Talk of an Internet Fast Lane Is Already Hurting Some Startups

Some venture capitalists at the cutting edge of Internet innovation say they will shun startups requiring fast connections for video, audio, or other services, mindful that the Federal Communications Commission may let Internet service providers (ISPs) charge extra fees to major content providers.

In the absence of clear rules, some ISPs have already begun requesting -- and receiving -- access fees. if deep-pocketed players can pay for a faster, more reliable service, then small startups face a crushing disadvantage, says Brad Burnham, managing partner at Union Square Ventures, a VC firm based in New York City.

“This is absolutely part of our calculus now,” he says. Burnham says his firm will now “stay away from” startups working on video and media businesses. It will also avoid investing in payment systems or in mobile wallets, which require ultrafast transaction times to make sense. “This is a bad scene for innovation in those areas,” Burnham says of the FCC proposal.