The Big Story: Senate advances bills requiring user data collection, limiting legal content online
This week, the Senate Commerce Committee advanced two bills that carry serious risks for cybersecurity, user privacy, and third-party content available on startups’ services. The legislation, the Kids Online Safety Act (KOSA), and the Children and Teens’ Online Privacy Protection Act (COPPA 2.0), though well-intentioned, will increase costs of compliance, undermine startup competitiveness, and diminish user experience, as we highlighted in a letter ahead of the committee markup.
KOSA and COPPA 2.0 would require companies to identify which users are minors and which are not, meaning startups will need to collect IDs, biometrics, or additional data for analysis. Startups want to focus on creating great products that benefit their users, not on scanning users' faces, asking for their ID, or digging through their data to determine their age. Each of those options are expensive and create privacy and security risks for both startups and their users.
Additionally, KOSA creates a “duty of care,” enforced by state attorneys general of different political parties with varying priorities, leading to legal uncertainty and risk for startups. Out of caution, startups will have to broadly block users’ access to legal third-party content—including useful content for users from marginalized communities—making startups’ platforms less useful and vibrant corners of the Internet for their users. Startups that host user content—including messaging, reviews, photos, classified listings, and more—already spend significant resources on moderation to ensure their services are safe, healthy, and relevant for their users. And at markup, an amendment to the bill was added to dictate how companies order the content on their sites, compounding moderation challenges and costs.
Startups take seriously their commitments to their users to create safe and beneficial products. Policymakers need to seriously grapple with the unintended consequences for startups and their users alike and should advance legislation that bolster consumer protections while avoiding unintended consequences for startups, such as a federal privacy standard, which offers the opportunity to create clarity and strong protections for their users of all ages.
Policy Roundup:
Hearings examine challenges for underrepresented founders. This week, Congress held two hearings to probe the challenges underrepresented entrepreneurs face within the innovation ecosystem. The House Committee on Small Business held a discussion on rural entrepreneurship and the challenges rural business owners face in launching and growing companies. Rural entrepreneurs play a vital role in innovation but confront significant barriers when accessing talent and capital, as founder and CEO of Fayetteville-based startup AcreTrader wrote in a statement to the committee calling for more support for rural entrepreneurs and their communities. The Senate Small Business Committee also held a hearing this week exploring the barriers women entrepreneurs face. Women are dominating innovation—in particular, Black female innovators—but face the greatest challenges securing most forms of capital. Policymakers must continue these conversations so that all entrepreneurs have equitable access within the U.S. startup ecosystem.
Countries looking to attract foreign-born talent away from U.S. Countries around the world are creating systems to attract foreign-born talent, risking the U.S.’ competitive edge in the global innovation ecosystem unless policymakers create new and better pathways for foreign-born talent to come here, as we wrote in a blog post this week. Canada recently introduced a new strategy to attract high-skilled foreign talent, targeting holders of U.S. H-1B visas, offering a streamlined work-permit to work in Canada for up to three years, at almost any place of employment, making it a more appealing destination for immigrants and entrepreneurs than struggling through the U.S.’ fraught immigration system. Other countries like Australia and the U.K. are also capitalizing on the shortcomings of the U.S. immigration system by creating incentives to attract top talent, including graduates from U.S. universities.
Former Democrat economic, antitrust officials question new draft merger guidance. In a Wall Street Journal op-ed this week, two economists that served during the Obama administration wrote that draft merger guidance released by agencies last week “need revision” to reflect that not all mergers are bad. They argue the draft guidelines rely on old, controversial case law instead of “widely accepted economic principles,” that benefits can arise from mergers and acquisitions. In the startup ecosystem, for example, acquisitions lead to positive cycles of capital and talent, and are the primary way startups successfully exit.
Lawmakers call for AI regulator, enabling private lawsuits. At a Senate Judiciary subcommittee hearing this week, lawmakers explored potential threats posed by artificial intelligence and proposed regulatory responses. Senators on both sides of the aisle and witnesses alike called for a dedicated AI regulator to audit and license AI before it is made available and for individuals to be able to sue AI developers over alleged harms. Preclearing products with a government regulator will slow innovation, and startups experience bad-faith litigation in many areas of the law that saps their limited time and resources. Policymakers must ensure potential legislation around AI recognizes the various types and uses of AI and avoids unintended consequences for startups.
Startup Roundup:
#StartupsEverywhere: Fayetteville, Arkansas. AcreTrader is a Fayetteville-based equity financing mechanism that helps farmers scale their operations with the support of outside investment. After spending time working in San Francisco, Founder and CEO Carter Malloy moved back home to Arkansas to apply what he learned in equity to the farming system by creating a company that empowers both farmers and investors to buy and sell land in more efficient ways. We spoke to him about his experiences building a startup in a rural area, how he believes policymakers can incentivize investment into middle America, and his goals for AcreTrader for the future.
