The Big Story: Veto of controversial AI bill opens door to better approaches
Startups are breathing a sigh of relief this week after California Governor Gavin Newsom (D) vetoed California's SB 1047—a controversial bill to regulate AI development—which would’ve hindered innovation and harmed the startup ecosystem. The veto comes as other states, federal policymakers, and governments around the world are considering responses to AI that risks contributing to a burdensome regulatory patchwork. Across nearly every industry, startups are building their own AI models, innovating with open source AI resources, or utilizing existing models, and policymakers should pursue efforts to support AI innovation in the startup ecosystem.
California’s SB 1047 highlighted AI regulatory ideas to avoid. The bill’s ex-ante approach discouraged model development and especially open sourcing of AI models because developers would be potentially responsible for uses of their models by others. That led the bill to impact an even broader part of the ecosystem than just the largest AI developers. Open-source AI models lower barriers to entry for AI startups by allowing them to focus on their core innovation instead of building new models from scratch. The overbreadth led Gov. Newsom to note the bill didn’t sufficiently account for risk and would apply “stringent standards to even the most basic functions.” House AI Task Force Chair Rep. Jay Obernolte (R-Calif.) similarly warned that the bill threatened to grow “a regulatory landscape so complicated” that innovation and startups would be harmed.
To avoid unintended consequences that disproportionately impact startups, policymakers should pursue a positive agenda to support AI innovation. That agenda should include efforts to grow the AI talent pool, create tailored voluntary guidance for responsible AI development, and provide AI resources directly to startups like compute or datasets. Moreover, those resources should be disseminated through channels founders already use for support—such as local incubators, accelerators or co-working spaces—so that they are sure to effectively reach startups. With policymakers striving to tackle current challenges—like talent shortages and resource constraints—and pursuing balanced regulatory regimes, startups can focus on doing what they do best: solving problems with cutting edge technologies.
Policy Roundup:
New York rulemaking could push startups to costly age verification. Engine filed comments this week urging the Office of the New York State Attorney General to recognize the unique challenges faced by startups as they write rules about kids’ activity online. As the office implements the SAFE for Kids Act, it must consider startups' limited resources to avoid placing undue strain on them, potentially forcing some to stop serving minors or New York residents altogether. Startups need clear rules—like an actual knowledge standard instead of unclear requirements that force startups to collect more data to guess a user’s age and drain their limited resources.
Engine underscores importance of strong digital trade leadership. Following a September hearing, Engine submitted a statement to the House Ways and Means subcommittee on trade this week, emphasizing the need for a proactive digital trade agenda to lower trade barriers and unlock new markets for U.S. startups. Engine’s letter to the committee underscored what they learned at the hearing from startup founder Olivia Walch. In her testimony, Dr. Walch demonstrated how strong digital trade measures support her startup, emphasizing the need to prevent rules like tariffs on digital goods, mandatory data localization, and forced source code disclosure from hindering their competitiveness.
Supreme Court asked to review broadband program constitutionality. The Federal Communications Commission petitioned the Supreme Court on Monday to review the Fifth Circuit’s decision that declared the $9 billion Universal Service Fund (USF) unconstitutional for being a tax sub-delegated to the Universal Service Administrative Company in violation of the nondelegation doctrine. The USF supports broadband affordability programs, such as E-Rate and Lifeline, which benefit low-income and rural areas. Both the Sixth and Eleventh circuits have previously upheld the USF as a constitutional fee charged to telecommunications carriers, making Supreme Court review increasingly likely. In light of the Affordability Connectivity Program’s expiration, the USF remains a crucial program, ensuring startups and their users have equal access to the Internet.
Open-source AI levels playing field for startup innovation. We continued our series on AI Essentials this week with a new blog post exploring the benefits of open-source AI for startups. Open-source models can reduce the need to develop AI models from scratch and enabling startups to focus their limited resources on their core innovation. Some policymakers are concerned about the potential for nefarious actors to exploit open-source models, but open source can also help with AI safety thanks to enhanced transparency and scrutiny. Policymakers should avoid imposing excessive burdens on startups or undercutting a key path for them to innovate in AI.
Startup Roundup:
#StartupsEverywhere: Anchorage, Alaska. Founded in 2017, 60Hertz set out to tackle critical challenges in maintaining microgrids and renewable energy systems, particularly in remote regions like Alaska. Now active in eight countries, the company provides advanced maintenance technology through its SaaS platform. In this blog post, we dive into 60Hertz’s journey, from early capital-raising hurdles to success with government grants, and explore the future goals of this innovative company.
