Patrick Newton is the cofounder of Form Ventures — an early-stage fund focused on investing and supporting startups operating in both traditionally regulated markets like fintech and health, and newer emerging markets where regulation is only just starting to take shape, like lab grown meat and carbon offsets.
Here are his top tips if you’re thinking about building or starting to build in a regulated market (he’s also speaking at Sifted Summit this week — you can get your tickets here.)
Don’t follow the crowd
Just because something works for one company, doesn’t mean it will for yours. In some markets, you can push regulatory questions down the road. In others, they need to be addressed by day one. Here are some questions to ask yourself:
- What would your growth trajectory look like under different scenarios? Can you move faster in the long run by achieving all regulatory consents earlier? Does that make your company more defensible?
- Is it permissible to push out regulatory approvals and get to market, unregulated, initially? Is that preferable for your strategy and runway?
Your strategy should be a deliberate choice
The best founders optimise their regulatory strategy like any other function. Monzo became the UK’s biggest neobank by having a banking licence, whereas Revolut grew by expanding internationally earlier, without a UK banking licence. I’d say there can be huge value in taking the harder, regulated path to actually get to market, rather than simply innovating around the margins. This is often true in healthtech and fintech. One of our portfolio companies called Infact is building a challenger credit reference agency that can compete in one of the thorniest problem spaces because it is approved by the FCA — the UK regulatory body responsible for regulating financial markets and products in the country.
Raise enough to mitigate regulatory delays
Delays are almost inevitable. Regulatory bodies can be slow to grant approvals and other unexpected hurdles can arise that push your timelines way further out than anticipated. Factor this is in when planning your fundraising strategy — you’ll want to raise more capital to cover the additional time it might take to get a green light. This buffer will also strengthen your negotiating position with regulators and partners as well as reduce the risk of running out of runway.
Regulation needs to be a core competence
A strong internal function can be a real source of competitive advantage for companies. You can get quicker approvals and avoid regulatory debt, for example. This is normally not just the responsibility of founders but it does depend on the market. It’s rare we’d recommend hiring someone full-time early on, unless it’s truly mission critical.
Map your market’s key stakeholders
Who will really determine the success of your regulatory strategy? Of course, there are the regulators and policymakers. There are also journalists and key opinion formers who you want to have on side. It’s almost never too early to start building relationships with key stakeholders.
Start thinking about global expansion
Going global in regulated markets is almost always tougher than doing so in unregulated markets. It requires much more localisation work. The obvious question that founders need to ask is what is the pathway to market from a regulation standpoint. There will be nuanced regulatory questions that sit below that key question, like:
- How similar is it to your domestic market?
- Will our products have to fundamentally change?
- What time/money investment will the process for authorisation and approvals take?
- How does that affect our fundraising strategy?
On the subject of… regulated markets
1. How to launch a DTC product in a regulated market.
2. The craft of building a regulated startup. Here’s what you should be mapping, according to our How To expert this week.
3. EU lawmakers aren’t slowing down with their efforts to regulate tech companies. One from the Sifted archives.
Read the orginal article: https://sifted.eu/articles/how-to-navigate-regulated-markets/
