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Startups Venturing Into Highly Regulated Industries Can Learn From Fintech’s Playbook

By Mike Montgomery

The world’s 10 largest banks control nearly $25 trillion in assets — almost as much as the annual GDP of the U.S. and China combined. But their size doesn’t mean they are invincible. Politicians have called for breaking up Wall Street banks. Business credit is tightening. The financial industry seems ripe for disruption.

For the past few years, tech upstarts from Silicon Valley and New York have been doing their best to do just that. Online lenders such as OnDeck Capital, LendingClub and Prosper have been stealing momentum from the big banks by promising to make borrowing easier for small businesses and individuals. OnDeck and LendingClub even went public.

Yet some of the high-profile financial technology, or fintech, startups have stumbled recently. LendingClub, a peer-to-peer lender that has funded more than $20 billion in loans, is under investigation by the U.S. Justice Department for disclosure failures. Its CEO and finance chief both resigned. Prosper cut back on marketing to new borrowers and laid off 28% of its employees.

“At a certain point, these smaller companies start to run up against the same issues that the larger financial institutions have,” says Maria Gotsch, president and CEO at the Partnership Fund for New York City, a corporate-funded, nonprofit group with a mission to create jobs in New York.

Even with the aid of new technology, predicting customer defaults and complying with regulations is extremely challenging. So the upstarts have started working more closely with the old-line banks. Prosper is reportedly in talks with investment firms to sell them $5 billion in loans, possibly in exchange for equity warrants. J.P. Morgan Chase signed a deal with OnDeck to help make loans for small-business customers.

Read the full article here.

In Tech-Driven Economy, FCC Needs to Step Up

By: Mike Montgomery

It’s clear that technology is a key driver of prosperity in today’s modernizing economy. Trillions of dollars in economic activity flow through the networks which make up the internet, making America’s digital economy the envy of the world. Networks are redefining the services people consume and the income people derive. For example, according to a Pew survey, 72 percent of Americans have used a sharing or on-demand service.

That’s why the Federal Communications Commission has never been more important. From last year’s Net Neutrality rules to current proceedings about set-top boxes, internet privacy and business services, FCC rules are shaping the future of the internet – and the broader economy that it fuels. Whether you agree or disagree with these regulations, everyone agrees they will have a profound impact.

That is why it’s so disconcerting to see the FCC disconnected from the economic impact of its decisions. In a report he published in July, the FCC’s very own former chief economist, Gerald Faulhaber, Ph.D., raised alarms about the agency’s dangerous turn away from economic analysis in its decision making.

In the report, Dr. Faulhaber asks: Why do the U.S. Department of Labor, the U.S. Environmental Protection Agency and the Consumer Financial Protection Bureau all conduct stringent cost-benefit analyses on their decisions while the FCC does not?

The FCC has simply become too important to the economy for it to fail to explore the economic impact of its decisions. For example, numerous economists warned the FCC that its decision to impose so-called Title II regulations on internet service providers, which treats today’s advanced broadband access in the same way as telephone services from generations ago, will have a negative impact on investment and innovation while not solving the issue we all want addressed: how to ensure that internet traffic is treated fairly across networks, regardless of where it comes from. Yet, when issuing its Open Internet Order, the FCC conducted no economic analysis of the impact its proposed rules would have on consumers, innovation or investment.

How is that possible?

The problems continue. The FCC is currently facing a major backlash from Congress, Hollywood and many innovators for its proposed new technology standards for set-top boxes.

Read the full article here.

ZEV program running out of gas?

By: Kish Rajan

With the clock ticking down to the end of this year’s legislative session, our leaders in Sacramento are debating initiatives that will put more clean cars on the road, boost air quality and innovation, and improve the health of our residents. We must take advantage of this brief window of opportunity to recalibrate the state’s primary mechanism for encouraging electric vehicle adoption – the Zero Emission Vehicle (ZEV) credit system.

California – led by Gov. Jerry Brown and the state air resources board — leads the world in the transition to zero tailpipe emissions, powered by ingenuity not only in the technological realm, but in the policy arena as well. The goal was to bolster the efforts of automotive entrepreneurs to accelerate the deployment of clean cars up and down the state, in an industry notoriously immune to change.

The ZEV credit program as it’s currently structured won’t get us to where we need to be – currently, fewer than four percent of cars sold each model year are electric.

To ignite and accelerate this shift, state policymakers introduced so-called “ZEV credits”, a program to incentivize car companies to devote significant resources toward developing and deploying electric vehicle models that excite drivers.  This is the carrot for the automotive industry to move forward. The intent was to inject vehicles with zero tailpipe emissions into the marketplace; it was smart, creative regulation to bolster innovation and creativity that should be a national model.

These credits were designed to work with companies small and large, legacy and upstart, in order to push the clean car market forward.

Yet, despite the best intentions of state regulators, the ZEV credit program as it’s currently structured won’t get us to where we need to be – currently, fewer than 4 percent of cars sold each model year are electric.

Read the full article here.

Advertising sucks, but TV would be worse without it

By: Mike Montgomery

Given the opportunity, many of us choose to organize our TV watching to minimize ads as much as possible. We record, fast forward or pay subscription fees to services like Netflix and HBO to watch shows ad-free. But here’s the dirty little secret of television — advertising makes it go and keeps it affordable for the viewing public.

Which is why the Federal Communication Commission’s attempt to “open” the cable set-top box to competitors has the potential to be a giant disaster for consumers. Let me explain. Although advertising is becoming increasingly easy to skip, it still funds an enormous number of programs. Last year advertisers spent $79 billion on TV. That’s down slightly from 2014 but still makes it the largest slice of advertising spending in media beating out digital and (obviously) print.

Advertising makes up as much as 50 percent of revenue for programmers and 8.5 percent of revenues for the so-called multi-channel video programming distributors. The money flowing from these ads keeps the TV ecosystem going. Networks have money to invest in and pay the creators who make TV shows. Prestige shows like “Mad Men” and “Empire” are financed by ads. But it also allows MVPDs to keep subscription prices relatively low by providing another source of revenue — one that doesn’t come out of consumers’ pockets. That helps subsidize pay channels, which is why standalone HBO costs $14.99 per month but you can get HBO through your cable provider for $10 per month.

The FCC’s proposal to open the set-top box market to third-party developers would destroy this entire system. The MVPDs would be required to provide their programming streams to anyone who wanted to use them. These third-party box makers wouldn’t be required to follow the advertising deals that MVPDs have carefully contracted. They could alter or delete the original ads or pile on more ads and keep all that new revenue for themselves, driving down the value of the “original” ads and sucking up revenue that would ordinarily go to fund new programs. Chairman Tom Wheeler has claimed the new rules won’t allow this but experts recognize that the “rules won’t prohibit extra ads around TV channels.”

Read the full article here.

Entrepreneurs Need To Embrace Futurism

By: Mike Montgomery

Entrepreneurs often struggle to capture lightning in a bottle by trying to create a product today that anticipates tomorrow’s trends. But are the bulk of these entrepreneurs not looking far enough ahead?

Early this month, The New York Times ran a fascinating article that talked a little about the recently deceased futurist Alfred Toffler’s work (Future Shock) and the demise of the idea most associated with him, futurism:

In many large ways, it’s almost as if we have collectively stopped planning for the future. Instead, we all just sort of bounce along in the present, caught in the headlights of a tomorrow pushed by a few large corporations and shaped by the inescapable logic of hyper-efficiency — a future heading straight for us. It’s not just future shock; we now have future blindness.

Farhad Manjoo, who wrote the Times piece, argues that many technological changes are happening so quickly that global crises are occurring as a result. The thrust of this piece is that our governments should really take a closer look at the academic study of futurism and try to determine how to better and more smoothly integrate technology in order to prepare for the future.

On a smaller scale, entrepreneurs, whether they are specifically focused on new technologies or not, need to do the same. The key is to learn how to properly forecast the future.

“Entrepreneurs need to be thinking about the future, but that requires they invest time into forecasting trends,” says Amy Webb, the CEO and founder of Future Today Institute. “The challenge is that trends in technology have become synonymous with things that are trendy.”

Read the full article here. 

Airbnb, Homeaway and a City’s Tortured Path to Drafting Short Term Rental Regs

By: Tim Sparapani

San Francisco’s Board of Supervisors is in the midst of a sometimes hot, sometimes cold dispute that’s currently targeting companies that facilitate short-term housing rentals online, but more broadly is a challenge to the internet platform companies that are propelling San Francisco’s and the nation’s economy. The current dispute stems from the Supervisors’ innocuous sounding ordinance that would force internet platform companies like HomeAway and Airbnb to either require those who offer rentals on their sites to register with the City, or kick the renters off the companies’ sites. If the companies refuse or resist, they face significant fines.

Of course, the City could and should just take direct enforcement actions against the property owners who aren’t complying with local laws but it wants the companies to bear this burden.

The first ordinance passed by Supervisors this spring was swiftly challenged in court, in part because it was an attack that violated a key federal law, Section 230 of the Communications Decency Act, that has helped the Bay Area’s tech innovators generate hundred of billions in economic value for the city, state, and national economy. Just last week, the Supervisors, who were previously resolute that the proposal did not violate federal law, withdrew the ordinance. They requested that the judge assigned to the case stay litigation while they rewrite the ordinance. Early drafts being circulated, however, appear to repeat the original mistake of punishing internet platforms when property owners fail to comply with the City’s registration requirements.

We live in the Internet Age, and more specifically, what I call the Internet Platform Economy. Internet platforms – Google, Facebook, eBay, Etsy, Tumblr, Craigslist, and a thousand others – are especially successful because they facilitate billions of people publishing content online, and with a few exceptions, the internet platform companies cannot be forced to police users’ content. America’s tech companies were empowered to create their online platforms by a provision tucked into a 20-year young federal law, the Communications Decency Act (CDA). With only a few exceptions, courts have ruled repeatedly that Section 230 of the CDA frees companies from liability for facilitating their users’ publication online of speech and content. This federal liability shield is the greatest single reason for the rise of these services because it is what allows internet platform companies to host billions of interactions without being constantly mired in legal disputes.

Read the full article here.

Dear Presidential Candidates: It’s Time To Listen To Millennials

By: Eli Love

According to the Pew Research Center, there are now effectively as many Millennial voters (69.2 million) as there are Baby Boomer voters (69.7 million).  But you would never know it looking at how little attention the current Presidential campaigns are paying to the substantive concerns of our generation.

The closest a candidate has come to speaking to Millennials is Bernie Sanders who was willing to discuss things like free college education. But instead of viewing the enthusiasm around Sanders’ campaign as a sign of where the conversation needs to go, the media and the political establishment derided Sanders’ supporters as naïve and selfish — voters who would disengage from the political process once their candidate was out of the race.

That’s not who we are and it’s crucial that the remaining presidential candidates move beyond stereotypes and see our true potential.

To understand what’s at risk if politicians do not tap into our enthusiasm and our energy, just look at the recent Brexit situation. Almost 75% of voters between the agesof 18 and 24 voted to remain  — expressing their belief in multiculturalism, inclusion and innovation. At the other end of the scale, 60% of voters over the age of 65 voted to leave — many succumbing to their anxiety about the profound changes happening in our world. Imagine how things would have turned out differently if the remain campaign had worked a little harder to reach more Millennial voters. Imagine if the voting public had heard from more Millennial voices who could have shared their aspirational vision for their country.

As our own election looms, it’s time for American politicians to make sure they don’t make the same mistakes.

The Millennials my organization works with every day are entrepreneurs, philanthropists and public servants who consistently defy Millennial stereotypes. And they’re not alone. We recently took a survey of 810 people between the ages of 18 and 44 to find out what my generation is really thinking. It turns out 70% of us plan to vote. Almost three-quarters of us believe that the election will have an impact on our lives but 58% say the media that is covering the election is not highlighting the issues Millennials care about the most.

Read the full article here.

Why Every Entrepreneur Should Care About Nintendo’s Pokémon GO

By: Mike Montgomery

Pokémon GO has changed the game.

By that, I don’t just mean the world of video games. There’s no question that the mobile game, which at last count was being f you haven’t played, the game works with a GPS map that shows you where Pokémon are in the real world (you can tell a Pokémon is nearby via a virtual rustling of leaves). When they’re close enough, they appear as augmented reality on your phone and you try to catch them. The result is entertaining and adorable.

Although augmented reality has been around for years, this is by far the best use of the technology. Video game designers all over the world are probably scrambling to include augmented reality in whatever project they are currently working on.

But the impact of Pokémon GO is bigger than that. It’s even bigger than Nintendo’s 100% stock climb over the past few weeks. The game is also creating amazing opportunities for brick-and-mortar entrepreneurs.

Players don’t only try to catch Pokémon in the game. They also congregate at Pokéstops (where they can collect Pokéballs and other bonuses) and gyms (where they can battle other teams). Pokéstops and gyms are locations in the real world. Bookstores, churches, restaurants and murals that happen to be gyms or Pokéstops are suddenly being inundated by Pokémon GO players.

Businesses didn’t have a chance to sign up for this. The maps of key locations come from a previous game from Niantic (the studio behind Pokémon GO) called Ingress.

But they can take advantage of the business. For example, businesses can put out lures, which temporarily increase the number of Pokémon around that business. Inc calculated that lures only cost $1.19 per hour and they can drastically increase foot traffic. A friend who was playing Pokémon GO with her son noticed a lure at a local candy shop. Her son caught a bunch of Pokémon and she ended up buying him some candy.

Read the full article here.