The coming election: What’s ahead for venture and startups
Expect shifts in regulation and sector policies
By Nicolas Sauvage
A regime change is happening
At TDK Ventures, we’re continually looking ahead to see what market shifts will impact our portfolio and investment theses. There’s no doubt that the coming election race will represent a major shift with far-reaching implications.
The two leading contenders– Kamala Harris and Donald Trump– are neck-and-neck as of this writing. With President Biden out of the race, both candidates are making the case for why they each represent a departure from the past. The election is set to bring about a regime change– no matter which candidate wins.
The rise of tech and venture capital in politics
As technology has become more central to everyday life, regulators have stepped up their scrutiny. Tech firms, in turn, have become much more engaged in politics, pouring millions of dollars into getting their messages heard. With their extensive reach and willingness to invest at scale, technology and crypto firms are starting to be called by some “potentially the most powerful cohort in politics.”
The venture industry is playing a particularly prominent role in this election, with an ex-venture capitalist (JD Vance) serving as a running mate. It also means venture capital has become more of a political punching bag in the back-and-forth between the two campaigns.
At the same time, Silicon Valley is very divided right now, with investors (e.g. David Sacks, Reid Hoffman) backing one candidate or the other. The millions of dollars in personal and firm capital they’re putting in are turning some investors into political insiders. The Democratic ticket is still preferred by most VCs, although more dollars are flowing of late to favored issues (e.g. crypto-friendly regulation).
This election could be a turning point for tech and venture capital. It seems unlikely that after wielding significant influence in this cycle, the industry would willingly step back from the political arena.
The impact of the election on venture capital & startups
Many of the issues in the spotlight during this election certainly have implications for investors and founders. Depending on the startup, these have the potential to make or break their businesses. The arenas that might impact venture capital and startups include:
- AI regulation: Harris – who has positioned herself as encouraging AI innovation while instituting guardrails– is expected to continue the commitments in Biden’s expansive executive order on AI regulation. She wants to make permanent the National Artificial Intelligence Research Resource, a shared research infrastructure with compute, data, and analytical tools. Trump plans to repeal Biden’s executive order under the rationale that the regulation hinders innovation, in favor of more self-regulation.
- Tariffs: Trump is planning a significant expansion of the tariff regime, floating proposals for a 20% general tariff on imports, a 60%+ tariff on Chinese goods, a 100% tariff on nations shifting away from dollar trade, and
a 100-2000% tariff on vehicles imported from Mexico. The scale of these tariffs is expected to be inflationary. Harris’ language at the September debate suggests that she is less likely to engage in an escalatory trade war with China. - Clean energy: Trump would like to eliminate the Inflation Reduction Act’s (IRA) tax credits for clean energy and withhold any unspent funds. Given that Republicans and oil companies like certain aspects of the IRA, he may try to use a scalpel to target renewables and electric vehicles (EVs) rather than a cudgel. Trump has also said his administration will issue approvals rapidly for nuclear reactors (which have bipartisan support), and make the US a major producer of rare-earth minerals. On the other side, Harris – who cast the tie-breaking vote on the IRA – continues to stand behind the legislation,
touting its successes. - Electric vehicles: Trump has promised to cancel Biden’s EV “mandate,” namely the more stringent vehicle emissions standards released by the EPA earlier this year. He is also expected to seek a repeal of the IRA incentives encouraging the production and adoption of EVs. Harris has said she does not support an EV mandate but industry watchers generally expect her stance to be a continuation of the Biden administration.
- Crypto regulation: Both parties are facing pressure from well-funded crypto-aligned super PACs. Trump has come out strongly as pro-crypto, with the Trump family launching a new crypto venture recently with Trump as “chief crypto advocate.” He has promised to end the crypto crackdown. Harris has been less enthusiastic but is reportedly – based on private conversations with VC investors– more crypto-friendly than Biden.
- Defensetech: Trump wants to increase defense spending but has also said he would end the war in Ukraine “in 24 hours” and has called for Israel to end its conflict quickly. Harris has generally stood alongside Biden in supporting the US role in the Ukraine-Russia and Israel-Hamas conflicts.
- Small-business growth: Harris is proposing a $50K tax deduction (vs. $10K today) on business start-up costs incurred before operations start, with flexibility to take the deduction in a future year once a business is profitable. Her proposals also include a standard deduction to make it easier for small businesses to file taxes, grants to help workers with occupational licenses work across state lines, and funneling 33% of federal contract dollars (vs. 28%) to small businesses. Harris is targeting 25M new business applications in her first term (vs. nearly 20M under Biden and 15M under Trump).
- Corporate taxes: Harris is aiming to raise the top corporate tax rate from 21% to 28%.Trump recently proposed to lower the top corporate rate for domestic manufacturers to 15%, and otherwise keep the rate at 21% (where it landed after the 2017 tax overhaul).
- Capital-gains taxes: Harris is proposing an increase in the top capital-gains tax rate for Americans earning $1M+ per year from 20% to 28%. She is reportedly no longer supporting a tax on unrealized capital gains, although her platform still includes language on a minimum tax on billionaires.
- China: While neither candidate could be called pro-China, Harris is generally viewed as providing continuity in the relationship (at least in the early days of her term). In contrast, Trump’s tariffs are likely to have a substantial negative impact on US-China trade.
There are arenas where Harris and Trump might not be that far apart. For instance, Biden’s tech-skeptic appointees – Lina Khan (FTC), Gary Gensler (SEC), and Jonathan Kanter (DOJ antitrust) – may not retain their roles in either a Harris or Trump administration. VC investors backing Harris are advocating for a new Democratic administration without Khan (which could result in a “brawl” with Khan’s supporters in Congress). While JD Vance has spoken more favorably about Khan, it’s likely that Trump will want to put his own people into these key leverage positions. Gensler is controversial on both sides given his aggressive approach to crypto regulation. Kanter is less controversial but neither Harris nor Trump have come out strongly in favor of the DOJ’s approach to antitrust enforcement.
Both candidates are also talking about bringing back American manufacturing, particularly in strategic technologies such as semiconductors and spacetech. Both are focused on energy security, although Trump is in favor of more oil drilling while Harris is committed to clean energy. Neither supports a ban on fracking.
Unfortunately, both candidates will also increase the national debt by trillions of dollars under current campaign plans. According to one nonpartisan estimate, Harris’ plan would increase the debt by $3.5T through 2035, while Trump’s plan would increase the debt by an even larger $7.5T (largely due to the expansion of his 2017 tax cuts).
Still, campaign plans don’t always come to fruition as written. Any changes to the tax code or new budget appropriations would require Congressional approval, as would any significant changes to the IRA. Tariffs, on the other hand, would not require Congressional approval, nor would actions taken by agencies of the executive branch.
It’s not just about who wins the presidential election
With that in mind, the coming election isn’t just about who wins the presidency. Just as important is which party wins the two chambers of Congress. Many of the campaign promises being made right now will require legislation to be passed. A president that’s handed a divided government will be harder pressed to get their agenda through the resulting political gridlock, especially if the other party has the Congressional votes to override a veto.
The distribution of votes also matters. A relative landslide victory could be taken as a mandate by the winning candidate to pursue the most aggressive version of their agenda, whereas a marginal victory could sap the political will to deliver on the more extreme of their campaign promises.
Start your strategy engines– now
Once the hand-over takes place in Jan 2025, change could come rapidly. Recent handovers have set the precedent of presidents hitting the ground running with a flurry of day-one executive actions. In Biden’s first 100 days, he signed more than 60 executive actions, 24 of which were reversals of prior policies.
While there are campaign promises and near-term economic factors to consider, we shouldn’t forget the longer-term horizon. Whoever wins the presidency will once again shake up our geopolitical alliances, the balance of powers, and the level of US involvement in global conflicts. After the past couple presidential cycles, no one is asking anymore how much the president really matters.
Founders and investors should start scenario-planning their strategy for what comes next. The ground will start to shift immediately after the election. Those that wait until inauguration day to come up with their game plan will find themselves behind the eight ball.
About
Nicolas Sauvage is the president of TDK Ventures, a technology-focused venture fund investing globally in early-stage startups that use material science to unlock a sustainable future for the world.
This article was a collaboration between TDK Ventures and 6Pages, a market intelligence startup focused on far-reaching market shifts.
Views expressed are provided on an “as is” basis for educational purposes only and subject to revision at any time. TDK Ventures, TDK Corporation, and 6Pages do not make any warranties about the completeness, accuracy or timeliness of information provided, or endorse any service or product mentioned. Any action taken based on information provided is strictly at your own risk.
