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Chinese VC's faces harder times funding their venture - David

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Chinese VC's faces harder times funding their venture - David

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In China, total funding for start-ups has decreased with 52% from US$6 billion in Jan/Feb 2022. Despite this, they still remain the second largest market for VC funding, right behind the US.

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Start-ups in China raised US$6 billion in venture capital across 458 deals in January-February 2023, down 52.2% in value and 29.1% in volume from the same period last year, figures from data and analytics provider GlobalData reveal.

"China ranked among the top five markets globally in terms of both VC funding deal volume and value during [the period]," says lead analyst Aurojyoti Bose.

"Akin to the trend witnessed in the other key global markets, investor cautiousness prevailed in China as well, which reflects in the subdued VC funding activity in the country. However, the decline is relatively lesser compared to the other key global markets."

For instance, the United States, the United Kingdom and India saw VC funding deal volume year-on-year falling by 52.1%, 38.1% and 56.3%, respectively, while the decline in terms of value in these markets stood at 72.3%, 70.1% and 80.8%, respectively.

China accounted for 15.3% share of the number of VC deals announced globally during the period, while the country's share by value stood at 19%.

"Despite the subdued activity, China continues to be the top Asia-Pacific market for VC funding activity," Bose says. "Moreover, it is also the second biggest market globally and stands just next to the US in terms of VC funding volume as well as value."

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Venture capital funding in China start-ups weakens

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Start-ups in China raised US$6 billion in venture capital across 458 deals in January-February 2023, down 52.2% in value and 29.1% in volume from the same period last year, figures from data and analytics provider GlobalData reveal. "China ranked among the top five markets globally in terms of both VC funding deal volume and value during [the period]," says lead analyst Aurojyoti Bose.

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https://www.morningbrew.com/daily/stories/bitcoin-best-week-since-january-2021?cid=30877082.1128780&mid=61c5d6047fd201f186be316165908c9f&utm_campaign=mb&utm_medium=newsletter&utm_source=morning_brew

A new surge in cryptocurrency is interesting because it might offer alternative investment opportunities for investors as traditional banking institutions continue to struggle, potentially impacting the traditional banking industry. As more institutional investors enter the crypto market, it may become an important component of investment portfolios, leading to greater diversification and reduced risk

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Bitcoin had its best week since January 2021 after SVB failure

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The Fed’s decision next week will likely serve as crypto’s Groundhog Day.

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Malika-Fintech And Compliance: It's Not One Size Fits Al

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Malika-Fintech And Compliance: It's Not One Size Fits Al

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Since most fintech companies in India offer a wide range of products and services across sub-categories of finance, the legal requirements and compliances automatically become complicated
https://www.entrepreneur.com/en-in/finance/fintech-and-compliance-its-not-one-size-fits-all/448473

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Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

The Financial Technology sector, AKA Fintech has grown manifold and at light speed in the past few years especially due to advancements in technology. Fintech companies have started focusing on specific consumer needs and customizing their services as much as possible. After USA and China, the Indian Fintech market is the third largest in the world. India alone is home to over 2000 Fintechs. Customers now have a variety of financial products to choose from several digital platforms. With this unprecedented growth come risks like fraud, customer data breaches etc. For this reason, Fintechs have come heavily under the scrutiny of the regulatory bodies.

Adhering to a set of regulatory policies, relevant laws, business standards and specifications is essential in any business but more so banking. Fintech companies need to ensure that they follow established guidelines and specifications while exercising caution to protect consumer data.

Keeping this in mind the RBI recognized the need for a separate body to regulate this new and growing industry. In 2018 it setup a Fintech division under its regulation department which was later moved to the departments of payments and settlement systems within the RBI, where most of the RBI activities were regulated. Since then, the RBI has come up with a new robust regulatory framework for fintech firms that it revisits from time to time.
The Fintech regulations landscape
Since most fintech companies in India offer a wide range of products and services across sub-categories of finance, the legal requirements and compliances automatically become complicated and layered during the process. This is why, when it comes to products like payment gateways, digital wallets, insurance aggregators and online loans, there is no such thing as one-size-fits-all. Based on individual tech-based partnerships, each of these services require a tailor-made tech stack as they are also regulated by different entities in India like RBI, SEBI and IRDA. Since the regulatory landscape is fragmented and control over fintech compliance and distributed across many organisations, it's important to have qualified assistance in regards to applicable laws, requirement updates, and possible penalties.

Measures to lower the risk profile of Fintechs

1. Understand the local legal landscape and regulations- New players in the market must understand the legalities and regulations that dictate the lending and borrowing industry in their country of operation as well as the fintech regulations. This will help them avoid future legal complications and give them a chance to benefit from government incentives assured for Fintechs.

2. Business Strategy must align with compliance strategy- Fintechs strive to work on financial inclusion and offer consumers a wider choice of products at the click of a button. While it is important to focus on their business goals, it is critical that the business strategy is aligned to its compliance strategy. For instance when a Fintech is partnering with another company it needs to ensure that its business partner doesn't pose any compliance risks to it.

3. Investment in Technology and early on- As a startup, one often has budgetary restrictions. Companies don't prioritise spending on compliance technology. It is recommended to first understand what kind of technology and investment is required for a solid compliance structure. With advancements in technology in the fintech sector it is critical to understand the key requirements of drawing up a strong compliance framework to mitigate the various risks involved

Fintechs should not view regulations as roadblocks to their growth. It is important for fintech companies to maintain an open line of communication with regulators. Transparency and effective two-way dialogue will help Fintechs integrate with the industry and make it easier for them to comply with an ever-changing compliance landscape.

A fintech's integrity is reflected through its compliance to follow regulations laid out by the regulatory bodies. Enforcing compliance assists the company in preventing and detecting rule violations, which protects the organization from fines and lawsuits, and increases respect and reputation in the eyes of the industry. By having a risk-based approach with tailored responses, a Fintech can safely keep up with the fast-paced regulatory changes in the industry and grow with each passing year.

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Fintech And Compliance: It's Not One Size Fits All | Entrepreneur

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Opinions expressed by Entrepreneur contributors are their own. You're reading Entrepreneur India, an international franchise of Entrepreneur Media. The Financial Technology sector, AKA Fintech has grown manifold and at light speed in the past few years especially due to advancements in technology.

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Fast-growing tech companies turned more to loans from investment firms, banks and states as public listings and huge funding rounds dried up in 2022. However, fallout from this month’s collapse of SVB, which was a major provider of venture debt—funding, now threatens the availability of this source of financing, too.

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Huyen - Chatbot Character.ai valued at $1bn in Andreessen-led funding round

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Huyen - Chatbot Character.ai valued at $1bn in Andreessen-led funding round

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Marc Andreessen’s venture capital firm Andreessen Horowitz has led an investment of more than $200mn into generative artificial intelligence chatbot company Character.ai, marking the early internet pioneer’s first significant foray into the booming sector.

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Marc Andreessen's venture capital firm Andreessen Horowitz has led an investment of more than $200mn into generative artificial intelligence chatbot company Character.ai, marking the early internet pioneer's first significant foray into the booming sector.

The investment of between $200mn-$250mn values the company at about $1bn, according to multiple people with knowledge of the deal terms.

Character.ai uses large language models - the technology that underlies chatbot ChatGPT - to generate conversation in the style of various characters, including Tesla chief executive Elon Musk and Nintendo character Mario, from user prompts.

The chatbot company was founded by Noam Shazeer and Daniel De Freitas, who previously built Google's conversational model LaMDA. Launched less than six months ago, it has raced to its $1bn valuation on the back of growing excitement about the potential of the technology to disrupt everything from customer service and copywriting to medical diagnostics.

Andreessen's investment is the latest sign that the hype around the sector is crystallising into major deals and leading to a surge in valuations, after Microsoft and Google struck big partnership agreements with generative AI companies OpenAI and Anthropic, respectively, earlier this year.

Andreessen is regarded as a Silicon Valley bellwether. He launched early web browser Netscape in 1994 and is also the founder and figurehead of venture fund Andreessen Horowitz, which has ridden a boom in technology company valuations to become one of the most prominent investors in the sector since its launch in 2009.

Having made early bets on Airbnb, ride-sharing app Lyft and payments company Stripe, Andreessen Horowitz manages $35bn worth of assets across its funds.

But some of Andreessen's bets have not fared so well. A 2014 prediction that the technology behind cryptocurrency bitcoin would eventually assume a similar significance as the internet is yet to bear out.

Amid a punishing downturn which has eviscerated previously fast-growing tech companies in public and private markets, venture investors are hoping that generative AI will provide some respite, and start-ups in the space are cashing in.

Recommended

Inflection, the year-old generative AI start-up set up by DeepMind co-founder Mustafa Suleyman and LinkedIn creator Reid Hoffman, is in discussions to raise up to $675mn. The company plans to release an AI personal assistant later this year.

Hoffman announced in a LinkedIn post on Friday that he is stepping down from the board of OpenAI to avoid potential conflicts of interest. "With all the possibilities ahead, it's important to think beyond any one application, company, industry when it comes to AI, because I believe its impact will be on a much greater magnitude."

Cohere, another generative AI start-up founded by Google alumni, is raising funds at a valuation of about $6bn, according to multiple people with knowledge of its efforts, having last completed a funding round less than 18 months ago.

"We will remember this year as when AI triggered an explosion [in innovation]," said Vinod Khosla, founder of Khosla Ventures, which was the first venture firm to invest in ChatGPT-creator OpenAI in 2019. "Eighty per cent of economically valuable functions will be done by AI within 20 years," he predicted.

Andreessen Horowitz declined to comment. Character.ai did not immediately return a request for comment.

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Chatbot Character.ai valued at $1bn in Andreessen-led funding round

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Marc Andreessen's venture capital firm Andreessen Horowitz has led an investment of more than $200mn into generative artificial intelligence chatbot company Character.ai, marking the early internet pioneer's first significant foray into the booming sector.

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https://www.theguardian.com/business/2023/mar/26/silicon-valley-bank-us-small-businesses

The article is about the small businesses that have been working with SVB, and how the fall og SVB will affect their money. In this case they are lucky.

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If your business banked with Silicon Valley Bank then count yourself as very, very lucky.

Yes, your bank failed to protect your money. Its managers made unwise investment decisions, it was poorly supervised and poorly regulated. But you still got your money back.

True, there were some scary moments. Customers had their accounts frozen. Merchants at Etsy and Shopify were caught short. Others had their payroll checks stopped. It was almost a catastrophe. Almost.

But then the federal government stepped in and "in an effort to shore up confidence in the banking system", the treasury department, Federal Reserve and Federal Deposit Insurance Corporation (FDIC) announced that all - all! - of the bank's customers would have their money protected and accessible.

"Small businesses across the country that had deposit accounts at these banks can breathe easier knowing they'll be able to pay their workers and pay their bills," Joe Biden said in a statement shortly after the collapse. "And their hardworking employees can breathe easier as well."

Phew! Small business customers at Silicon Valley Bank dodged a bullet there. And lucky for them too that THEIR bad decisions didn't compound the bad decisions made by the bank's management.

Yes, that's right. THEIR bad decisions. Putting all your eggs in one basket is never a good idea - that's why there is a cliche about it. Every client I know is familiar with the $250,000 FDIC insurance coverage that protects their cash at a financial institution. And, while most small businesses have balances less than that amount in their accounts, a large number of my clients and companies hold funds in excess of this insurance limit at their respective banks. It's estimated that 90% of Silicon Valley Bank's deposits - many of them held by small businesses - were uninsured, an astounding figure when you consider the risks.

This is lazy, complacent, bad decision-making. The money at a small business is not only money that is owed to investors and partners but it's also used to pay employees and suppliers, who also have employees. The owners of those businesses - like any business - have a fiduciary duty to ensure that their stewardship over the company's cash is prudent.

What they should have been doing was manage their risk better. They should have swept their excess, non-liquid cash out of that one institution and spread it among others. They should have had these funds in government securities, certificates of deposits with other banks and mutual funds with various investment firms. Their accountants should have been calculating how much funds were needed and how much could be tied up elsewhere.

If 2008 taught us anything, it's that banks fail

Many of Silicon Valley Bank's customers are in the tech industry, and I get it that the industry has been experiencing significant turmoil thanks to the rising cost of capital and the tightening of credit. I warned about this in December and most of my clients in that industry saw the risks earlier than that. With hindsight we can see how Silicon Valley Bank collapsed. But that doesn't let these depositors off the hook. If 2008 taught us anything, it's that banks fail. Holding funds significantly in excess of $250,000 at any bank is a big, irresponsible gamble.

The federal government's intervention is a controversial move that leaves a lot of unanswered questions. Will they do this again if more banks fail? How can they do it for one bank and not for others? Will the costs ultimately be borne by taxpayers? Should we just ignore that $250,000 FDIC insurance now that the federal government appears to have rendered it meaningless?

"The Fed has basically just written insurance on interest-rate risk for the whole banking system," Steven Kelly, a senior research associate at Yale's program on financial stability told the New York Times. "It lowers the threshold for the expectation of where emergency steps kick in."

Frankly no one knows what's going to happen next. What I do know is that millions of small businesses in this country have their cash at more than 4,000 banks. And I'm betting that many of these companies have more than $250,000 in the bank too. So if you're one of the owners of these companies you may not be as lucky as Silicon Valley Bank's customers the next time this happens (and there will be a next time, plenty of next times).

"I'm a steward of other people's money who have trusted me with their capital and I'm going to do what it takes to survive," said a Silicon Valley Bank customer and the owner of a winery in Oregon. She seems to have learned her lesson and vows to be "more cautious" in the future. Let's hope others do the same.

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Consider yourself lucky if your small business worked with Silicon Valley Bank | Gene Marks

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If your business banked with Silicon Valley Bank then count yourself as very, very lucky. Yes, your bank failed to protect your money. Its managers made unwise investment decisions, it was poorly supervised and poorly regulated. But you still got your money back. True, there were some scary moments.

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After the collapse of SVB, there have been some chatter about the tech-boom being over. This article however, argues that the tech-boom isn't over, its just transitioning from consumer facing technology to industry facing technology. This could, if correct, have a very big effect on the investment landscape, giving more funding to the industrial transformation?

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News, analysis and comment from the Financial Times, the worldʼs leading global business publication

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https://www.ft.com/partnercontent/hsbc/how-women-are-opening-up-a-new-world-of-entrepreneurship.html?utm_source=ft_marketing&utm_medium=Premium_Native_Amplification

There is a increase in women in the startup environment and in starting up their own business. From 2019, we can see an increase from 28% to 49%. However, women are still disadvantaged when it comes to funding. For instance women get asked more personal questions than men. According to HSBC analysis, treating the genders equally could boost global gross domestic product by as much as $5 trillion a year.

To adapt to the changes in- and realize the full potential of ventures, I believe it is essential to investigate the causes of this and viable ways to address the issues associated to the variations in funding.

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More generally, women trail men in understanding how and why to invest. Indeed, studies have shown that women face a higher risk of having financial problems for many reasons including, that they start with less and live longer. At root the message on financial literacy is about starting early by educating children and continuing that process throughout adulthood. "On average, women earn less and live longer, making financial planning and investment even more important. Financial literacy is absolutely critical for entrepreneurship and for all of life," Spring says.

Kaur's career as an entrepreneur began with a business idea to help women without this understanding. Her Eureka moment came when she was seeking investment advice but wasn't satisfied by what she could find. "All the content was coming from a male perspective and it wasn't the kind of investing style that I could relate to," she says. [It was] a very 'finance bro' style, you might say. I just didn't feel like it was a space or a community for me."

Spring says women can feel that same sense of disconnect when they are trying to start a business. "Most of the challenges that women have, they share with men, being able to take that great idea, test it, understand what makes a business plan work, and get going," she says. "But some are more peculiar to women - they are less represented in venture capitalism, from boardrooms to partner businesses. Their networks are different so getting started and scaling can be harder. Funders, who are mostly men, may not readily understand business cases which focus on women's needs."

Kaur, meanwhile, says women should "grow wealth through upskilling and investing". She took that lesson to heart, as her own entrepreneurial journey is bringing her into contact with a network of women with "a little spark or that feeling in their gut, where they know that they're destined to run their own show."

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How Women Are Opening Up a New World of Entrepreneurship

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More generally, women trail men in understanding how and why to invest. Indeed, studies have shown that women face a higher risk of having financial problems for many reasons including, that they start with less and live longer. At root the message on financial literacy is about starting early by educating children and continuing that process throughout adulthood.

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Marte: Big tech and the mental health of teenagers

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Marte: Big tech and the mental health of teenagers

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https://www.ft.com/content/77d06d3e-2b9f-4d46-814f-da2646fea60c
A review of 68 studies related to the risk of social media use in young people published in August 2022 by the International Journal of Environmental Research and Public Health states that the more time adolescents spend online, the higher the levels of depression and other adverse consequences, the report notes, especially in the most vulnerable.

If this research and the increasing awareness of how social media influence mental health could impact the way we behave online, I have to questions related to the financing of entrepreneurial ventures:  Could this influence the investments in new and already existing platforms in this area? And could this affect the investments and success of companies that are reliant on social media to boost their company profit?

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The last minutes of 16-year-old Ian Ezquerra's life were spent on Snapchat.

Outwardly, the teenager, who had excelled in school and was a member of its swimming team, was a happy young man. But as his social media use increased, so did his anxiety.

His mother, Jennifer Mitchell, was unaware Ian was viewing dangerous content across a variety of platforms that would be unsuitable for adults, let alone impressionable young people.

"There were subtle changes in his behaviour that I didn't necessarily pick up on at the time. One of these things was him saying something like, 'I am such a burden,'" says Mitchell, of New Port Richey, Florida.

Help is available

Anyone in the UK affected by the issues raised in this article can contact the Samaritans for free on 116 123

Then, in August 2019, Ian was found dead. The police recorded his death as a suicide, but Mitchell says her son died playing a dark, online challenge pushed his way by powerful algorithms.

Ian's story adds to the evidence of the worrying decline in the mental health of children. Suicide among those aged between 10 and 19 years old in the US surged by 45.5 per cent between 2010 and 2020, according to the Centers for Disease Control and Prevention. A survey last month from the same government agency found nearly one in three teenage girls had seriously considered taking their own life, up from one in five in 2011.

The reasons for this deterioration in mental wellbeing, however, are less conclusive.

Many parents and legislators put the blame at the door of social media companies who, they say, are developing highly addictive products that expose young people to harmful material that has real-world consequences. Platforms push back, arguing their technology allows people to build relationships and are beneficial for mental health.

But some academics point to a growing body of research that they say is hard to ignore: that the proliferation of smartphones, high-speed internet and social media apps are rewiring children's brains and driving an increase in eating disorders, depression and anxiety.

"Multiple juries are in. They're all reaching the same conclusion," says Jonathan Haidt, a social psychologist and professor at New York University Stern School of Business. "When social media or high-speed internet came in, [studies] all find the same story, which is mental health plummets, especially for girls."

Other academics argue the evidence is not yet definitive and say the teenage mental health crisis is more nuanced.

A lack of consensus has not alleviated mounting scrutiny on Big Tech. Ian's family are behind one of 147 product liability lawsuits collectively filed in the US against major social media platforms - Facebook, Instagram, TikTok, Snapchat and YouTube.

The looming litigation compounds increased attention from lawmakers. President Joe Biden has accused the industry of running experiments on "our children for profit" and wants Congress to pass laws preventing companies from collecting personal data on underage users.

On Capitol Hill on Thursday, TikTok CEO Shou Zi Chew faced pressure over the safeguarding of young users. Looking on was the grieving family of 16-year-old Chase Nasca who say the platform exposed their loved one to self-harm videos before his death. "Mr Chew, your company destroyed their lives," accused one senator.

In the UK, ministers are considering amending an online safety bill to include criminal sanctions - including possible jail time - on social media executives who fail to protect children's safety.

The stakes for social media companies are high as increased regulation could threaten their ad-driven business models, which rely on a large and captivated young audience to thrive.

'Depression, eating disorders, self-harm'

Hackensack Meridian Health's Carrier Clinic in New Jersey, a sprawling campus with a residential mental health unit for teenagers, is on the frontline of this crisis.

Waiting lists have increased over the past three years, exacerbated by the pandemic, leading to months-long delays in accessing beds in out-of-home care units. A nearby hospital experienced a 49 per cent increase in paediatric emergency room psychiatric consultations in 2022 compared with the previous year.

"We are seeing a lot of depression, anxiety, suicidal ideation, eating disorders and self-harm," says Dr Thomas Ricart, chief of adolescent services at Carrier.

"Kids do come in and talk about bullying on social media and using a lot of social media and its impact on them," he adds. "There is also the pandemic, an increase in stress in general and better screening for mental health."

While professionals such as Ricart keep an open mind, in the decades since Facebook launched in 2004, the research exploring the link between social media and mental health is compelling.

In January, a report by experts in psychology and neuroscience at the University of North Carolina said teenagers who habitually checked their social media accounts experienced changes in how their brains - which do not fully develop until around 25 years old - responded to the world, including becoming hypersensitive to feedback from their peers.

A review of 68 studies related to the risk of social media use in young people published in August 2022 by the International Journal of Environmental Research and Public Health examined 19 papers dealing with depression, 15 with diet and 15 with psychological problems. The more time adolescents spend online, the higher the levels of depression and other adverse consequences, the report notes, especially in the most vulnerable.

But other researchers dispute the assessment of Haidt and his regular co-author Jean Twenge, professor of psychology at San Diego State University, that there is definitive evidence that social media is the primary cause of the youth mental health crisis.

They highlight a lack of scientific data proving a causal link between the rise in social media use and mental health conditions. Some studies, they say, show teenagers can benefit from using social media, if used in moderation.

"I'm not saying that social media is not part of this [crisis], but we don't have the evidence yet," says Dr Amy Orben, leader of the digital mental health group at the University of Cambridge. "It is a lot easier to blame companies than to blame very complex phenomena. But a very complex web of different factors influences mental health."

Researchers wanting to delve deeper into the effects of social media say the answers might be found in closely guarded data held by the companies themselves who use it to improve their algorithms.

"We need the data," adds Orben. Without it, she says, "there is no real public accountability".

The addiction playbook

Though social media companies have so far avoided stringent regulation, a day of reckoning is approaching.

Plaintiffs in the personal injury cases filed in the federal court in Oakland, California, will argue that social media companies know their products are damaging children's mental health and are suppressing that information.

They allege that Meta, the parent company that owns Facebook and Instagram, and its rivals TikTok, Snapchat and YouTube have borrowed heavily from the behavioural and neurobiological techniques used by the tobacco and gambling industries to get children addicted to their products.

These features, which vary platform to platform, include algorithmically generated, endless feeds to keep users scrolling; intermittent variable rewards that manipulate the dopamine delivery mechanism in the brain to intensify use; metrics and graphics to exploit social comparison; incessant notifications that encourage repetitive account checking; inadequate age verification protocols; and deficient tools for parents that create the illusion of control.

"Disconnected 'likes' have replaced the intimacy of adolescent friendships. Mindless scrolling has displaced the creativity of play and sport. While presented as 'social', defendants' products have in myriad ways promoted disconnection, disassociation, and a legion of resulting mental and physical harms," allege the plaintiffs.

Douglas Westwood, one of the parents bringing the lawsuit, says his daughter got hooked on Instagram within months of receiving her first smartphone, for safety purposes, at nine years old.

"I had no idea that a nine-year-old kid could access a social media site. There is supposed to be an age limit, a minimum of 13," says Westwood. "There's no verification. There's no checking."

The algorithm bombarded the child with harmful images and videos, including those promoting eating disorders, he says. Her mental health worsened and, by 14, she had entered residential care to receive treatment for anorexia.

His daughter, now 17, is recovering, but is still confronted with harmful content, says Westwood, adding that he does not want to stop her using her smartphone because it is how she communicates with her friends.

It is a frustrating catch-22 for parents now that smartphones and social media are so ubiquitous.

"When [social media platforms] worked out how to monetise attention, they went for it with a ruthlessness for which kids are the collateral damage," says Baroness Beeban Kidron, chair of children's digital rights charity 5Rights Foundation.

Because they are loosely regulated, she argues, platforms are able to get away with more invasive techniques to suck young users in.

Court documents allege some Meta employees are aware of the harmful effects of their products, but either disregarded the information or, in some cases, sought to undermine it.

"No one wakes up thinking they want to maximise the number of times they open Instagram that day," one Meta employee wrote in 2021, according to the filing. "But that's exactly what our product teams are trying to do."

An internal study by Meta conducted around June 2020 found that 500,000 Instagram accounts each day involved "inappropriate interactions with children". Yet child safety was still not considered a priority, the documents say, prompting one employee to remark that if "we do something here, cool. But if we can do nothing at all, that's fine too."

The court filing also alleges that Mark Zuckerberg, Meta's chief executive, was warned the company was falling behind in addressing wellbeing issues, including excessive use, bullying and harassment. This would increase regulatory risk if left unaddressed, one employee said, according to the court documents.

Many of these concerns were highlighted by whistleblower Frances Haugen, a former Facebook employee who accused the company of prioritising profit over public safety. She says Meta continues to resist calls from public health authorities and researchers to collaborate on understanding the mental health issues associated with Instagram and body image, for example.

"Facebook is scared that if they are first movers and come in with all these safety features around compulsive use, around body image issues and depression, people will say, 'Wow, Instagram is dangerous. Social media is dangerous,'" she says. "They don't want to admit it."

Road to regulation

Haugen is right in that Meta disputes the notion that social media is fuelling the teen mental health crisis.

"Mental health is complex, it's individualised, it . . . [involves] many factors," says Antigone Davis, Meta's global head of safety.

Nevertheless, she acknowledges the need to ensure a "safe and positive experience" for young users, adding that the company had built about 30 tools including parental controls, features that encourage teenagers to take breaks and age-verification technology.

Meta says its platforms also remove content related to suicide, self-harm and eating disorders. These policies were enforced more vigorously following the death of 14-year-old British schoolgirl Molly Russell, who took her own life in 2017 after viewing thousands of posts about suicide. Meta has since launched a default setting for under-16s that reduces the amount of sensitive content they see and has paused plans for Instagram Kids, a product for under-13s.

Other social media giants are taking action as the threat of regulation gathers momentum.

Snap, the company behind Snapchat, has introduced parental controls and developed a wellbeing hub for users. Jacqueline Beauchere, Snap's global head of platform safety, also says that it is different from other apps because it focuses less on passive scrolling: "We aren't an app that encourages perfection or popularity."

YouTube says it has also "invested heavily" in child-safe experiences, such as its YouTube Kids app for under-13s, which has parental controls.

TikTok, which has grappled with children accidentally harming or in some cases killing themselves as part of dangerous online viral challenges on its short-form video platform, says it has eliminated this type of content in search results. It also recently announced that the accounts of all users under the age of 18 will automatically be set to a 60-minute daily screen time limit, in addition to parental controls.

"Generally speaking, one of our most important commitments is promoting the safety and wellbeing of teens, and we recognise this work is ongoing," TikTok says.

The changes have not impressed Jennifer Mitchell, who now campaigns to boost awareness of the dangers posed by social media since her son's death. Only age restrictions backed up with effective verification will protect children, she says. "We have age restrictions on almost everything here in the US," Mitchell adds. "But if a child wants to open up their own social media account, there's no verification and it's as simple as them clicking a button."

Others, such as Haidt, believe social media accounts should be completely banned for those under 16 and enforced with better age-verification software, such as Clear, which requires an official document, such as a passport or driving licence.

"We know that they make no effort to keep kids under 13 off [their platforms]," adds Haidt. "And that's where I think their greatest legal liability is."

Social media companies dispute this. Meta says it removed 1.7mn Instagram accounts and 4.8mn Facebook profiles in the second half of 2021 for failing to meet minimum age requirements. Snapchat removed 700 underage accounts between April 2021 and April 2022, compared to around 2mn by TikTok, according to data reported by Reuters. Snap says the figures were taken out of context and "misrepresented" its work to keep under-13s off the platform.

It also remains unclear whether these users simply set up new accounts.

Bipartisan support

What could tip the balance in parents' favour is the upcoming legal battle taking on the social media giants.

Any ruling which finds the companies liable for deaths and injuries caused to children could force the mass removal of online content and damage revenues.

In 2022, revenues at Meta and Snap grew at their slowest pace since the companies went public in 2012 and 2017 and TikTok slashed its global revenue target by almost $2bn.

The social media companies intend to rely on a 1996 law, known as Section 230, that provides broad immunity from claims over harmful content posted by users. The plaintiffs, however, are arguing that is it the design features of these platforms and not user-generated content that drives addiction.

Meta's Davis warns that if this shield is removed, it could create "real problems" for the internet with ramifications for free speech.

Even if the lawsuit does not succeed, it has focused public attention on mental health and internet safety, one of the few political issues with bipartisan support in the US and elsewhere.

California governor Gavin Newsom last September signed a bill called the California Age-Appropriate Design Code Act. It requires social media platforms to establish the age of child users with a "reasonable level of certainty", among other measures, but is being challenged in court.

Legislators in Minnesota have proposed a bill that would ban social media companies from targeting users under-18 with algorithms that curate content that a user might like or interact with. Each violation would carry a $1,000 penalty.

On Thursday, Utah passed a bill into law that imposes age verification for all users and requires parental consent to use social media for under-18s starting in 2024. Similar proposals are being put forward in states including Texas and Ohio.

Bereaved parents such as Mitchell say they will not stop campaigning until tougher regulation is enforced. "If I can help another child, and another parent from experiencing my horror," she says. "Then I've done what I need to do."
Anyone in the UK affected by the issues raised in this article can contact the Samaritans for free on 116 123

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The teen mental health crisis: a reckoning for Big Tech

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The last minutes of 16-year-old Ian Ezquerra's life were spent on Snapchat. Outwardly, the teenager, who had excelled in school and was a member of its swimming team, was a happy young man. But as his social media use increased, so did his anxiety.

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What catches your attention this week in the world of entrepreneurial finance? Why is it interesting to the class? Looking forward to your posts!

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What catches your attention this week in the world of entrepreneurial finance? Why is it interesting to the class? Looking forward to your posts!