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Cape Town – Most local technology investors regard regulation as the largest impediment to investing in startups, an international survey has found.
A Fifth Era report, commissioned by search giant Google, found that 100% of local investors regard regulation as the most important factor when deciding on investments in tech startups.
The report surveyed South African companies Allan Gray Investments, Old Mutual Investment Group and P3 Investments Group among others. The results compare with 81% of investors in Nigeria, and a global average of 89% of investors.
The numbers reflect the lack of regulation of the internet in the first two decades of its existence, said report author Matthew C Le Merle, who is based in San Francisco.
“The first 20 years we didn’t regulate – this was a very clever decision by the US government. In the first 20 years we let a lot of things slides, but we saw this enormous transformative effect on the world,” Le Merle told Fin24 of the regulation on the internet.
Uber regulation
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He said that the pace of change has continued to escalate as online players such as Uber disrupted established markets.
“The actual environment of 20 years ago is replicated today, but the difference is it’s harder for the regulators to say ‘We will not take action’.
“Uber has transformed and is transforming several industries and they’ve definitely grown fast. They are under attack and there are some places where their businesses can’t operate today as more challenges come their way,” said Le Merle.
The popular ride sharing application has been criticised for flouting regulations applicable to the taxi industry and on Sunday announced that it had suspended operations in Austin over fingerprint background checks for drivers.
Le Merle argued that while regulators recognised the value of reducing the carbon footprint of cars on the road, they often did not align policies with vision to support tech startups such as Uber.
“I think every regulator in government in the world would say ‘Yes, I think that makes sense.’ But they don’t align all the levers. They still in some countries are passing legislation that say you have to be a local limousine company; you have to own your cars in order to operate,” he said.
Investment companies that contributed to The Fifth Era report which found government intrusion the most significant barrier to the industry.
Le Merle, himself an angel investor, said that investors think of 10 to 15 year cycles and require regulators to plan for the future.
“As an investor, I want a regulator to regulate for the future, not for today.”
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