Blockchain Coinvestors CEO: If U.S. government won’t lead on innovation, get out of the way
IN BRIEF
- "Tesla created the fast-charging infrastructure of America; the government didn't do it. They could have done it, but they didn’t. Imagine if they had and required it for all transportation in America?"
- "Standards are very dangerous in a world of innovation. A regulator has to create a dynamic, flexible regulatory structure that provides some clarity, but still permits additional waves of innovation. That’s not easy."
- "Throughout time, the most innovative countries have captured the lion's share of the global economic trade and value."
Matthew Le Merle, managing partner and CEO of Blockchain Coinvestors, which provides a broad coverage of the fastest growth blockchain companies and crypto projects, sat down with Lata Varghese, Protiviti Managing Director, Digital Assets and Blockchain Solutions, to discuss the dichotomy between regulation and innovation in government as it relates to fintech.
Varghese: Blockchain Coinvestors, and in fact, the whole space of blockchain investing, might need a little more explanation. Can you tell us a little bit more about it and your role at Blockchain Coinvestors?
Le Merle: Along with Alison Davis, I'm the founder of Blockchain Coinvestors. We have been investing in internet and fintech here in Silicon Valley for about 20 or 20-plus years. And about 10 years ago, we saw those two innovations converging on something new. And so, the internet and fintech came together to create something called Bitcoin, which was put on top of an innovation called blockchain. And we were very taken by the arrival of the world's first digital money, and we thought that that was a transformative moment. So, we pivoted to be 100% focused on investing in blockchain. And we've done that ever since. We've backed more than 800 blockchain companies and projects at this point in Europe, North America and Asia. We do not trade; we're are early-stage venture investors.
Varghese: I know your position is that the move to digital money, commodities and assets is inevitable. That will, of course, require new infrastructure. I’m curious, who do you think should lead that effort? Is it the public or private sector? Do you see this as similar to the internet and its iterations after, which was driven in large part by government investment and mandate?
Le Merle: I’m not sure I agree that the rollout of the internet, particularly the digital communications and content that followed on a global basis, was driven by governments at all. While the government created the internet, it’s widespread adoption was driven by the world's most innovative companies—Apple, Microsoft, Amazon, Google, Facebook—those were the companies that brought digital communications and content to the mainstream. It actually took a while for the incumbents, the large telcos to embrace the internet. And in fact, if you go back to the 1990s, most of them were resisting it because it was disruptive to their current business model.
Any government that purposefully tries to slow down innovation always regrets it later. They discover they lose ground on a global scale. In my opinion, the role of government is to create pro-innovation regulation because innovation drives jobs, GDP and economic growth everywhere in the world. And I could be talking about life sciences, I could be talking about clean energy, I could be talking about enterprise software. It's true across all areas of innovation.
Any government that purposefully tries to slow down innovation always regrets it later. They discover they lose ground on a global scale.
Varghese: OK, fair enough. But I think my question was more about government setting the conditions for innovation to occur with active investments in infrastructure and other related things that allow private companies to innovate...
Le Merle: Governments do not create the backbone or the innovation infrastructure upon which innovators build. Time after time, we see governments waste enormous amounts of money, billions and billions of dollars on infrastructure that the private sector ends up not using. All governments need to do is set pro-innovation regulation and get out of the way—the private sector will make it happen. Look, Tesla created the fast-charging infrastructure of America; the government didn't do it. They could have done it, but they didn’t. Imagine if they had and required it for every transportation mode in America? What a different place we’d be in right now. But they didn't do it, and Tesla's had to build it itself. That’s just one example. I just don't think government is good at innovating. I also don't think large established companies are very good at innovating—a few of them are. I think innovative companies are very good at innovating, and then the rest of us try to figure out how to take those inventions and embed them into business or the public sector.
I also don’t think you can standardize innovation. If in the Betamax-VHS moment, the government had picked a standard, which one would they have chosen? The answer is Betamax; it was the superior technology at the time. So, from an objective perspective, if you had chosen to stop innovation in that moment, we would all be on Betamax, and we wouldn't never have had CDs, DVDs, or downloadable content because we would have made a rigid set of standards that said the chosen way of storing and sharing data is on Betamax tape. Governments make that mistake all the time—you can't set a standard in a moment of time when you have rapid innovation occurring because the next innovation may be superior to anything you understand today. Standards are very dangerous in a world of innovation. A regulator has to create a dynamic, flexible regulatory structure that provides some clarity, but still permits additional waves of innovation. That’s not easy.
Varghese: Right. So, it’s government’s job to provide the regulatory clarity so that innovators can do what they need to do?
Le Merle: Yes, that’s preferable but it’s also very difficult for a regulator to maintain regulation of today's industries, businesses and activities while at the same time trying to figure out what new innovative regulation would be needed for a future that hasn't yet arrived. And so, we always have that tension. As an investor in innovation, my preference would be, of course, to have regulatory clarity, but I understand that’s not easy. The thing we don't ever want is anti-innovation regulation
Standards are very dangerous in a world of innovation. A regulator has to create a dynamic, flexible regulatory structure that provides some clarity, but still permits additional waves of innovation. That’s not easy.
Right now, almost every other country in the world is busy establishing pro-innovation regulation for digital moneys, commodities and assets. And unfortunately, in America, we have some people who believe we should be killing this innovation, and they are working hard to create anti-innovation regulation. And it's holding us back. America has always been an innovation leader, and America has also been the world's financial leader. The real danger here is that America ends up being neither innovative nor a financial leader. For any country, it's never a good strategy to be slow on innovation; and the danger of anti-innovation regulation is that all the innovators go somewhere else, and you lose your competitiveness.
Throughout time, the most innovative countries have captured the lion's share of the global economic trade and value. If I was running the UK, the U.S., the EU, Switzerland, Abu Dhabi, Dubai, Singapore, Hong Kong, I would be passing pro-innovation regulation right now for digital moneys, commodities and assets. But America has been, and I believe still is, the world's greatest concentration of talent. And all we're really asking is for government to help America continue to maintain that position.
the danger of anti-innovation regulation is that all the innovators go somewhere else, and you lose your competitiveness.
Matthew Le Merle is Managing Partner and CEO of Blockchain Coinvestors. Launched in 2014, Blockchain Coinvestors’ vision is that digital monies, commodities and assets are inevitable and all of the world’s financial infrastructure must be upgraded, and its mission is to provide broad coverage of the fastest-growth blockchain companies and crypto projects. Matthew is serves as Managing Partner of Keiretsu — the most active early-stage venture investors backing over 300 companies a year. Matthew’s career has spanned being a global strategy advisor, professional services firm leader, corporate operating executive, private equity and venture capital investor, and board director. His board work has included Chairman or Non-Executive Director roles in 15 public and private companies and active Advisory Board roles in fast growth companies.
Lata Varghese is Managing Director in Protiviti’s Technology Consulting practice and Protiviti’s Digital Assets and Blockchain practice leader. Lata is a seasoned executive with over 20 years of experience in helping clients successfully navigate multiple business and technology shifts. Prior to Protiviti, Lata was one of Cognizant’s early employees when the firm had less than1,000 employees, and she grew with the firm as it scaled to a $17Bn, Fortune 200 enterprise.
