East Tech West

Stopping tech giants from monopolizing data could help smaller start-ups, says venture cap investor

Key Points
  • Regulation that seeks to address data monopoly among big tech companies could create a healthier environment for start-ups to innovate, according to Fusion Fund founder Lu Zhang.
  • With digital transformation happening across all industries, many of the big tech companies are sitting on large volumes of data that are being generated in the process, Lu explained.
  • Gaining access to that data in order to innovate is "much, much harder for the smaller start-ups," she said.
VIDEO4:2104:21
We welcome the regulation of big tech companies, venture capital firm Fusion Fund says

SINGAPORE — Regulation aimed at addressing data monopoly among big tech firms could create a healthier environment for start-ups to innovate, according to the founder of Fusion Fund.

The California-based venture firm invests in early-stage technology companies in the U.S. and Canada in sectors including health-care applications and has backed the likes of SpaceX and Lyft.

"Regulation has been a popular topic for the past couple of years, especially within the VC (venture capital) industry," Lu Zhang, who is also managing partner at Fusion Fund, said on CNBC's "Street Signs Asia" on Friday. The interview was part of CNBC's annual East Tech West conference, which is being held this year both remotely and on the ground in the Nansha district of Guangzhou, China.

With digital transformation happening across all industries, many of the big tech companies are sitting on large volumes of data that are being generated, Lu explained. Gaining access to that data in order to innovate is "much, much harder for the smaller start-ups."

"I think fundamentally we really welcome the regulation especially focused on data monopoly," she said.

Chinese regulators this week introduced draft antitrust rules aimed at China's large internet companies. For the first time, the draft rules defined what constitutes anti-competitive behavior, and outlined things like pricing, payment methods and their use of data to target shoppers.

Data privacy laws

Meanwhile, regulators in Europe and in California, for example, have implemented rules aimed at giving users more control over the personal information that companies collect about them in exchange for services. The United Nations said as of early 2020, about 66% of countries have some form of data privacy laws and another 10% have draft legislation in place.

Critics have raised concerns that sweeping data protection laws can potentially stifle innovation and hurt smaller businesses that need to fork up capital in order to comply with the rules.

Data protection laws and approaches differ in the U.S., Europe and China.
Dünzl | ullstein bild | Getty Images

Lu told CNBC that while there are some short-term pains, in the longer term, regulation results in a healthier environment. But the challenge is putting together laws that would work for everyone — which require efforts from government agencies, investors, entrepreneurs and big corporations, she said.

"If we just put a one-stop solution on it … not only we may have short-term problem with potential growth, may also extend to the long-term issue," she said.

U.S.-China split

When asked about the technology rivalry and possibility that the U.S. and China might go their separate ways, she said in recent years, start-up founders in Silicon Valley have shied away from foreign capital.

"Most of the Silicon Valley founders would prefer to take local VC money like us instead of taking foreign capital," she said, explaining that they do so to avoid any regulatory complications. Those companies are generally short on cash and if they had to wait for six months or longer to clear regulatory hurdles before fundraising, they may not survive, according to Lu.

"There is sufficient capital in the United States, especially in Silicon Valley, to fund the local start-up companies," she said.

KPMG in a report said that in the third quarter of 2020, VC-backed companies in the U.S. raised $37.8 billion across 2,285 deals.