Unlocking Unseen Value

Let’s unlock the value being held back by antiquated laws.

Regulation is the primary barrier for many businesses. Historically, Silicon Valley has been engaged with purely technological issues like building a faster hard drive or optimizing bandwidth. Businesses like this are built continually.

But companies using genomics or drones encounter the physical world. In that case, the main barrier is not technology. The primary risk is actually regulatory risk. Evangelizing this point was my primary focus for two years as a VC.

In 2009, it would have been remarkable to claim “$100 billion in equity value is being held back by outdated taxi and hotel regulations.” Uber and Airbnb showed it was true. The “next big thing” was being held back by those eighty-year-old regulations. Very, very few people were thinking about them. These things are so remarkable and hard to understand that they go unseen constantly.

A philosopher named Frederic Bastiat has a parable about this, about what is seen and what is unseen. It requires more empathy and more imagination to think about value that isn't seen. You can see a skyscraper. You can't see what could have been built but wasn’t. You can’t see the cities we could build if we had regulations allowing skyscrapers to be built in two weeks rather than two years.

That's not a theoretical example. In China, they're building skyscrapers in two weeks flat. You can see it on YouTube. They put up a camera and build twenty-four hours a day from prefab material assembled on site. They’re building 100x faster than you can build in the US. In the US, it took ten years to rebuild the World Trade Center.

Now there are diverse regulatory regimes around the world. You can see the unseen. Overseas, you see what we could have without obstinate rules. It’s important to think about the unseen innovation you would have without regulation.

In 2009, outdated regulations on taxis and hotels held back $100+ billion companies. Remember $100B only shows the value captured by Uber and Airbnb. The total value created is much higher, unseen and incalculable. How much time has been saved in parking? How much are employees paid? How much are millions of drivers and hosts paid? Yes, the companies are valuable, but the unseen benefits to all of society are on the order of a trillion dollars in value created.

Now things get really interesting. If that was just taxi and hotel regulations, what is the FDA holding back? What's the FAA holding back? What's the SEC holding back?

Regulators are well-intentioned, but most laws were written one hundred years ago. The FDA’s ancestor was started in 1906. The SEC got most of its powers after the Great Depression. These laws are from two or three generations ago. In terms of technology, that is many generations.

It's quite possible we can achieve many of the objectives of these regulatory agencies with new technology in a better way.

And, as an example, I'll go back to Uber and Airbnb. If you look at their review systems, you see real-time star ratings of both the buyers and the sellers updated on a per-ride or per-stay basis. That is much more responsive as a regulatory system. Compare that to taxi medallions or hotel inspectors. 

Regulators don't have the same level of fast, precise, digital feedback between buyer and seller. Today, if you're a bad actor, you're banned from Uber or Airbnb within a few hours. These companies are accomplishing the goals of a regulated marketplace by banning bad actors and giving low ratings to poor quality actors, without coercion. We don't have to send the police to raid and shut down a bad hotel or throw somebody in jail for an expired taxi license. We achieve the same objectives in a better way.

Different mental models:

Pass a law—force someone else to do something.

Write some code—I will do something.

You can’t invent planes without test pilots. We have to have early adopters.

We allow people to go bungee jumping and skydiving. We allow people to sign up for the military to fight and die overseas. There should also be room for people to take risks to advance technology.

The CRC Handbook of Chemistry and Physics was our textbook before the online encyclopedia of chemistry. If you look at the CRC Handbook, you’ll see that some of the really old compounds have smell and taste listed. In the past, some chemist smelled cyanide. The last thing he did was scrawl down “smells like: almonds” as he died. He took a hit for the team to advance science. (This is somewhat tongue in cheek, but there was a time when chemists would actually smell and taste things.)

Today, we don't have the same level of risk tolerance. People want an extremely high level of safety, but they don’t realize we can be too conservative. Being too conservative on safety actually leads to systemic risk. Systemic risk happens when you stop taking risks and get stuck with a system that no longer improves.

A direct example is new medicine. Someone has to be first to try a new surgery or drug. The people taking the risk are heroes. They should get awards and prizes. As a society, we should allow this and reward them. Without someone taking that risk, millions of people won’t get a cure.

Without a pilot taking risks, we don't test a new faster plane. Without the new faster plane, we lose millions of man-years of time (our lives) due to slower air travel.

This and thousands of other examples are “what is unseen.”

We need jurisdictions and regulations to allow and encourage early adopters. We need early adopters even, and especially, when there is some degree of physical risk. This person may suffer injury or even die a heroic death. The pilots who sacrificed to build modern aviation were heroes. They get the same kind of social credit we extend to folks who served overseas in the military. They help all of us.