State lawmakers across the country are pushing data privacy legislation meant to protect consumers online. But a close look at the details of some of these bills — especially one under consideration in Albany right now — shows they would make it incredibly difficult for some early-stage startups to compete with Big Tech companies and prevent others from using data for good to help solve social issues.
Data privacy legislation is well-intentioned but can have widespread unintended impacts, especially on startups that will need to invest significantly more to make changes to their businesses. Right now, three different states have different data privacy regimes (with even more on the horizon), and New York is considering yet another one. Having to comply with each of these laws creates an incredible barrier to entry for startups like the one I’m building. What we really need is a federal solution — either a national law or, at a minimum, coordination among state regimes that would allow players of all sizes to comply.
This issue is especially urgent for Black women startup founders like myself. Access to capital and other critical resources needed by young companies to grow is already severely limited, as Black women founders received just one third of one percent of all venture capital funding in 2021. Startups must already fight tooth and nail to compete with well-resourced Big Tech companies, and the lack of access to funding makes this all the more difficult for Black-founded startups. I experience these challenges every day as I prepare to launch my company out of stealth and market our service that helps Black women reach their financial goals.
On top of these institutional challenges, startups like mine now have to worry about compliance costs and business limitations from new state data privacy laws, which have been passed in Connecticut, Virginia and California in recent years. The way lawmakers define key terms in these bills, like “sale,” can result in huge differences in how we are allowed to collect data or implement advertising. The countless nuances and miniscule differences between these laws require startup founders to hire attorneys and compliance consultants to help navigate this patchwork of regulations, an expense that many simply cannot afford — and that’s before taking into account the costs of altering their websites and business operations as a whole depending on which state a customer is visiting from.
And it’s not just tech startups: your neighborhood pizzeria that launched a new website with its own delivery system, or your local boutique selling clothes online to reach a bigger customer base — these are the businesses and organizations that lawmakers are telling to shell out cash to continue operating in New York.
But perhaps the most significant impact these bills would have is a chilling effect on startups attempting to use data for good. Take my company, for example: With the permission of our members, who are predominantly women of color, we create ultra-personalized financial plans using geographical, behavioral, cultural, and psychometric data points to help them become financially resilient. The data we collect also helps match them with the professional support and services they need at every stage of their financial wellness journey. Compare that to legacy financial services, which are often met with distrust in communities of color because of their one-size-fits-all approach that doesn’t serve the customer’s needs.
Simply put, there is a lane for upstart tech companies to provide better services than we’ve grown accustomed to by leveraging consumer data in a positive way — my company is just one of thousands of examples where this is the case. But when lawmakers reflexively dismiss data collection and analysis as evil, without considering the positive impact it can have on society if handled carefully, we will miss valuable opportunities to make the world a better place.
It’s encouraging to see lawmakers willing to tackle issues as complex and important as data privacy, but these efforts will be meaningless if they don’t consider the damage a state-by-state patchwork of regulations will have on early stage startups, particularly those founded by people of color, as well as local businesses doing everything they can to adapt to quickly changing consumer habits. The impact that is less clear is what we miss by blocking companies that want to use data for good from operating in the first place.
To avoid these unintended consequences, the time has come to enact federal legislation that provides uniform guidance for every company and consumer across all 50 states — the best possible path forward for a fair, inclusive and innovative business environment.
Chambers is an entrepreneur and startup founder based in New York City.
