Venture capitalist Bill Gurley paced onstage at an event this week and asked the audience to yell a sentence that would not normally generate excitement. Gurley, however, received a full-throated response from the crowd.
“Regulation is the friend of the incumbent!” They shouted.
Gurley was speaking at the All-In Summit in Los Angeles, an event tied to the mostly tech-focused All-In Podcast. He entitled his presentation “2,851 Miles,” which is the distance between Silicon Valley and Washington, D.C.
Gurley—who as a general partner at VC firm Benchmark has invested in the likes of Uber, Grubhub, and Zillow—warned about the dangers of “regulatory capture.” He described his own experiences butting up against it as he championed innovative startups, and then described the role it may play in artificial intelligence.
Gurley quoted George Stigler, winner of the 1982 Nobel Prize in economics, who said, “as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit.” In other words, a special interest is prioritized over the general interest of the public.
Gurley recounted his experiences with Tropos Networks, in which Benchmark invested. He described how “hundreds of mayors” were excited by the company’s wireless mesh networking technology, hoping to “provide free wi-fi service across their downtown area.”
But, he said, the idea “collided with commercial interest,” namely incumbents with powerful lobbyists. In the case of Philadelphia, he said, Verizon and Comcast used lobbyists to push bills through the Pennsylvania legislature that would protect their positions from upstart challengers like Tropos. More such regulations soon spread to other states.
Regulatory capture in AI
Gurley shared a few other examples of regulatory capture in modern times, and then turned to AI. He shared onscreen a New York Timesarticle from May entitled, “OpenAI’s Sam Altman Urges A.I. Regulation in Senate Hearing.”
“Sam’s just getting started,” Gurley said, referring to OpenAI CEO Sam Altman. “He wants regulation, too.” OpenAI, the maker of AI chatbots ChatGPT and GPT-4, is widely seen as being far ahead of rivals.
“There’s a really scary thing in this AI space,” Gurley said. “The incumbents that are running to meet with…the government are spreading something that I don’t think is accurate or fair: They’re spreading a negative open-source message, and I think it’s precisely because they know it’s their biggest threat.”
If large language models (LLMs)—which power AI chatbots like ChatGPT—are open source, the reasoning goes, more startups will be able to innovate and challenge incumbents. By contrast, the LLMs of OpenAI and Google (with its ChatGPT rival Bard) are not generally available for public scrutiny.
Tesla CEO Elon Musk, who cofounded OpenAI in 2015 but later drifted away from it, tweeted in February: “OpenAI was created as an open source (which is why I named it ‘Open’ AI), non-profit company to serve as a counterweight to Google, but now it has become a closed source, maximum-profit company effectively controlled by Microsoft. Not what I intended at all.” (In July, Musk launched xAI, saying it’s “definitely in competition” with OpenAI.)
Altman and Microsoft have denied this characterization, and Ilya Sutskever, OpenAI’s chief scientist and cofounder, shared his thoughts on the the switch away from open source in an interview with The Verge in March:
“We were wrong. Flat out, we were wrong. If you believe, as we do, that at some point, AI—AGI—is going to be extremely, unbelievably potent, then it just does not make sense to open-source. It is a bad idea…I fully expect that in a few years it’s going to be completely obvious to everyone that open-sourcing AI is just not wise.”
He added that “at some point it will be quite easy, if one wanted, to cause a great deal of harm with those models.” He also noted, however, that “the safety side is not yet as salient a reason as the competitive side,” and there are “many, many companies who want to do the same thing” as OpenAI.
Altman himself told lawmakers in May, “We don’t wanna slow down smaller startups. We don’t wanna slow down open-source efforts,” while adding, “We still need them to comply with things.”
Marc Andreessen, a general partner at VC firm Andreessen Horowitz, has railed against regulatory capture in the AI space, warning in June of “CEOs who stand to make more money if regulatory barriers are erected that form a cartel of government-blessed AI vendors protected from new startup and open source competition.”
Of course, venture capitalists might stand to benefit if AI startups in which they invest are better able to challenge leaders in the field.
Gurley called Llama 2 from Meta, one of the leading open-source LLMs, “super interesting.” And Silicon Valley notables including Andreessen, YCombinator cofounder Paul Graham, and Greylock partner Reid Hoffman have signed a statement of support for Llama 2 that reads: “We support an open innovation approach to AI. Responsible and open innovation gives us all a stake in the AI development process, bringing visibility, scrutiny and trust to these technologies. Opening today’s Llama models will let everyone benefit from this technology.”
Toward the end of his presentation, Gurley warned that “if you care about prosperity and you kill innovation, you’re going to kill prosperity.” In an onstage discussion afterwards, he called for “massive transparency” in government, adding that he’d “love to see what OpenSecrets does be kind of mandated,” referring to the nonprofit that tracks money in politics. “Like the minute a check lands, everyone knows. Expose the hell out of it.” He also joked, “I probably can’t get a meeting in Washington.”
He ended his talk by referring back to its “2,851 Miles” title. “The reason Silicon Valley has been so successful,” he said, “is because it’s so f–king far away from Washington, D.C.