Angel Investors and Venture Capitalists Say They Will Stop Funding Some Internet Start-Up Business Models if Tough New Rules Are Enacted, Finds Booz & Company Study
New York, NY, November 16, 2011 — A large majority of the angel investors and venture capitalists who took part in a Booz & Company study say they will not put their money in digital content intermediaries (DCIs) if governments pass tough new rules allowing websites to be sued or fined for pirated digital content posted by users. (DCIs are the companies that provide search, hosting, and distribution services for digital content such as YouTube, Facebook, SoundCloud, eBay, and thousands of others.) More than 70 percent of angel investors reported they would be deterred from investing if anti-piracy regulations against “user uploaded” websites were increased.
The United States House Judiciary Committee is currently considering this type of measure, with the recently proposed “Stop Online Piracy Act.” The issue of who owns digital content, and who should be punished if it is posted or used without permission is once again being heavily debated. Angel investors and venture capitalists currently invest more than $40 billion annually in early-stage companies. It has long been speculated that this type of investment would dry up if new rules were introduced, and the Booz & Company study appears to confirm this.
“The debate over digital content is a vast landscape peppered with many opinions and very little real data,” says Matthew Le Merle, a partner at the global management consulting firm Booz & Company. “We decided to conduct this empirical study to shed light on one important issue. Would angel investors really take their money elsewhere if the regulatory landscape fundamentally changed with regard to copyright regulation and the internet? The answer was definitive.”
The findings are contained in a study called “The Impact of Internet Copyright Regulations on Early-Stage Investment: A Quantitative Study,” released today by Booz & Company. This is the first study of its kind in the United States. More than 200 prominent angel investors and venture capitalists were interviewed between August and November 2011. The results provide a comprehensive picture of their views on digital copyright regulation. This report was financed by Google Inc. It was independently researched and written by Booz & Company, drawing on expertise from its consumer, media, and technology practice, and also on academic and public research, publicly available information, and primary research.
Additional key findings include:
- More than 80 percent of the angel investors would prefer to invest in a risky, weak economy (with the current internet regulations) vs. a strong economy (but with the new, more stringent proposed regulations on copyright infringement).
- If the legal framework for digital content was clarified, and penalties on copyright infringement were limited for content providers acting in good faith, the pool of angels interested in investing would increase by nearly 115 percent.
“The most surprising result was the sheer magnitude of investors who say they will exit investing in DCIs if their risk and liability is increased by new laws,” says Mr. Le Merle. “We hope this type of research can assist in data-driven decision making on this important issue. Laws like these could shape the future of the internet, with sweeping implications for innovation, competitiveness, and the broader economy.”
Booz & Company
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