2016 Fifth Era Report - The Impact of Internet Regulations on Investment

In 2015, Fifth Era surveyed 475 investors in 15 countries in order to assess the degree to which the future legal environment might impact their behavior concerning investing in Internet companies. The thirteen countries (Australia, India, Indonesia, Israel, Japan, Korea, Nigeria, Saudi Arabia, South Africa, Thailand, Turkey, UAE and Vietnam) surveyed in Asia, Africa and the Middle East represent a spectrum of more to less developed Internet economies. The UK and USA were chosen as leading examples of countries that provide foreign direct investment (FDI) to the thirteen economies.  

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Executive Summary

The digital economy is driving innovation and growth around the world. as new technologies, business models and companies are emerging they are fundamentally altering the business landscape and the ways that traditional industries operate. while this is driving GDP and job growth in most countries, it also provides new challenges to lawmakers. The regulatory landscape has been evolving rapidly as the internet continues to expand into all areas of business and personal life, and as lawmakers respond to the issues and concerns that are brought to them. While new regulations can potentially boost growth, they also raise the real risk of negatively impacting the investment environment and the success of internet companies and the growth they represent. Lawmakers are considering new regulations in areas including: 1) copyright and intellectual property, 2) intermediary liability protection and censorship, 3) privacy and security, and 4) mobile infrastructure and services. In order to ensure that the views of internet investors are incorporated into the thinking of lawmakers, Fifth Era has conducted surveys in 2011, 2014 and 2016 to determine the impact that potential internet regulations may have on their investing activities.

For this year’s report we wanted to understand the differences that might exist between investors in countries with a strongly developed Internet economy and those which are still developing their Internet economies. In addition, we wanted to understand how capital availability might be impacted among the investors residing in each country, as well as those major sources of foreign direct investment (FDI) that flow into each country. We decided to sample countries in every category so that we could assess how potential Internet regulations and government policies might negatively or positively impact capital investment into Internet companies. The thirteen countries (Australia, India, Indonesia, Israel, Japan, Korea, Nigeria, Saudi Arabia, South Africa, Thailand, Turkey, UAE and Vietnam) surveyed in Asia, Africa and the Middle East represent a spectrum of more to less developed Internet economies. The UK and USA were chosen as leading examples of countries that provide FDI to the thirteen economies.

This year we applied the same criteria in each market regarding who was allowed to take the survey. First they needed to declare that they were Internet investors. Secondly, they needed to have a net worth excluding their primary residence of USD $1 million or annual income of USD $200,000. We then worked with leading panel companies in each of the fifteen countries to ensure that the survey yielded statistically relevant samples of the country specific sophisticated investors. In total, 475 Internet investors completed the survey and were verified respondents.

As shown in the detailed findings of this report, the sentiment of investors is very consistent across these various categories of economies surveyed. Investors are chilled by regulatory ambiguity and would reduce their capital investment if countries introduce Internet regulations that reduce their investment viability or return. Investors are concerned by some potential regulations in areas including: 1) Copyright and Intellectual Property, 2) Intermediary Liability and Censorship, 3) Privacy and Security, and 4) Mobile Infrastructure and Services, and would prefer countries that focus on creating supportive economic, regulatory and investment environments which consider investor sentiment.

Governments that engage Internet investors in their law making and introduce government policies aimed at stimulating investment should see significant positive results in terms of increased capital investment, GDP growth and job creation.