Starting a business: Idea, check. Investors, check. Legality?

By Richard Nieva , written on January 10, 2013

From The News Desk

Being an entrepreneur means doing a lot of things you never thought you would do. For Brian Chesky, chief executive of Airbnb, it was enduring sleepless nights convincing himself that he wasn’t crazy, flying to New York and back to the Valley just to make it back in time for a Y-Combinator dinner, and hot gluing cereal boxes to send to newsrooms as shwag.

But one thing he didn’t think to do: check to see if parts of his website’s vacation rental sharing service were actually legal.

“It never occurred to me that there would be restrictions on someone letting someone else into their home," he told Sarah Lacy in San Francisco during PandoMonthly.

It may sound a little naïve, but it's also reasonable to believe it's totally sincere from a young entrepreneur with designs on changing the world. There’s a common and age-old debate in Silicon Valley: Should entrepreneurs be free to disrupt the economy with genuinely innovative ideas, or should they be beholden to regulations that may not have been designed with the Web in mind? There are nuanced views for each argument.

For Chesky, it’s not surprisingly the former. “Regulations exist to protect people, but many of those regulations exist before you have modern technology,” he says. He believes that the state should give companies room to operate, instead of moving in and trying to screen tenants. “Government should move from a screening mechanism to a tool of last recourse,” he says, adding that a city can’t screen as well as technology can.

Recently there have been reports that half of the company’s listings in New York City are illegal, according to a city council bill passed in October, with tenants possibly facing $1,000 for the first offence, to $20,000 for repeat offences. Chesky denies the allegation that half the listings are illegal. Still, Chesky admits there are legitimate concerns, including the concern that tenants now don’t know who exactly is staying in their buildings.

But there’s also the school of thought that says a well-prepared entrepreneur can know the regulations going in, informed of the new ones that come about, and plays ball within the system to get these things changed. To Airbnb’s credit, it has been doing that. Uber has made a big stink about regulations and has just started to cooperate with Washington.

There are too many companies who simply disregard regulations – which there should be – in the name of disruption. Or they are unaware. Niether is helpful. Instacart, another YC company, which delivers groceries to users, recently stopped selling alcohol because of issues with compliance laws. The issue only came up recently, even though the company went through an entire incubator program.

Chesky and Airbnb don’t seem dodgy or shifty toward laws by any means, and they want to be a part of the discussion over regulation, which is the biggest mark of responsibility.