Profit By Hacking The Law


Capitol-HillCorporations in the high-tech industry spend millions of dollars every year in Washington, D.C.  That money is spent on influencing politicians to change the laws that affect those companies’ agendas.  Big corporations need not be only ones to profit from public policy, though.  Businesses of all sizes can hack potential growth simply by paying attention to laws that might affect them.  Several of Y Combinator’s most promising startups are good examples of companies using the law to their advantage.

Airbnb, from YC W09, is one of Y Combinator’s most valuable companies.  The share economy travel service is also one of the most forward-thinking startups about public policy.  The Airbnb Public Policy Blog is devoted to legal initiatives and issues that affect its global community.  Cases like the host in New York fined $2,000 and the new housing laws in Hamburg, Germany demonstrate exactly why companies must pay attention to policy changes that could impact their bottom-line.

Eligible (YC S12) and Zenefits (YC W13) have changes in federal laws driving their growth.  The Affordable Care Act, a.k.a Obamacare, is the wind in both those companies’ sails.  The Affordable Care Act requires that insurance companies automate responses to insurance coverage requests.  As a result, Eligible is already processing more than 10,000 insurance eligibility requests per day.  And as I just wrote, Zenefits has the potential to get very big very fast based on the Obamacare mandate that many employers start providing employee healthcare coverage.

FundersClub worked with the government in creating its business.  The YC S12 company saw a major opportunity for crowdfunded startup investments based on the Jumpstart Our Business Startups (JOBS) Act.  FundersClub communicated with the Securites & Exchange Commission for clarification about how its business is legally classified.  The result was a letter from the SEC recognizing FundersClub as an “investment advisor” rather than a “broker-dealer”.  Perhaps just as importantly, though, working with the SEC resulted in significant press and bragging right as FundersClub became the first legally-recognized online venture capital firm.

Coinbase (YC S12) is a company prospecting in uncharted legal territory.  Coinbase is a digital Bitcoin wallet that allows you to securely buy, use, and accept Bitcoin.  Bitcoin is undisputedly a currency (“cryptocurrency“), with some people actually living on Bitcoin.  A central legal issue is that Bitcoin can be used for illegal transactions on sites like the so-called Silk Road.  The U.S. government requires money transmittal services to be licensed to prevent such illegal activity.  The Department of Homeland Security has already seized the assets of at least one Bitcoin exchange.  And earlier this week, a federal judge formally declared Bitcoin real money while prosecuting a Bitcoin Ponzi scheme.  Following Bitcoin-related legal issues is therefore essential for Bitcoin-related businesses like Coinbase to even operate.  One Washington, D.C. law firm, Bode & Grenier, LLP, already has a website specifically for Bitcoin-related civil litigation.

Hacking is doing something clever to somehow beat a system.  The laws that govern businesses are simply another system there to be hacked.  Big businesses hack public policy to their advantage every day in Washington, D.C. through lobbying, campaign contributions, labor unions, and other such methods.  As the above Y Combinator companies demonstrate, there’s no reason startups cannot and should not also profit from the law.

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