People often don't consider how regulation decreases the number of new entrants into a field.
In the present case, we tend to spend all our time talking about how this will impact current VC firms. Existing VC firms have the advantage. The real question is how this will impact VC firms yet to be formed (or even yet put on a napkin).
At some level of regulation, new competition will be completely thwarted (imagine having to spend the first $10M and the first year of your startup achieving regulatory compliance), but what is often missed is the marginal effect. Any marginal increase in regulation will create a corresponding marginal decrease in new entrants just as assuredly as if you could artificially raise their expected cost to get to profitability (because that's exactly what regulation does).
This is why existing players in a market often lobby for regulation of their own market, or at least acquiesce to it without too much of a fight.
In the present case, we tend to spend all our time talking about how this will impact current VC firms. Existing VC firms have the advantage. The real question is how this will impact VC firms yet to be formed (or even yet put on a napkin).
At some level of regulation, new competition will be completely thwarted (imagine having to spend the first $10M and the first year of your startup achieving regulatory compliance), but what is often missed is the marginal effect. Any marginal increase in regulation will create a corresponding marginal decrease in new entrants just as assuredly as if you could artificially raise their expected cost to get to profitability (because that's exactly what regulation does).
This is why existing players in a market often lobby for regulation of their own market, or at least acquiesce to it without too much of a fight.