Everyone thinks venture returns come from technological breakthroughs.
Sometimes they do.
But some of the largest markets of the last twenty years were created by something else entirely: classification fights.
Was Uber a taxi company or a technology platform?
Was telehealth “medicine” if the doctor never entered the room?
Could autonomous vehicles legally operate without a human driver?
Was sports betting gambling, entertainment, or regulated commerce?
Were prediction markets financial instruments or illegal wagers?
The answer, at first, was usually:
“we don’t know yet.”
That uncertainty is where most investors get uncomfortable.
It is also where some of the best opportunities emerge.
At Síol, we call this the Valley of Doubt: the period between the arrival of a disruptive technology and the moment regulators finally decide how it fits into the market.
Most firms wait for the policy to settle.
We think that is usually too late.
By the time the rules are clear, the market is often already crowded, overpriced, and controlled by incumbents with scale advantages. The asymmetric opportunity exists earlier, when the technology works but the regulatory framework does not yet fully understand it.
That pattern is not theoretical to me. It is how I built my career.
Before venture, I spent more than two decades working in policy and government relations across federal, state, and local governments. I have watched the same cycle repeat itself over and over again:
A new technology or business model emerges.
Regulators attempt to force it into an old framework.
States begin experimenting independently.
Markets fragment.
A new regulatory standard eventually emerges.
Entire industries are created in the gap.
Sometimes the fight itself becomes the moat.
Years ago, I worked on legislation allowing sports medicine physicians to treat professional athletes outside traditional clinical settings — hotels, locker rooms, and sidelines. At the time, many states technically prohibited it under existing medical licensing structures. We ultimately passed laws in 37 states before similar federal changes followed.
That experience taught me something important:
the future usually arrives before the rules are prepared for it.
And when that happens, the winners are rarely the people waiting for certainty.
We are seeing the same pattern today in prediction markets.
Minnesota’s recent fight over Kalshi and Polymarket is not really about gambling. It is about who gets to define a new category of market infrastructure.
→ State regulators see betting.
→ Federal regulators see financial instruments.
→ Founders see information markets.
That classification fight matters because definitions shape markets.
The same thing is happening across AI, decentralized finance, digital health, energy infrastructure, autonomy, and data ownership. Entire categories are being built inside unresolved policy environments where nobody fully agrees on the rules yet.
Most investors describe this as regulatory risk.
We see it differently.
Regulatory complexity often creates:
fewer competitors
longer market timing windows
stronger moats
higher switching costs
and opportunities for founders who understand how to navigate policy before everyone else realizes it matters
That does not mean regulation is easy. It is not.
But the best founders in regulated markets do not simply survive policy friction. They learn how to use it strategically.
The venture industry tends to treat policy as downstream from innovation. In many sectors now, policy is becoming upstream from adoption.
That shift matters.
As Washington became more gridlocked, states increasingly shaped markets, and we see that continuing today. We are entering an era where founders must understand not only their product and customer, but also the regulatory geography surrounding their business.
A company may be legal in one state, restricted in another, and federally protected at the same time.
That is no longer an edge case. It is becoming the default environment for emerging technologies.
At Síol, that is exactly where we want to invest.
Not after the regulatory clarity arrives.
Not after the market becomes consensus.
Not after the generalist capital floods in.
Earlier.
Inside the friction.
Because the biggest markets are often born during the period when nobody agrees what they are yet.
About the Author
I’m Michael O’Brien, Managing Partner at Síol. We invest in the belief that regulation isn’t a risk: it’s a source of alpha. We back founders building in heavily regulated markets before the policy settles, turning complexity into a durable competitive advantage.
Building in the friction? I’d love to hear about your moat.
Exploring policy-driven alpha? Let’s discuss how we’re underwriting the next wave of market inflection points.
📩 mob@siol.vc | LinkedIn
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