Unfinished business in tech policy
2023 started more than it finished - we look ahead to 2024
Welcome back to The Form Playbook, our newsletter supporting founders building the future of regulated markets.
This month:
2023: a year of unfinished business in tech policy
We look back on a busy year of deals, exits and everything in between!
Our thesis back in 2018 was that more of GDP would become regulated over time. 2023 proved us right - almost every tech vertical has seen big movements in policy. But, in almost every case, we’re leaving 2023 with unfinished business.
Frontier AI regulation is only at the “end of the beginning”
The tech world waits with bated breath to see exactly what has been agreed in the EU AI Act - in particular where the battle between the “regulate powerful LLMs most severely” vs “don’t regulate the foundation model layer” debate will end up. We’re several twists and turns away from a stable view in Europe, not least because the technology is advancing and shifting so quickly. At the moment, a lot of people are directly using GPT, which seems to collapse the whole “infrastructure vs application” dichotomy. Maybe in the long-term there will be a clearer distinction between layers of the stack, but even then, we expect there will be a big debate on whether the most advanced frontier models are more comparable to the cloud (”Regulating the cloud is ridiculous! It’s neutral infrastructure! Regulate the applications that use it for a particular purpose!”) or more comparable to regulation of the chemicals industry (”Some chemicals are just bad, and we have to regulate them directly!”).
Regulatory capture is dead, long live regulatory capture
Bill Gurley’s talk at the All-In Summit got many investors talking about regulation this year (thanks Bill, your Form hoodie is in the mail). He was right to point out glaring examples of anti-competitive lobbying by incumbents and to highlight the risk this poses for startups. But today’s startups are tomorrow’s incumbents, and VCs are trying to back companies that will end up dominating markets just as Microsoft/ OpenAI have - so the real lesson might be that tech companies should see regulatory strategy as a tool to help secure their position, along with product, team, and everything else. US VCs piling into political donations suggests they see it as, “if you can’t beat ‘em, join ‘em”!
On the flipside, we shouldn’t assume that Sam Altman travelling the globe to tell world leaders that they should regulate AI is necessarily only driven by regulatory capture. If he genuinely thinks he is developing something dangerous, and doesn’t believe the current regulatory approach is sufficient to support its safe deployment - maybe he’s just being… responsible?!
Venture investors will begin to price-in more assertive merger control
The year ended with a blockbuster block in Adobe / Figma. A lot of commentators have little interest in the reasoning for or against the merits of the intervention - preferring just to see it as another nail in the coffin of Europe’s attempt to compete with the US on tech. This misunderstands what competition regulators are here to do - they aren’t agents of a pro-tech industrial strategy, so any frustration needs to be directed at the politicians who set the agenda, not the officials who enforce it. On the flipside, in the UK (DMU) and EU (DMA) those same officials now have more teeth to take on Big Tech, so we may get evidence in 2024 that these new regimes really will help startups compete - watch this space. In the meantime, VCs will have to price in the likelihood of blocked exits in a way that they haven’t to date, especially in later stage funding rounds.
Open Banking needs to rediscover its mojo
In 2022, lots of pundits claimed that nothing further would change on open banking any time soon, but we have eyes on PSD3 and very recently the UK PSR’s consultation on expanding Variable Recurring Payments. A range of open banking business models look like they might depend upon sweeping between a merchant and a customer being fully implemented, so we hope the UK sees this as an area where regulating could birth a new segment of fintech. And 2024 may be the year that open banking goes on tour - there have been signs that Smart Data will form a key part of a Labour government’s reforms, which could unlock new “open” business models economy-wide.
Crypto might find a warmer welcome in the UK
While we don’t think it’s necessarily the best idea to regulate in advance of innovation taking place (see “AI regulation” above), under-regulating and over-litigating can also have a terrible impact on the tech market. Enter, crypto 2023. Parts of the crypto ecosystem (e.g. Coinbase in the US) have been crying out for “rules of the road”, and other parts have realised that there are, after all, some rules that will be enforced... If London can deliver its new legislative regime, and an ambitious-sounding crypto sandbox, it stands to gain (see new a16z office, etc) as the institutions who will drive the real scaling of decentralisation have an absolute red line on regulatory clarity and compliance.
We’ve crossed the tech-in-healthcare rubicon
Late in the year, Palantir was announced as the lead for the NHS’s new Federated Data Platform, building on its success in supporting the NHS through Covid. Combined with comments from the Labour opposition that the NHS is a “service not a shrine”, and emerging (but still slow) regulatory efforts to enable AI-driven medical devices, it looks like the political and regulatory classes are finally beginning to accept that they cannot deliver for patients without widespread and deep use of tech. Judging by the Form portfolio alone (😉), 2024 could be the breakthrough year for venture backed healthcare innovation - if policymakers deliver on what they’ve begun.
Our year in review
We backed KareHero, Fideo, Rodeo, Triple, and several more soon to be announced.
Ophelos exited to Intrum - congratulations to Amon, Paul and the team!
We saw Peppy (Series B), Sylvera (Series B) and Thymia (seed) land new funding rounds.
We’ve been thrilled to feature Hannah Seal (Index Ventures), John Fingleton (Fingleton), Nathan Benaich (Air Street Capital), Will Hayter (Competition and Markets Authority) and Emily Miles (Food Standards Agency) in The Form Playbook.
We set out the case for The Regulated Market Opportunity in VC, launched our campaign to Fix the Regulators to support startups, and Andrew wrote for an essay collection on Responsive Regulators.
Mayowa was named a 2023 rising star in European VC by Business Insider, while Form was named runner-up at the Europas for Hottest VC Fund of the Year!
We held our first Investor Day at the Institute for Government.
We graced the pages of the FT, Sifted, the New Statesman and BusinessInsider.
We got out and about, appearing on multiple panels (Slush, the TechUK summer conference, at various accelerators and more) as well as a number of podcasts (Riding Unicorns, TechUK, Global Counsel), at numerous ministerial round tables and bilaterals, briefings with senior regulators and more.
Here’s to another great year in 2024!