“Privacy and security are potential long-term countervailing effects here,” Wagman said “we are seeing that increase our data for that particular niche.”
For now, however, the total number of privacy-related or data security investments isn’t enough to balance out investor pullback in other verticals.
Wagman hypothesized there would be a decline in overall EU investment based on his previous research. Financial product investment declines followed the Gramm-Leach-Bliley Act, which switched from default customer consent to an opt-in consented model. The higher barrier to entry and the potential repercussions for a violation can dampen investor enthusiasm.
An early warning sign before GDPR became law in 2018, he said, was when major platforms including Google, Amazon, Facebook, Apple and Shopify started to change data privacy and security rules, sometimes at the expense of startup revenue.
Unfortunately for European entrepreneurs, the effects aren’t limited to just the two years following the enactment of GDPR. Wagman said he and his co-authors have a continuation of this study that tracks investments through the end of last year.
The pace of investment in the EU dropped by half in late 2019 and 2020, following COVID-19 lockdowns. In the US, investments decreased sharply immediately after the pandemic struck but bounced back over the course of 2020, while EU venture capital remained stuck in neutral.
“I did expect an effect of innovation,” Wagman said. “But not for the effect to be so substantial.”