Net neutrality ruling scaring VCs away from investing in certain startups

One VC firm has said it will 'stay away from' companies that may require high-performance networks, which ISPs may soon make more expensive.

Venture capitalists are already wary of investing in startups that would require high-performance broadband speeds out of concern that the FCC's expected net neutrality ruling will increase their operational costs, MIT's Technology Review reported today.

Brad Burnham, managing partner at venture capital firm Union Square Ventures, told Technology Review that his firm plans to “stay away from” media-heavy startups as a result of FCC chairman Tom Wheeler’s proposed net neutrality rules, which would allow ISPs to charge those businesses extra for the bandwidth required to develop or distribute their products. Burnham also identified businesses that develop payment systems or mobile wallets as potentially risky investments if the FCC’s rules are issued as some expect.

“This is a bad scene for innovation in those areas,” Burnham told the Technology Review.

Many expect the FCC’s ruling, which will be released on May 15, to effectively put an end to the open Internet that allowed high-bandwidth services like Netflix and Pandora Radio to thrive in recent years, making it more difficult for startups to operate on small budgets. Although Netflix CEO Reed Hastings continues to speak out about the risks of such a ruling, the company has already agreed to pay ISPs for additional bandwidth to accommodate high-quality streaming video for its customers.

+ ALSO ON NETWORK WORLD: Five ISPs accused of 'deliberately harming' broadband speeds +

In a blog post last week, Wheeler denied that the FCC’s new ruling would favor ISPs, and that many people have a “misinformed interpretation” of the commission’s process.

Wheeler asserted that the FCC will not allow ISPs to create a “fast lane” by degrading service on their existing networks, nor will it permit ISPs to favor content providers that they own or to use their power over the networks to suppress free speech or expression online. Additionally, Wheeler says the FCC will monitor the Net neutrality situation for any roadblock it may cause to innovation.

“If we get to a situation where arrival of the ‘next Google’ or the ‘next Amazon’ is being delayed or deterred, we will act as necessary using the full panoply of our authority,” Wheeler wrote.

Colin Neagle covers emerging technologies and the startup scene for Network World. Follow him on Twitter @ntwrkwrldneagle and keep up with the Microsoft, Cisco and Open Source community blogs. Colin's email address is

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