Regulatory Opportunities for Startups
(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions)
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A 3 day event in Los Angeles, the All-In podcast gathers hundreds of like-minded individuals into a small room every year. With crypto and AI folks lining up to shoot their shot at getting a conversation with San Francisco’s hottest four. Little did anyone know, or predict, that David Sacks or the Crypto Czar as so referred to by most media publications would be holding the reins less than four months later to the most important office in America.
To anyone who has followed the US political scene, it’s probably more clear than ever that politics and tech are running side-by-side. Is it optimal? Probably not. A politician is not meant to be good nor bad; they represent the people and their views. Unfortunately, this rarely spells out into reality. We’ve seen how USAID has ripped apart that belief. The moral of the story is that if the past lessons are indicative of the future, it is inevitable that San Francisco’s techno wizzes are going to have a far greater say on how the country is run. [See the end of the article for how as a startup founder to best play this]
The key wishes of the team at Redwood are to explore the startup scene for founders and investors. Now given the beginning of Trump’s presidency term, I think it’s only fair that we discuss regulation. But first, why does America matter? Probably the better question is how long has America mattered? With the deepest capital and liquidity markets in the world, the US has a strong influence on pretty much everything. Investors and founders and more importantly the European (and UK) government keep a watchful eye on Washington’s every move. There’s a reason why successful founders always consider a move to San Francisco. It’s a land of opportunity for a capitalist, true to the American dream.
Now true to my style, I will entertain the macro slightly here to give a little context on the US. Trump is one of the few global leaders since the Great Financial Crisis to prioritise nominal GDP growth. On the assumption the US is the market leader, at least for Western nations, it’s going to be pretty difficult to figure out his economic policy. But going back to first principles, he wants to cut tax, cut regulations and take DOGE to the moon. I’m still torn on the answer to the question of what’s the best move for a founder, investor or even society. But I’m also increasingly convinced my view doesn’t matter.
Relevance to Startups
Before we dive into the main act, let’s go back to some fundamental principles. In the start-up world there’s typically three ways that a founder realises their gains. The first and typically most sought after is an Initial Public Offering (IPO), a listing on a stock exchange like the New York Stock Exchange. We’ve seen more and more companies flood to be listed on the US markets in search of higher valuations and a higher payout. The second and more commonly seen is funding rounds. They are known as “Series” and are followed by an “A” or a letter of our Roman alphabet directly after and its where in exchange for equity you receive a capital injection from private funds. And finally there’s M&A. Investment bankers and the like jump at this one, but this is less dependent on the startup and more dependent on the current risk appetite of the economy. It invites the possibility of a bigger more well-known incumbent such as Apple acquiring a smaller scale start-up to boost the overall returns of the (now) joint organisation.
Now we have a pretty decent grasp over how a startup cashes out, if you’re still interested — check out this blog post. I will argue why regulatory changes will drive more opportunities than technology in the short-term. Then I’ll offer up my thoughts on navigating the landscape.
Historical Differences
One of the main reasons Monzo and Revolut were able to thrive was because of the FCA’s easing of policy or namely their 2016 Sandbox. Fintechs in Europe were thriving and this led to a wave of innovation. To understand where we’re heading, the elephant in the room is indeed AI. You guessed right. The industries differ structurally, where Fintech addressed a vertical, AI is far more horizontal in nature. Put simply, regulations for AI need to be much more broad and adaptable — it’s most similar to regulating software. AI’s capabilities can broadly be applied to almost any industry and often has the potential to end up shaping them.
Ok but why does this matter. Great question. Given the rate of growth of the AI sector, I’ll stray from evaluating any single piece of technology in this article and leave that to folks like Dylan Patel from SemiAnalysis. It’s probably easier to forecast the view of regulators, using past policies as a future indicator. And the current executive orders being signed are your best choice on that front. The recent influence of Deepseek has led to two important aspects which I think are going to be more crucial going forward.
The first relates the power of compute. In a simple sense, there is a limited supply of energy and semiconductor chips. And many pundits have made the argument that the AI battle is a war of national security, then it’s fair to say that the countries are going to be holding tight to their national treasures (cough cough Nvidia). Supply chains from Singapore to China are rumoured to be being investigated by the US for an export funnel arbitrage, enlightened only by Deepseek’s spectacular entrance. Whatever the case, it’s clear that the more bi-polar nature of the world we live in today (and less globalised), supply chain regulation through tariffs and generic restrictions will be an ongoing point of concern. Probably a pain for the incumbent players like Meta, Nvidia, AMD, Intel and others who will inevitably become restricted by political warfare. But just another opportunity for hungry startups less bound by such rules.
And second comes the protection of IP. With the open source debate hot on the heels of many investors, a clear framework with loosely held principles will shape most of the regulation in the Western areas of the world. Note my caveat here with the Western regions. In a similar manner to how China replicated Uber’s every move upon its expansion into the nation, I reckon as long as parts and suppliers are plentiful (i.e supply chain regulation is less effective) there’s a good shot of intellectual property restrictions being quietly ignored in the Eastern regions of the world.
But do entrepreneurs even care about the macro? No, not really. They just want to build into what they consider their future and most of the time they’re non consensus. That’s what drives their spectacular returns.
Cue America. The bad boy of the West. With bigger funding rounds, a larger market to address and about a billion other key metrics with sweeter sounding names. It’s pretty common, especially after speaking with a number of startup founders from our own community that the goal is an eventual move to the States. Founders identify a market in Europe and raise some initial funding from investors willing to take a risk with them. Founders who find a solution realise that they can re-apply the same concept in the US (if it hasn’t been done before) and ta-da, just like that they make the jump out to San Francisco and leave Europe with arguably the most technologically important brain drain of the 21st century. And if America’s the ultimate winner, then San Francisco is its white knight.
And market sentiment is still improving in the US. Much of the capital in the last financial year found its way into the pockets of LLM developers. As the contrarian naysayer that I think I am, I try to remain as bearish as possible and leave the optimism for our future founders. The market should fear the AI vertical being overcrowded and that should translate into investors being less willing to take the risk in early stage risky companies. Unfortunately, valuations have been sky high in this area. Although if it’s any comfort to the ears, then according to Pitchbook, mega funds accounted for 46% of the total US fundraising in 2024. Which means, if we’re going to blame someone we can at least blame people with some level of experience. Although on the flip side, it’s probably very true that the gains in the AI markets are consolidating in the hands of these large players. Don’t hate the playa, hate the game.
The San Francisco Play
As mentioned previously, there have been a number of San Francisco figure heads who have made way into influential positions within office. Remember, these aren’t born and bred politicians. But it’s because of what they said and with whom they aligned themselves with (often publicly), that they have a newfound power. And whilst these are some of the greatest minds in modern day technology, often you’ll find that they’ll linger to their views which got them into office for fear of public retribution. A certain level of stubbornness, one could argue. Or it’s just damn difficult to switch up your views.
So to understand how to play this. It’s a good idea to look at the cabinet members of Donald Trump which can be found here.
X will be the go-to for us here, given its prominence in the US and especially amongst Silicon Valley elites.
The Steps
Go to the Advanced Search page: Visit x.com/search-advanced directly.
Or Search from regular search: Do a basic search using the search bar at the top of the X homepage.
On the search results page, click on the three-dot menu or “Search Filters” on the right side.
Select “Advanced Search” to refine your query.
Picking your favourite elected cabinet member, use the parameters “minimum likes”, “minimum replies” or “minimum reposts. For more check out this post here.
You’ll find some sweet benchmark for what constitutes a popular tweet for your chosen individual. And it’s those tweets which you should collate and add these tweets to an Excel sheet. Sooner or later you’ll get a basic idea of what made them popular and how their views formed over time.
As a startup founder or someone looking for the next thing to build, I would replicate this probably for the most important person relevant to me i.e. David Sacks (the Crypto Czar) as of recently has had more public views on Stablecoins and AI.
Regulatory Inflection
Think about how during the pandemic, many people started seeing doctors online using video calls instead of going to the clinic — that’s telemedicine. Before COVID, it wasn’t always clear if hospitals and doctors would get paid by insurance for these online visits like they did for regular check-ups.
But when COVID hit, something new and really helpful happened in the rules and regulations — what we can call ‘regulatory inflections making sense’. Yes, the rules around paying for healthcare started to change in a way that made sense for the situation. Governments and insurance companies started making it easier for hospitals to get paid for telemedicine visits. It empowered the healthcare system to use telemedicine more widely, so people could still get care even when they couldn’t go to the doctor’s office easily.
As we established, the US often sets trends, and changes in US rules will affect things in Western countries too.
So if you’re trying to be on the right side of a regulatory inflections as an individual, it’s best to be near the people lobbying for laws. And for those of us not in America, this may be as far as we can go.
