When you have an exciting idea for a new product, it’s easy to view compliance as a hinderance. You don’t want the government telling you what to do! You want to move fast, break stuff, and do cool things!
Perhaps the most brazen example of this ethos was in the crypto space, where companies openly flouted rules on securities registration or money-transfer licensing and dared the Feds to come after them. In a few cases, it worked—sort of. Some crypto companies got so big, so quickly, that by the time the SEC came knocking with eye-watering fines (like when BlockFi had to pay $100 million), it was a survivable setback instead of being fatal to the company.
But that strategy won’t work any more. Venture capital, reeling from the recent downturn, is becoming more risk-averse. And regulatory risk is top of mind, especially in crypto and fintech. If you ever want to bring in outside investors, you need to be able to pass due diligence. The same holds true if you want to form partnerships with existing companies, and even to attract more customers.
Today, successful startups understand their legal requirements first, and design their product around that. Not only does this keep you out of trouble, it also can present opportunities for innovative product design if you can flesh out a way to work within the system that other people haven’t implemented yet. Remember the saying: creativity arises from constraint.
Oren Litwin LLC 