’s acquisition of Figma. But as the recent Microsoft/Activision case demonstrated — where the CMA blocked the takeover, only for the EU and (ultimately) US to then approve it — even common philosophies can lead to divergent decisions.
What does it mean for early-stage investors and founders? In some senses, there is already a natural experiment at play: with so much capital tied up in a few major companies who didn’t exit in recent years, a generational liquidity cycle never quite completed just as public markets fell too, with the effects for both VC and startup fundraising now playing out. But however this regime shakes out, it certainly places a renewed emphasis on founders who have the drive to build large, successful companies and are undeterred if early exit routes become less likely.
How important is the CMA’s work on AI? As we discussed last time, one of the most interesting aspects of the CMA’s work on AI is how it highlights the policy contradictions in open source. The CMA is keen to see ‘open, competitive markets’ in AI foundation models, which the open source ecosystem enables. But open source AI tooling is also subject to enormous political pressure — as well as from some of the largest AI companies, who have formed a new Frontier Models Forum to coordinate on AI safety — due to the risk it decentralises the ability to generate harmful content at scale. Expect this feedback loop between open source, frontier advances and regulatory scrutiny to shorten — shaping both companies’ defensibility and influencing where VCs should invest.
Form Updates
Sylvera raised a $57m Series B, led by Balderton, to expand further into the US and catalyse investment into global, effective climate action
Thymia announced their $2.7m seed round, accelerating their mission to empower mental health clinicians and make mental illness more visible, trackable and monitorable
Mayowa was named a 2023 rising star in European VC by Business Insider (alongside many of our other favourite people!)
And Stitch launched a new partnership with Langland to improve patient recruitment and retention in clinical trials, while KareHero launched their Employers Guide to the Carer’s Leave Act
As always, if you’re building in the future of regulated markets, get in touch.