I asked authors Samir Patel and Dan Elliott to share their great article on the nature of disruption in law. Enjoy!
What is “Disruptive” Law?
Discussion of ideas is commonplace in Entrepreneurial Lawyering (EL) class. In EL, we are using lean canvases, a sustaining innovation, as a planning tool to facilitate the growth of our startup ideas. Startup ideas transform into viable businesses only if they find a scalable iteration before the depletion of their resources. As a result, investment becomes a key component of growth in the later stages. On this train of thought, this post is going to illustrate how EL has caused us to form a different lens through which we view the world.
As many in the class aim to be the disruptive innovators, disruptive innovation took foothold as a key topic this most recent session of EL. Disruptive innovation, most notably “new-market disruption,” aims to provide value to customers presently unreached. As this concept percolated, we learned about somewhat recent changes to the 2013 JOBS Act that altered how equity crowd funding could be used for startups. Previously, the Act only allowed, “accredited investors” who were people that earned $200,000 per year, had a net worth of over $1 million, or had assets worth over $5 million. After an iteration to the law in 2015, individuals who do not meet any of those requirements may now invest up to ten percent of their income or net worth every year via equity crowd funding. Given our understanding of Clayton Christensen’s description of disruptive innovation, the addition of these new investors is disruptive because the change in law provides value to customers presently unreached. With this new value chain, new ways of doing business for these new investors will proliferate
A Canadian company called Weifund, is taking the energy created by these new value chains and placing it back into the entrepreneurial ecosystem through crowdfunding. Conventional crowdfunding like Kickstarter and GoFundMe provide a service, charge a fee, and act as a middleman or matchmaker. Weifund’s unique advantage is that it accomplishes the connective matchmaking by way of blockchain at a fraction of the cost Kickstarter charges. By using blockchains, Weifund reduces the matchmaking cost for entrepreneurs and potential investors. Such a reduction in cost provides startups more opportunities to rapidly go through the iterative process.
Just as startups must iterate, the law must iterate. Given the connection between law and business detailed above, we are left with a chicken or egg question. Do “disruptive” businesses cause “disruptive” law, or does “disruptive” law cause “disruptive” businesses?