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Investors Push Entrepreneurs to Wise Up to Washington

Investors want to fund startups with big ideas, the potential for astronomical returns and, now more than ever, good relationships with Washington D.C.

Technology companies have intersected with regulators in the past. But most high-profile run-ins dealt with antitrust and privacy concerns, issues that rarely affect smaller companies.

Now, venture capital firms and strategic investors are putting money into upstart medicine, food, surveillance, transportation and finance businesses whose products are so new that the government is still trying to figure out how to regulate them. Some examples include gene-based therapies and medical devices, drones, self-driving cars and digital currencies.

These companies must often help lawmakers understand their products well enough to set new rules, rather than just abide by old ones. For example, a Bitcoin-related company could be hamstrung by rules from the Treasury Department’s Financial Crimes Enforcement Network, the Department of Homeland Security, the FDIC and the SEC, who are all still deciding how best to regulate digital currencies.

This relatively new phenomenon has pushed VCs to study up on Washington territory, to favor businesses that can work with regulators and to push entrepreneurs in these gray areas to think deeply about government risk.

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In particular, they wanted him to recruit a strong legal executive who could help the company understand and work with regulators, he says. He hired John Beccia, who was previously a lawyer at FinCen, a government agency that regulates financial crime. The company last month received a $9 million investment led by Jim Breyer of Accel Partners.

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Ruchi Sanghvi
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"Investors want to know that we have a realistic path toward FDA clearance."