Trump 2.0: What’s in Store for VC’s, PE’s, Startups and AI
The Trump administration's views on venture capital (VC), private equity (PE), startups, and artificial intelligence (AI) can be discerned from their policies and public statements from the prior term (2017–2021) and their current perspectives conveyed by former campaign and current transition officials.
To date, Trump has made key cabinet appointments, including the Secretaries of State, Defense, Transportation and the Attorney General. These positions are significant and could substantially impact businesses, startups, and VC/PE firms. However, he has yet to name his Treasury, Labor, SEC, or Commerce secretaries—arguably some of the most critical economic roles. These positions oversee policy domains and key sub-departments, such as the Small Business Administration and the Bureau of Labor Statistics, which report directly to them.
VC and PE firms are very concerned today about the federal deficit. Efforts led by Elon Musk and Vivek Ramaswamy, through the newly created Department of Government Efficiency, aim to cut $2 trillion in wasteful spending. However, achieving reductions of this scale without impacting major programs remains uncertain, leaving the enormity of the deficit a key concern for investors and economic stability.
It’s early in the transition but it should be clear that "elections have consequences" applies, underscoring the fact that electoral outcomes shape governance and policy, granting the winning party authority to implement its agenda. Popularized by President Obama in 2009 to justify pursuing his economic proposals, the phrase highlights the legitimacy of electoral mandates and the need to respect election results. Used across party lines, it serves as both a justification for policy changes and a reminder of the importance of electoral participation and shifting power dynamics.
What Lies Ahead
Here’s a snapshot of what to expect in Trump Administration 2.0 for VC/PE, Startups and AI:
Venture Capital and Private Equity
VC and PE firms are very concerned about the Biden administration's aggressive antitrust policies, which have heightened scrutiny and regulatory hurdles for mergers and acquisitions (M&A). (So is Google, Microsoft and other tech giants.) Led by the FTC and DOJ, this approach has delayed or blocked major deals, particularly in tech and healthcare, increasing transaction costs and uncertainty. For investors, these challenges complicate exit strategies and reduce the appeal of M&A as a growth and return pathway, creating a less favorable environment for investment and consolidation.
Supportive of Economic Growth through Private Investment: The Trump administration largely favored private investment as a driver of economic growth. Tax cuts, including the 2017 Tax Cuts and Jobs Act (TCJA), aimed to incentivize investment by reducing corporate taxes and offering benefits for pass-through businesses, which include many VC and PE firms.
Carried Interest Loophole: The Trump administration, despite criticism, kept the carried interest tax rate, which allows PE and VC managers to pay lower tax rates on certain earnings. This decision was favorable to the private equity and venture capital industries.
Regulation: During his first term, Trump made deregulation a cornerstone of his economic policy, reducing government intervention across critical sectors and introducing the "two-for-one" rule, which required agencies to eliminate two regulations for every new one implemented. Focus areas included scaling back environmental regulations by reducing EPA funding, rolling back restrictions on oil, gas, and coal industries, and minimizing oversight of cryptocurrency markets. Trump opposes the Paris Climate Agreement and plans to rescind climate funding from the Inflation Reduction Act. He also aims to eliminate the SEC rule on climate-risk disclosures and halt offshore wind project leases on federal lands.
While Trump argues that deregulation creates jobs, drives economic growth, and lowers costs for businesses, these claims are contested by economists. If Republicans control Congress, he may use the Congressional Review Act to reverse Biden administration regulations.
His first term saw significant support for deregulation from the venture capital (VC) and private equity (PE) sectors, which benefited from a lighter regulatory environment that fostered investments and acquisitions. Trump's plan to eliminate the electric battery tax credit—vital for VC and PE clean energy investments—faces investor criticism as a threat to innovation and a misguided energy policy.
Cybercurrency and the Blockchain: President Trump plans to position the U.S. as a global cryptocurrency and blockchain technology leader. Key initiatives include fostering a pro-innovation regulatory environment to establish the U.S. as the "Crypto Capital of the Planet," creating a national Bitcoin reserve to strengthen the economy, and forming a Crypto Advisory Council led by industry experts, including Elon Musk. He opposes central bank digital currencies (CBDCs), citing privacy concerns, and advocates for minimal regulation to reduce barriers to innovation and investment. These efforts emphasize innovation, financial privacy, and leadership in the crypto sector. This is a very VC/PE-friendly initiative.
Infrastructure and Opportunity Zones: The administration encouraged private investment in infrastructure and economically distressed areas through Opportunity Zones, which created tax incentives for long-term investments.
Startups
Focus on Entrepreneurship and Innovation: Trump’s spokespersons have highlighted the importance of entrepreneurship and small businesses in driving economic growth. Policies to reduce taxes and cut regulations were framed as benefiting startups by lowering operational burdens.
Immigration Policies and Startup Talent: Trump appears set to reduce both illegal and legal immigration through measures such as mass deportations, revoking DACA and tightening visa restrictions. These actions could significantly impact VC and PE firms by limiting access to skilled immigrant talent, creating workforce instability, and deterring investments in sectors that rely on diverse talent pools essential for innovation and growth. Additionally, stricter immigration policies, including suspending the International Entrepreneur Rule and restrictions on H1-B visas, have been criticized for potentially hampering startups' ability to attract global talent, particularly in tech industries.
Access to Capital: Trump’s economic policies in his second term emphasize increasing access to capital through lower taxes and reduced red tape, which theoretically benefit startups. However, startups that rely on global talent in conjunction with offshoring or outsourcing, or government-supported innovation initiatives (e.g., semiconductors) face significant challenges.
Artificial Intelligence
AI Strategy: Trump’s AI policy for his second term emphasizes deregulation, national security, and private-sector innovation. He plans to repeal Biden’s 2023 Executive Order on AI, criticizing it as restrictive, and reduce federal agency oversight to promote a hands-off regulatory approach. Viewing AI as a strategic asset in U.S.-China competition, Trump advocates for protectionist measures to safeguard U.S. advancements and prioritizes significant investment in military applications through initiatives like DARPA. While focused on mobilizing private-sector investment over public funding, this approach could lead to fragmented state-level regulations and relaxed environmental standards to meet AI’s energy demands. Potential collaborations with tech leaders, such as Elon Musk, underscore his emphasis on private-sector leadership in driving innovation.
AI Ethics and Regulation: Trump’s AI policy pronouncements to data have emphasized deregulation, national security, and private-sector innovation. Favoring a light-touch regulatory approach, the administration seeks to prioritize innovation and competitiveness, particularly against China, viewing AI as a strategic asset for national security and military applications. Trump also supports a self-regulated AI industry and may collaborate with tech leaders, such as Elon Musk, to shape policy and drive advancements.
Conclusion
Trump's potential second term offers both opportunities and challenges for VC, PE, startups, and AI. Deregulation, crypto-friendly policies, and initiatives like Opportunity Zones align with investor interests, while his focus on U.S.-China competition and national security prioritizes innovation in strategic sectors. However, stringent immigration policies, reduced federal AI funding, and fragmented regulations could limit access to global talent and hinder startups reliant on government-supported ecosystems. While his agenda fosters growth in some areas, navigating this landscape will require balancing policy-driven opportunities with constraints on talent and collaboration.
A very thorough rundown. My only suggestion, and this is the editor in me talking, you don't need the apostrophe s in the headline for VCs and PEs. But still very nicely done!