Silicon Valley investors bet big against the FCC’s net neutrality plan.
Fifty of the tech industry’s leading venture capital (VC) firms have formally joined the fight to preserve net neutrality, calling it essential to the continued “certainty of an equal-opportunity marketplace.”
On Thursday, a collection of startup incubators and investment companies, which includes leading investment firms like Y Combinator, Union Square Ventures, and Andreessen Horowitz, sent a letter to Federal Communications Commission Chairman Tom Wheeler that expresses their doubts over a proposed rule change that would pave the way for online companies to pay for faster Internet distribution, and potentially lead to slower connections for those who will not, or cannot, pay.
Like many critics, these financial backers fear the FCC proposal would stifle competition by creating an uneven playing field.
“If established companies are able to pay for better access speeds or lower latency, the Internet will no longer be a level playing field,” the VCs write. “Startups with applications that are advantaged by speed (such as games, video, or payment systems) will be unlikely to overcome that deficit no matter how innovative their service.”
These entrepreneurs say their investment decisions have historically been made with the assumption that distribution speeds will not be a factor. If net neutrality were to fall, and content delivery was divided into fast lanes and slow lanes, the investors say, they’d have to raise enough money for premium distribution before it can be proven that consumers even want the product.
“Investors will extract more equity from entrepreneurs to compensate for the risk,” the letter continues. “Internet applications will not be able to afford to create a relationship with millions of consumers by making their service freely available and then build a business over time as they better understand the value consumers find in their service (which is what Facebook, Twitter, Tumblr, Pinterest, Reddit, Dropbox and virtually other consumer Internet service did to achieve scale).”
The end of net neutrality could bring an end to the start-up culture that has defined Internet companies for the past two decades. This, the VCs argue, would make Internet firms less inventive and nimble.
These investors join a growing chorus of critics who are admonishing the FCC’s proposed rule change—which includes the likes of Sen. Al Franken and Occupy protesters, who are camped outside the FCC headquarters in Washington, D.C.
The letter from the VC firms follows a similar open letter, sent Wednesday, from more than 100 technology companies, including Google, Microsoft, Amazon, Netflix, Facebook, Twitter, Reddit, Yahoo, and many others.
After a January court ruling tossed out the FCC’s previous open Internet policy, the commission has been scrambling to write new rules that address growing pressure from Internet service providers (ISPs). These ISPs want to be able to charge fees to video and VoIP companies, like Netflix and Skype, and other so-called edge providers whose services require an inordinate amount of bandwidth.
Though many are fearful that the new FCC rules will lead to a total gutting of net neutrality policy, Wheeler has said the commission plans to handle fee requests in a limited and judicious manner.
“We will not allow some companies to force Internet users into a slow lane so that others with special privileges can have superior service,” he said at the recent National Cable & Telecommunications Association convention.
The FCC originally planned to vote on its net neutrality proposal during a May 15 meeting. However, a growing numer of FCC Commissioners have called on Wheeler to delay the vote.
Read a full copy of the VCs’ letter below:
The Honorable Tom Wheeler, Chairman
Federal Communications Commission
445 12th Street, SW
Washington D.C. 20554
May 8, 2014
Dear Chairman Wheeler:
We write to express our support for a free and open Internet.
We invest in entrepreneurs, investing our own funds and those of our investors (who are individuals, pension funds, endowments, and financial institutions). We often invest at the earliest stages, when companies include just a handful of founders with largely unproven ideas. But, without lawyers, large teams or major revenues, these small startups have had the opportunity to experiment, adapt, and grow, thanks to equal access to the global market. As a result, some of the startups we have invested in have managed to become among the most admired, successful, and influential companies in the world.
We have made our investment decisions based on the certainty of a level playing field and of assurances against discrimination and access fees from Internet access providers. Indeed, our investment decisions in Internet companies are dependent upon the certainty of an equal-opportunity marketplace.
Based on news reports and your own statements, we are worried that your proposed rules will not provide the necessary certainty that we need to make investment decisions and that these rules will stifle innovation in the Internet sector.
If established companies are able to pay for better access speeds or lower latency, the Internet will no longer be a level playing field. Start-ups with applications that are advantaged by speed (such as games, video, or payment systems) will be unlikely to overcome that deficit no matter how innovative their service. Entrepreneurs will need to raise money to buy fast lane services before they have proven that consumers want their product. Investors will extract more equity from entrepreneurs to compensate for the risk. Internet applications will not be able to afford to create a relationship with millions of consumers by making their service freely available and then build a business over time as they better understand the value consumers find in their service (which is what Facebook, Twitter, Tumblr, Pinterest, Reddit, Dropbox and virtually other consumer Internet service did to achieve scale).
Instead, creators will have to ask permission of an investor or corporate hierarchy before they can launch. Ideas will be vetted by committees and quirky passion projects will not get a chance. An individual in dorm room or a design studio will not be able to experiment out loud on the Internet. The result will be greater conformity, fewer surprises, and less innovation.
Further, investors like us will be wary of investing in anything that access providers might consider part of their future product plans for fear they will use the same technical infrastructure to advantage their own services or use network management as an excuse to disadvantage competitive offerings. Policing this will be almost impossible (even using a standard of “commercial reasonableness”) and access providers do not need to successfully disadvantage their competition; they just need to create a credible threat so that investors like us will be less inclined to back those companies.
We need simple, strong, enforceable rules against discrimination and access fees, not merely against blocking.
We encourage the Commission to consider all available jurisdictional tools at its disposal in ensuring a free and open Internet that rewards, not disadvantages, investment and entrepreneurship.
Puneet Agarwal, True Ventures
Sam Altman, Y Combinator
Phineas Barnes, First Round Capital
Phil Black, True Ventures
Brady Bohrmann, Avalon Ventures
Mike Brown, Jr., Bowery Capital
Brad Burnham, Union Square Ventures
Jeffrey Bussgang, Flybridge Capital Partners
John Buttrick, Union Square Ventures
Jon Callaghan, True Ventures
Michael Collett, Promus Ventures
Tony Conrad, True Ventures
Ron Conway, SV Angel
Chris Dixon, Andreessen Horowitz
Bill Draper, Draper Richards
Roger Ehrenberg, IA Ventures
Brad Feld, Foundry Group
Chris Fralic, First Round Capital
Christopher Forbes, Angel Investor
David Frankel, Founder Collective
Matt Golden, Golden Venture Partners
Nick Grossman, Union Square Ventures
Rick Heitzmann, FirstMark Capital
Eric Hippeau, Lerer Ventures
Rob Hutter, Learn Capital
Mark Jacobsen, OATV
Deborah Jackson, Angel Investor
Nikhil Kalghatgi, Vast Ventures
Mitch Kapor, Kapor Capital
Jon Karlen, Atlas Venture
Josh Kopelman, First Round Capital
David Lee, SV Angel
Kenneth Lerer, Lerer Ventures
Robert Levitan, Angel Investor
John Lilly, Greylock Partners
Om Malik, True Ventures
Jason Mendelson, Foundry Group
Josh Mendelsohn, Hattery
Ann Miura-Ko, Floodgate
Howard Morgan, First Round Capital
Dave Morin, Slow Ventures
Farzad (Zod) Nazem, Angel Investor
Jerry Neumann, Neu.vc
Tim O’Reilly, OATV
Alexis Ohanian, Initialized Capital
David Pakman, Venrock
Eric Paley, Founder Collective
Naval Ravikant, AngelList
Eric Ries, Angel Investor & Author
Neil Rimer, Index Ventures
Bryce Roberts, OATV
James Robinson, RRE Ventures
Toni Schneider, True Ventures
Christopher M. Schroeder, venture investor
Jim Stewart, True Ventures
Mike Stubler, Draper Triangle Ventures
Hunter Walk, Homebrew
Andrew Weissman, Union Square Ventures
Albert Wenger, Union Square Ventures
Boris Wertz, Version One Ventures
Andy White, Vegas Tech Fund
Fred Wilson, Union Square Ventures
Photo by 401(K) 2012/Flickr (CC BY-SA 2.0)
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