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The Political Economy of Little Tech · a16z AI Policy Brief

0:00
SPEAKER_01: Welcome back to the A16z AI Policy Brief.
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SPEAKER_01: Policymakers often say they want to support startups.
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SPEAKER_01: Republicans say it and Democrats say it.
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SPEAKER_01: But despite repeatedly saying they support startups,
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policymakers often propose rules that make it harder for those
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startups to build
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SPEAKER_01: and compete.
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SPEAKER_01: In this episode,
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SPEAKER_01: I'm joined by my colleague Colin McKeown,
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SPEAKER_01: who leads government affairs at A16z,
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SPEAKER_01: to discuss the political economy of little tech.
0:25
SPEAKER_01: Elizgunn a16z
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SPEAKER_00: Once you layer on the regulation on some of the bigger players,
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then they start advocating against the little players because
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they don't have as
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SPEAKER_01: many restrictions on them.
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When people are scared about the impact of AI on their lives or
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on their jobs,
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SPEAKER_01: they don't care that much about a battle.
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SPEAKER_01: A16z
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SPEAKER_01: More concentrated industries are not good for people.
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SPEAKER_01: They end up having higher prices.
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SPEAKER_01: They end up having lower quality products.
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SPEAKER_01: They end up having less innovation.
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What was supposed to be kind of the anti-bigs provision and law
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has now turned into
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SPEAKER_00: sort of the big bank protectionist bill.
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SPEAKER_00: And we can't see the same thing happen in tech.
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We're headed toward a world in AI that repeats all those same
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mistakes from a
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SPEAKER_01: competitiveness standpoint.
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SPEAKER_01: Colin, welcome to the podcast.
1:54
SPEAKER_01: Always good to chat.
1:56
SPEAKER_01: Matt, we're back.
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And we are back because we wrote a piece that followed on a
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great piece that you
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SPEAKER_01: wrote several months ago called The Precautionary Empire,
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SPEAKER_01: where you were looking at this odd paradox where...
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Lawmakers talk all the time about trying to do things that are
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good for startups.
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SPEAKER_01: Often in policymaker speeches,
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SPEAKER_01: they're talking about startups,
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SPEAKER_01: they're talking about small companies.
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SPEAKER_01: They profess to want to do good things for them.
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And then the policy agenda that we often see from those
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policymakers actually
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SPEAKER_01: proposes things that would be adverse to startup interest.
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So can we just start by you talking a little bit about the
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ideas in that piece?
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SPEAKER_00: Yeah, I mean, look, my general concept of this was a couple fold, right?
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The point that you just made was we have been seeing this sort
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of phenomenon where
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it's actually very politically popular and I think a fairly
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normal course of action
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for people to actually make public statements saying that we
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really support
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SPEAKER_00: startups or we really support small businesses.
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But what we have seen on the ground is much different,
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as you sort of correctly outlined.
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SPEAKER_00: I think about it in a couple different ways.
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SPEAKER_00: One,
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SPEAKER_00: you know,
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SPEAKER_00: and we'll talk about this a little bit,
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SPEAKER_00: is there's a massive incumbent advantage,
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SPEAKER_00: right?
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SPEAKER_00: There are people who work at very large companies who are in D.C.
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SPEAKER_00: all the time advocating on behalf of,
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SPEAKER_00: I think,
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SPEAKER_00: large company interests.
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SPEAKER_00: Now, that's not always to the detriment of small businesses or startups.
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SPEAKER_00: But certainly,
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SPEAKER_00: you know,
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they have different issues and they have different problems and
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they have different
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SPEAKER_00: solutions than I think what would happen on the startup side of things.
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but the other thing here is working here and interacting with
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startups on a regular
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basis you just get to see how few resources they actually have
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to come in and
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actually advocate on their behalf so I was trying to sort of
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paint a picture of why
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I think that is happening raise awareness to the fact that it
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is actually happening
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and try to get people from the startup community to lend a
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little bit more of their
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time towards advocating for things that I think actually help
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you know their
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SPEAKER_00: interest and the interest of the people who
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SPEAKER_00: A16z
4:09
SPEAKER_01: A16z
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SPEAKER_01: A16z
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That individual staffer is probably responsible for five or six
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different issues.
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SPEAKER_00: They need to be really smart on 2A,
5:09
SPEAKER_00: they need to be smart on Social Security,
5:11
SPEAKER_00: they need to be smart on AI,
5:12
SPEAKER_00: they need to be smart on crypto.
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If you are trying to get yourself prepared and or your boss
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prepared for a vote,
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SPEAKER_00: a hearing,
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SPEAKER_00: a markup,
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SPEAKER_00: any sort of legislative activity,
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the first thing that you need to do is go and talk to
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individuals whether that be
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at a think tank or a company or elsewhere who have some level
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of expertise to try
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and get you up to speed give you reading materials etc it's
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just the case that
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SPEAKER_00: there are more of those individuals that are represented
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SPEAKER_00: You're going to go and have those conversations down there.
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SPEAKER_00: You know,
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SPEAKER_00: the last piece that I would note is,
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SPEAKER_00: again,
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SPEAKER_00: kind of as we opened,
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SPEAKER_00: the startup community is just completely underrepresented.
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They don't even know where to go and find some help from some
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of these companies.
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SPEAKER_00: They don't know that some of these companies exist.
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SPEAKER_00: AI Policy Brief
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SPEAKER_01: Can you talk from the staffer perspective,
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SPEAKER_01: because you spent a lot of time on the Hill as a staffer,
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SPEAKER_01: just about the process of getting feedback on bills?
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So when you've got a bill that's in development and you're
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trying to solicit
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SPEAKER_01: feedback from a whole bunch of different stakeholders,
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SPEAKER_01: how does that work?
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SPEAKER_01: A16z
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you work with internally within your office to make sure that a
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your boss is
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comfortable with moving forward this the boss thinks this is a
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good idea maybe you
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check in with the committee of jurisdiction to make sure that
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they're comfortable
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with it and or you know let them know that you're moving
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forward they will probably
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have some feedback but then you take it out to a wide group of
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stakeholders and
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that doesn't just mean private companies that means policy
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think tanks as I
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mentioned before that means labor unions that means consumer
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advocate groups that
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SPEAKER_00: means obviously the industry
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and when you are in that process it can be incredibly complex
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it is one giant
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negotiation a lot of times with people with very very different
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competing interests
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it gets very hairy very quickly and once you have actually made
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it through the
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stakeholder process then you need to work on the rest of the
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members of the senate
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or the house or in the case of I think the administration need
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to work through
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SPEAKER_00: either the commission and agency
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You need to work through multiple different layers of the
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agency process All to
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sort of get buy-in to be able to move this forward So it's
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really cumbersome,
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it's really complicated And I think that that's a big part of
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the reason why we
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SPEAKER_00: don't see more bills enacted in a shorter period of time
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It seems like you're really strongly incentivized to figure out
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because of the time
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constraint that you're talking about the fewest number of touch
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points that you can
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SPEAKER_01: get to get the most amount of representative feedback.
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So I think that's something that breaks really hard against
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startups to some extent.
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We as a firm are kind of a beneficiary of it I guess because
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people will come to us
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because we represent the interests of those startups in our
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portfolio and we try
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really hard to do that effectively and it's easier to come to
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us than a hundred or
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SPEAKER_01: a thousand AI companies individually.
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SPEAKER_01: A16z
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SPEAKER_01: at the big companies.
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SPEAKER_01: And then if you go to trade associations,
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SPEAKER_01: most of the trade association membership are larger companies.
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SPEAKER_01: So if you're trying to get the views of quote unquote industry,
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SPEAKER_01: you can go to a few trade associations.
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If they're on board with something,
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you can represent that industry is on board.
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It has been striking to me to see in so many of the
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conversations that we've had,
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SPEAKER_01: people will say to us,
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SPEAKER_01: you're opposed to this concept,
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SPEAKER_01: but industry supports it.
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SPEAKER_01: And the implication is that we're being difficult,
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SPEAKER_01: that we're dragging our feet,
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SPEAKER_01: that we're sort of deliberately obfuscating,
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SPEAKER_01: standing in the way of a bill moving forward.
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SPEAKER_01: AI Policy Brief a16z
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SPEAKER_00: AI Policy Brief a16z
10:18
SPEAKER_00: that they will become familiar with the process.
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There is a trial and error process to learning how the DC
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ecosystem or the state
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SPEAKER_00: government or the international ecosystem work.
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SPEAKER_00: Each of these governments is its own unique ecosystem.
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SPEAKER_00: You need to learn how to navigate these things.
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SPEAKER_00: And it also compounds.
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SPEAKER_00: The more that you show up, the more benefit you will get.
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so I think it actually cuts both ways I mean again I feel like
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we're seeing this
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play out in real time right now like what do you see as the
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cost of this like what
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are the I think it makes sense obviously that smaller companies
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are going to have
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fewer resources to track what's going on in DC we haven't even
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talked yet about
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SPEAKER_01: state capitals but like
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SPEAKER_01: Tracking DC is one thing,
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tracking what's the activity in 50 different state capitals
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where literally I think
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SPEAKER_01: 1700,
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1800 bills have been introduced in this set of state
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legislative sessions.
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SPEAKER_01: That's a monumental task.
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Showing up in DC to represent your interests is another thing
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that's challenging
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SPEAKER_01: for small companies.
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Building the relationships that enable you to show up is
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another thing that's complicated.
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SPEAKER_01: But given that reality,
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SPEAKER_01: like all the challenges that small companies face,
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what are the costs for them of being at this disadvantage in
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being able to
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SPEAKER_01: represent their interests?
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SPEAKER_00: I mean, the costs are tremendous, right?
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SPEAKER_00: I think about this in a couple different ways, right?
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You don't need to have an enormous amount of political money
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put behind or even a
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SPEAKER_00: giant lobbying team to make a difference.
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SPEAKER_00: But
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I think what you do need is you need large representation from
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that group meaning
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if we can kind of coalesce a number of different startups
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around a similar concept
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to come in each of them pitching in a little bit of time here
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or there the
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collective actually makes a big impact but I would say look not
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having any
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SPEAKER_00: representation not coming and showing up
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SPEAKER_00: Short term,
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SPEAKER_00: medium term,
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SPEAKER_00: long term has a massive impact because again,
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the only people who will be in those rooms making those
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decisions are the bigger
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players or the individuals from other groups that may or may
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not necessarily agree
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with them that are advocating on behalf of positions that they
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don't have any real
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SPEAKER_00: visibility into.
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So actually a phenomenon that we see all the time is a bill
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will pass or an
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SPEAKER_00: executive order will get signed or a regulation will be put in place
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and the startups had no idea that it was even being considered
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so I think you know
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trying to undo something after it's already been moving through
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the process and has
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a head of steam is a much much more difficult task than trying
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to be there at the
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SPEAKER_01: ground level which I think is what
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SPEAKER_01: You've been doing for a really long time.
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I've been doing in partnership with you since I started at the
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firm is pushing the
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SPEAKER_01: rock uphill against proposals that are really challenging for startups.
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SPEAKER_01: And that rock is getting bigger and bigger.
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SPEAKER_01: I think we're still moving up the hill,
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but it's really a challenge because I feel like what we're
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seeing are a whole set
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of policy concepts that really are are incredibly hard for
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smaller companies.
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SPEAKER_01: I think large companies are
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SPEAKER_01: AI Policy Brief a16z
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SPEAKER_01: I think it is really,
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really hard for startups to literally or figuratively open the
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door to their
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SPEAKER_01: company and then open the door to their filing cabinets,
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SPEAKER_01: literally or figuratively,
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and figure out a way to guide an auditor through their systems
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in a way that
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SPEAKER_01: enables the auditor to do the work that they've been enabled to do.
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SPEAKER_01: So it seems to me like more and more and more we're seeing a set of
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SPEAKER_01: AI
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SPEAKER_01: A16z
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SPEAKER_01: So the architecture of it seems just really incredibly difficult to me.
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SPEAKER_00: Well, there's almost a blind faith in the government, right?
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SPEAKER_00: I think what we're seeing is there is a classification of builders.
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We're certainly seeing this in the AI space that just believe
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that the government
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is going to come in and they're going to solve all of the
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problems that we have on
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SPEAKER_00: a policy front.
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SPEAKER_00: I mean, I have a fun anecdote here.
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SPEAKER_00: So,
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SPEAKER_00: you know,
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SPEAKER_00: when I was in the Congress,
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SPEAKER_00: I worked on a crowdfunding provision in the 2012 Jobs Act and then,
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SPEAKER_00: you know,
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SPEAKER_00: sort of follow-on amendments that came with it.
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SPEAKER_00: You know, crowdfunding as a concept is very simple, right?
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We need to allow some people in the private market under a
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certain cap to be able
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SPEAKER_00: to,
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SPEAKER_00: you know,
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SPEAKER_00: invest small amounts of money in projects.
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SPEAKER_00: Think Kickstarter.
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Kickstarter came up at the time,
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so we tried to basically codify Kickstarter.
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SPEAKER_00: We put that out there, put in a bill.
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SPEAKER_00: It was relatively non-controversial.
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SPEAKER_00: It got done.
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SPEAKER_00: It was a lot of bipartisan support.
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SPEAKER_00: When we wrote that,
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SPEAKER_00: I think it ended up being three and a half pages of bill text.
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The SEC then went through the rulemaking process and it's now
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over a thousand pages
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SPEAKER_00: of compliance and therefore crowdfunding effectively doesn't exist.
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SPEAKER_00: It's certainly not used.
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SPEAKER_00: Wow.
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SPEAKER_00: The same thing actually applies with some of these audits.
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I don't think you would find anyone who's reflexively against
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the concept of audits.
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SPEAKER_00: The problem is,
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can the government actually implement and institute these in a
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way that doesn't
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SPEAKER_00: completely encrush small businesses?
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SPEAKER_00: Yeah.
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SPEAKER_00: That to me is, I think, a big focus.
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SPEAKER_00: So I think there's plenty more to talk about another time on that.
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SPEAKER_00: I was curious though,
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SPEAKER_00: Matt,
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SPEAKER_00: you are a person who has,
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SPEAKER_00: I think,
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SPEAKER_00: been both on the big tech and now on the little tech side.
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SPEAKER_00: Do you want to speak a little bit about the incumbent advantage?
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SPEAKER_00: I mean,
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what is it like to work in one of these big policy teams and
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how do you guys think
16:43
SPEAKER_00: about the world?
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So I worked at Meta for a little more than eight years and I
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actually think even in the
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course of my time there I saw a real shift in our ability to do
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some of the things
16:54
that make your relationship with government better so when I
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started we had a I
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SPEAKER_01: forget exactly how big the public policy team was but
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SPEAKER_01: A16z
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SPEAKER_01: A16z
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It's really hard to do that and over time we got better and
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better at that.
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SPEAKER_01: I think when I left the public policy team was hundreds of people.
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SPEAKER_01: I wouldn't be surprised now if it's over a thousand.
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The legal team was sort of comparably sized and it enables you
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to provide much
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SPEAKER_01: better customer service to governments which is
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Fantastic I think governments are deserving of that if you're
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able to staff it but
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little companies can't I think one thing that policymakers
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really don't have a feel
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for and not just policymakers academics people in civil society
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like a lot of the
18:06
people even other industry representatives like people that we
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talk to all the time
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SPEAKER_01: I think
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it's hard to conceive of these AI companies that have gotten
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significant VC
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investment have very strong leaders have talented engineers
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working for them are
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occasionally in the news like they have some public profile but
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they don't yet have
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a product in the market or if they have a product in the market
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they're still at a
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phase of their development where they're really just trying to
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succeed and success
18:34
is not a foregone conclusion you know they're treated I think
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sometimes by
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SPEAKER_01: policymakers as if
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They're inevitably going to be able to compete and have
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successful products.
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SPEAKER_01: That's not a foregone conclusion.
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SPEAKER_01: And yet,
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SPEAKER_01: because of their size,
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SPEAKER_01: because of the stage that they're at,
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SPEAKER_01: they might have a one-person public policy team.
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SPEAKER_01: They might have a one-person legal team.
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I think we've seen for a couple of companies in our portfolio
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that can start to shift.
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SPEAKER_01: Did you have any experience with different policy sets that were,
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SPEAKER_01: I think,
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SPEAKER_01: problematic while you were there?
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So one that we're just increasingly seeing after Illinois added
19:27
to its transparency
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SPEAKER_01: legislation and audit requirement,
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we're just seeing more and more discussion of why audits are a
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common sense
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SPEAKER_01: solution that large and small companies can deal with.
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SPEAKER_01: AI Policy Brief a16z
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It was writing a check plus then figuring out the staff time to
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manage the auditor
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so they would have requests for information for various
20:14
different documents.
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SPEAKER_01: They'd want to know your policies on different things.
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SPEAKER_01: They'd want to talk to different people
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SPEAKER_01: A16z
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SPEAKER_01: A16z
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SPEAKER_01: What are the costs of those things for competition in the industry?
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And we hear all the time with social media or search or
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e-commerce that there are
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SPEAKER_01: people who want those markets to be more competitive.
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And I think this goes to the crux of your piece,
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the piece that you wrote a few months ago.
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We're headed toward a world in AI that repeats all those same
21:18
mistakes from a
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competitiveness standpoint where we lock in the largest
21:22
providers where we dig a
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moat using things like audits or impact assessments those kinds
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of policy solutions
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to make that moat deeper and deeper and it makes me think that
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the likelihood that
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SPEAKER_01: we wake up some number of years from now
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SPEAKER_01: A16z
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then they start advocating against the little players because
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they don't have as
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SPEAKER_00: many restrictions on them.
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SPEAKER_00: We've seen that time and time and time again.
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This plays out in all different types of industries,
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namely banks and fintech.
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SPEAKER_00: This has been a major theme for a very, very long time.
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SPEAKER_00: To that point,
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SPEAKER_00: do you think from a policy perspective,
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SPEAKER_00: are there additional things that can be done?
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SPEAKER_00: Is it structural?
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SPEAKER_00: What are some of the ideas?
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SPEAKER_01: Well, you just had me think of this revenue-based threshold.
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SPEAKER_01: So we've long advocated if you're trying to separate small and large,
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SPEAKER_01: AI Policy Brief a16z
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SPEAKER_01: A16z
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SPEAKER_01: Okay,
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SPEAKER_01: well,
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SPEAKER_01: if it's not intended to cover startups,
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then the best way to ensure that it doesn't is not looking at
23:11
things like compute
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SPEAKER_01: thresholds or training cost thresholds,
23:14
SPEAKER_01: but instead to focus on revenue.
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SPEAKER_01: So the lawmaker ended up putting a revenue threshold in the legislation,
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SPEAKER_01: and then the large companies came back and said,
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SPEAKER_01: A16z
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There are a couple other policy ideas I think that are helpful
23:41
for smaller companies.
23:42
One is I think you can embed in legislation the idea of doing
23:45
impact assessments on
23:46
SPEAKER_01: the competitiveness of an ecosystem.
23:49
So often we see bills that will have a requirement to produce a
23:53
report at the end
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SPEAKER_01: of some period.
23:55
SPEAKER_01: It might be annual reports.
23:56
It might be for a piece of legislation that's going to sunset
23:59
after three years.
23:59
SPEAKER_01: It might be at the three-year mark.
24:01
SPEAKER_01: But to look at how the legislative process has played out,
24:05
SPEAKER_01: to look at changes in the industry,
24:07
SPEAKER_01: and to
24:08
SPEAKER_01: AI Policy Brief a16z
24:23
SPEAKER_01: A16z
24:39
SPEAKER_01: AI Policy Brief a16z
25:00
They don't care that much about a battle between one company
25:03
another even if it's a
25:03
SPEAKER_01: small company battling against a large company.
25:05
But I think the really critical thing here is that the reason
25:08
we have antitrust
25:09
SPEAKER_01: laws and the reason that we push so hard for minimizing concentration and
25:15
SPEAKER_01: maximizing competitiveness is because
25:18
more concentrated industries are not good for people they end
25:22
up having higher
25:23
prices they end up having lower quality products they end up
25:26
having less innovation
25:27
those are literally the prongs of antitrust analysis because
25:30
antitrust analysis
25:31
takes into account the impact of having dominant entities and
25:36
concentrated markets
25:37
SPEAKER_01: on consumers and so
25:39
SPEAKER_01: What we're pushing for, I think, is aligned with consumer interests.
25:42
SPEAKER_01: We are pushing for little tech,
25:44
but we're pushing for little tech because a vibrant ecosystem
25:48
where startups really
25:49
can compete with larger companies is going to have downstream
25:52
significant benefits
25:53
SPEAKER_01: for consumers.
25:54
SPEAKER_00: There's a great AEI chart that floats around at least once a year,
25:57
SPEAKER_00: and they update it every so often.
25:59
SPEAKER_00: Maybe we can link it in the show notes.
26:00
But it shows basically every highly concentrated industry is up
26:05
and to the right on
26:06
SPEAKER_00: how poor and how costly these
26:09
SPEAKER_00: AI Policy Brief a16z
26:24
SPEAKER_00: AI Policy Brief
26:50
SPEAKER_01: The political economy of little tech,
26:51
it just is challenging for small companies to have their
26:54
interests represented in
26:55
SPEAKER_01: DC.
26:56
SPEAKER_01: Do you see any bright spots there?
26:57
SPEAKER_01: How is this changing on the ground in Washington right now?
27:00
SPEAKER_00: Yeah, I definitely do.
27:01
SPEAKER_00: I mean, look, I think we've tried to be a big part of this solution.
27:05
SPEAKER_00: I think that we've been able to enter many of the conversations that were
27:09
previously sort of walled off to some of the bigger incumbents
27:12
that we've seen in
27:12
SPEAKER_00: the space and actually have a voice.
27:15
SPEAKER_00: And by our sort of beachhead into these conversations,
27:17
we've also been dragging in some of the founders and some of
27:19
the people who are in
27:20
SPEAKER_00: these conversations.
27:22
SPEAKER_00: We've also tried to be a stop for
27:25
SPEAKER_00: A16z
27:48
SPEAKER_00: You know,
27:49
SPEAKER_00: like I think there's kind of another phenomenon here,
27:51
SPEAKER_00: which is a lot of the builders who are in not only the AI space,
27:56
but I think a large part of the tech space who are building in
28:00
some of these bigger
28:01
companies also want to be able to kind of preserve the
28:04
optionality of startups
28:06
because maybe they might leave one day and decide to build
28:09
their own startup.
28:10
SPEAKER_00: So I've been very encouraged by some of these conversations and
28:14
CERTAINLY SOME OF THE THINGS THAT I THINK ARE COMING OUT OF THE
28:16
BIGGER SHOPS IN
28:18
TOWN SO I DON'T THINK IT'S ALL DIM AND GLOOM I DO THINK THAT
28:21
THERE ARE REAL
28:21
CHALLENGES THAT WE FACE I THINK THE ANICOMPETITIVE BEHAVIOR IS
28:25
REALLY REALLY A
28:26
MAJOR SERIOUS CHALLENGE YOU KNOW DOD FRANK AT THE TIME SEEMED
28:30
LIKE IT WAS A REALLY
28:31
REALLY GOOD IDEA AND I THINK THAT THERE YOU KNOW I MEAN SOME
28:35
PEOPLE ARE GOING TO
28:35
COME AFTER ME FOR SAYING NICE THINGS ABOUT DOD FRANK BUT I LOOK
28:38
I THINK THAT THERE
28:38
SPEAKER_00: WERE SOME IMPORTANT PROVISIONS IN THERE
28:40
SPEAKER_00: that have kept the American public and the American consumers safe.
28:45
But I also think that it has led to the great consolidation of
28:47
the banking industry.
28:49
I think community banks are getting absolutely crushed by
28:53
certain aspects of that
28:54
SPEAKER_00: law,
28:54
SPEAKER_00: certainly the additional rulemakings that have come down from that.
28:58
SPEAKER_00: And as a result,
29:00
what was supposed to be kind of the anti-bigs provision and law
29:04
has now turned into
29:05
SPEAKER_00: sort of the
29:07
Big Bank Protectionist Bill and we can't see the same thing
29:10
happen in tech and so
29:12
look I think some of that's resonating is something that's
29:14
making through a high
29:15
SPEAKER_00: note is always a good place to end Colin thanks yes thanks Matt see ya