Hypocrisy of Regulatory Capture

There is much buzz about regulatory capture after Bill Gurley’s talk at the All In Summit. Bill makes several excellent points and highlights examples of regulatory capture that made many cringe. Here’s the rub, though: practically every founder and investor would like to be part of a company that becomes big enough and influential enough to participate in regulatory capture as a moat for their business.

Bill points to Epic as an example of regulatory capture. I won’t reference any of the specifics of the example, as you can see in Bill’s talk. Bill doesn’t say that given the opportunity to write legislation and requirements that would help a company create a competitive advantage, most, if not all, would.

Startup founders and investors bemoan the industries, enterprises, and often regulations they are trying to disrupt. The hypocritical part is that they want their companies to become one of the players they initially want to disrupt. Enterprise companies leveraging their size, funds, and clout to influence politicians and regulations is something they’ve earned the right to do. They get to leverage their advantages just as startups find cracks in large enterprises’ armor to disrupt and replace them. Bill was speaking to a receptive audience at the All In Summit. Bashing big companies and elected officials for rigging things so startups have a more challenging time disrupting is red meat to hungry founders.

When enterprises or elected officials conduct themselves improperly, there should be consequences. But to attempt to villainize a company and leader like Judith Faulkner of Epic for doing what is in the best interest of her business is misguided. Does regulatory capture create inefficiencies, cost increases, and anti-competition sometimes? Yes, it does. Does this mean that companies should avoid doing it to allow others to compete with them more easily? No, it doesn’t. Regulatory capture that breaks laws and is so harmful to the public good to be unquestioned should be held accountable. However, to position mature companies participating in regulatory capture as bad when founders and investors alike want their companies to be in the same position is disingenuous.