This man’s job? Navigate collisions between Silicon Valley and Capitol Hill

October 25, 2015, 6:00 PM UTC
Andreessen Horowitz
Photo: Courtesy of Andreessen Horowitz

Call Ted Ullyot the black sheep of Silicon Valley. He’s a Republican in a land of Democrats, and a D.C. politico nestled among the gadget and hoodie crowd. And right now, he might just have the most interesting job in the technology industry.

Ullyot recently left Facebook (FB), where he was the social network’s first general counsel. Now he works at Andreessen Horowitz, the fabled venture capital firm that had made big bets on Pinterest, Airbnb, and dozens of other buzzy startups. His job? Help the firm and its portfolio companies navigate the collisions that arise when the unstoppable force of tech disruption meets the immovable object of government regulation.

The outcome of these legal collisions—which include fights over ride services and “on-demand” workers—will determine the fate of many startups. But they will also have a broader impact on urban economies and the U.S. labor market. In interviews over the telephone and at Andreessen Horowitz’s Silicon Valley office, Ullyot shared his thoughts on the future of work, regulation and the 2016 election landscape.

Startups and safety nets

Tech moves quickly and law moves slowly, which is a big reason so many startups end up in legal tussles. In Ullyot’s view, incumbent industries often contribute to these conflicts by egging on regulators to shut down upstart competitors. One obvious example is the world of ride-hailing apps, where smartphone-based companies like Uber and Lyft are locked in pitched battles with taxi commissions across the country.

Another example, says Ullyot, is insurance brokers who have used their clout with state officials to make life difficult for Zenefits, an online HR company that threatens to disrupt them. Unsurprisingly, Ullyot is not a fan of aggressive government oversight, and sees “regulatory modesty” as the ideal approach.

“There’s a tendency of regulators, often pressed by incumbents, to step into an area where the new product isn’t expressly permitted or prohibited,” he says. “Unless you can point to a bona fide clear risk of consumer harm, I think regulators should let the new technology play out.”

But some legal conflicts in Silicon Valley are about more than fusty regulators trying to kibosh new technology. This is the case in fights over the so-called “on-demand” or “1099 economy.”

Startups with names like Handy and Washio are at the middle of these fights, and their business model is to provide platforms where consumers purchase services like transportation, home-cleaning or laundry. The companies claim the workers are independent contractors, but not everyone agrees. In a series of class-action lawsuits, workers are claiming they’re in fact employees (the distinction is important since employee status triggers a number of labor law rules such as overtime and vacation pay.) And so far the law is siding with the workers: in a closely-watched California case, Uber drivers won a significant victory when a judge granted them permission to sue as a class (the ruling is under appeal).

Such rulings pose a major threat to the business model of “on-demand” companies, which VC firms like Andreessen Horowitz have bet on to deliver big returns. After all, one reason these companies gain traction in the first place is because they can save on labor costs—without these savings, they begin to look a lot like traditional businesses.

The pressure on the 1099 business model (so named because of the 1099 tax form for independent contractors) is increasing as politicians take note of it. Presidential candidate Hillary Clinton, for instance, has already been asking if the on-demand economy can be squared with the popular refrain for more “good jobs” for ordinary Americans.

Andreessen Horowitz, of course, is watching all this closely since its portfolio includes on-demand companies like Lyft (car rides) and Instacart (grocery delivery). Ullyot notes that Instacart has already gone to a “mixed” model where some workers are employees and others are contractors. But he is reluctant to suggest industry-wide rules.

“My preference would for it to be solved by the market, and to see which workers go to which companies, and which form of work they prefer,” he says. “I think the worst case result is resolving these questions through class action litigation. I would prefer it be resolved through a policy debates rather than through the courts.”

But perhaps acknowledging the limits of market solutions, Ullyot also cited a policy proposal where 1099 companies would participate in a pooling arrangement to provide safety net benefits.

“I see it as an interesting balance between safety net and opportunity. I think very few people would dispute the need for a safety for workers and people in America. The trick is to balance those two: provide an appropriate safety net and also encourage these companies to innovate and create new opportunities.”

So who is going to supply the balance? Can the government?

The Republican in the Valley

If you know Silicon Valley, you know meeting a Republican is about as rare as finding a parking spot in San Francisco. Ullyot, then, is perhaps an odd fit since he was a lawyer for the George W. Bush Administration, and he remains an unapologetic conservative—not the sort of pedigree that wins you popularity in places like Palo Alto.

“It’s even worse when you’re not just a Bush Republican, but a former law clerk to Justice Scalia,” Ullyot says with a laugh, alluding to his stint working for the arch-conservative Supreme Court judge.

“But in all seriousness,” he adds, “in these jobs at Andreessen Horowitz or Facebook or elsewhere, you have to be bipartisan and non-partisan. Andreessen Horowitz has literally the full range of views across the political spectrum but you put those aside when you do your day job, and do what’s best for your company.”

Such a philosophy may work at a venture capital firm (even one run by a mercurial man like Marc Andreesen). But for startups facing major regulatory issues, a bipartisan approach in Washington is unlikely anytime soon. According to Ullyot, the impending 2016 Presidential election means any major movement on tech policy issues is unlikely for the foreseeable future, even though changes could take place at the state level.

As for the candidates, Ullyot remains loyal to the Bush family and says he is backing Jeb (recent poll numbers notwithstanding). He adds, though, that Andreessen Horowitz is in favor of any candidate, Republican or Democrat, who will pursue pro-innovation policies in Washington. But this does not include current Republican front-runner, Donald Trump.

“I’ve yet to hear much enthusiasm for Trump anywhere in Silicon Valley. Let’s just put it that way,” says Ullyot diplomatically. “You can start with the presumption that many people out here are Democrats and would not even look at him, and the few of us out here who are Republicans are predisposed in other directions.”

Correction: An earlier version of this story stated a California court has ruled Uber drivers are employees. While a judge certified the class action, there has yet to be a final ruling on the question of employee status.

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