What does Trump mean for Startups?
A week after the election, I went on Techcrunch to share some initial thoughts on the implications of a Trump administration on our industry. I jotted down some notes beforehand and ultimately they became the following by-no-means-exhaustive summary of several topics on my mind as they relate to start-ups and tech specifically. The TL;DR = these are uncertain times
The results of the presidential election sent shockwaves throughout our ecosystem as many in Silicon Valley found themselves out of touch with the broader mood across our country. We find ourselves at a point in time where many of the products and services created within our tech hubs will continue to drive economic growth in the US while they will simultaneously drive economic turmoil within large portions of the US labor market. Regardless of political leanings, there is a tremendous amount of uncertainty about how a Trump presidency will impact the venture and startup ecosystem. Here’s a few thoughts…
H1B & Immigration
More than ½ of US unicorns have an immigrant founder — and that stat extends to startup founders more broadly. Closer to home at SoftTech VC, two of the three deals I’ve personally led so far this year were started by founders who themselves have immigrated to the US. Across the industry, small and large tech companies are heavily reliant on H1-B visas for their highly skilled engineers. Throughout the election, Trump was wildly inconsistent with his stance on the H-1B program. He used the H-1B program as an employer and part of his campaign rhetoric revolved around how the program is unfair for American workers and could be abused by employers like himself. On the other hand, Trump is also on the record saying that he supports allowing highly skilled worker to legally immigrate to the US and that he wants to prevent brain drain when highly skilled foreign students educated in the US return home. Given Trump’s inconsistent stance, we could see H1B visas restricted, limited, and/or tethered to a higher burden of proof that a role cannot be filled by a qualified American; we could also see the number of green cards lowered or a temporary freeze on issuing permanent residency. Foreign-born and US founders may elect to start companies in other markets with more favorable immigration policies for themselves or their future employees. With 65% of H1B visa’s going to computer-related jobs and a shortage of US STEM grads and workers, the consequences from a time, cost, and talent perspective have the potential to be far reaching within our ecosystem.
Offshore Manufacturing & Trade
Trump has been very upfront about his stance on trade (though like his stance on immigration, it’s purely speculative on how it will play out). While Silicon Valley may be best known for “shipping” software, venture capital is on track to invest $3.7B in iOT this year alone. Trump trade proposals call for punishing companies that offshore their products by placing tariffs on their imports back to the US. He’s also proposed 45% and 35% taxes on Chinese and Mexican imports respectively if these nations do not reform their policies affecting US trade. If implemented, there will certainly be cross-border economic trade disruptions. Here in Silicon Valley, Trump has shone the spotlight on Apple, promising during his campaign to get the company to move its manufacturing back to the US — a move that has been widely viewed as logistically impossible and economically disastrous. At the other end of the spectrum, the IoT/consumer hardware startup boom is also heavily reliant on low cost, scalable manufacturing abroad. The impact of Trump’s trade policies could be crippling to the private companies in the sector and could have tangible consequences on production, runway, and future fundability.
Corporate Tax Reform
One area where we could see tech companies benefit under a Trump administration is through his proposed reduction in US corporate tax rates from 35% to 15% along with a one time tax break of 10% (from 35%) on income held overseas and brought back to the US. US non-financial services companies hold $1.2 trillion overseas, with Apple, Microsoft, Cisco, Oracle and Google holding $475B alone. Under Trump, we could see a repatriation of capital from overseas shelters like Ireland. The influx of cash from tax cuts and repatriation to US balance sheets could spur M&A activity in the tech sector. Furthermore, we could see an increase in IPO activity amongst small and mid-cap companies who historically have not have the resources to move profits to tax shelters abroad and also stand to benefit from lower tax rates. On the flip side, public markets are not fans of uncertainty and volatility could be significant under Trump.
Relationship to Washington
Tech is fueling economic growth in the US. The five largest US stocks by market cap are all tech companies: Apple, Google, Microsoft, Amazon, and Facebook. Under the Obama administration, Silicon Valley became very friendly with Washington, with many of our peers heading east for stints as Presidential Innovation Fellows and with the United States Digital Service team and with tech companies spent millions lobbying to Congress. Meanwhile, former political strategists often left the White House for places like Google and Uber. The vast majority of tech leaders publicly opposed Trump’s candidacy, and he largely ignored the tech industry during his campaign. There’s an open question about how and to what extent tech companies and tech leaders will liaise with the new administration. Given Trump’s limited ties to the tech community, Trump-supporter-turned-advisor Peter Thiel could have outsized influence on tech policy and is already tapping those in his network.
Diversity and Inclusion
For many in Silicon Valley, the election served not only as a wake-up call to recognize the economic anxieties facing our nation broadly but it also shone a light on the deep-seated racism, misogyny, homophobia, and xenophobia lurking in our society. There were nearly 900 reported cases of harassment and intimidation in the first ten days following the election alone; many of our fellow Americans do not feel safe or welcome, even within their own communities. Looking further out, it is also unlikely that we can expect the president-elect to advance causes like equal pay for equal work or inclusive family leave policies reflective of 21st century families. Closer to home, it’s been well documented and understood that yes, even Silicon Valley has a diversity problem. While Silicon Valley preaches inclusion and meritocracy, the reflection in our own mirror is still overwhelming white, straight, cisgendered, and male.
We are the innovators and leaders who will fuel the future economics prosperity of the US, and this comes with great responsibility and opportunity. We find ourselves at a point in time where tech companies large and small have the chance to lead by example and set the bar for the nation more broadly through progressive policies that recognize and elevate the importance of diversity in our workplace and our nation. It is on us to back and support companies led by minorities, women and members of the LGBT community. It is on us to increase the diversity of our teams — from entry level all the way up to the c-suite. It is on us to offer a safe, inclusive workplace for all of our employees and have zero tolerance for discrimination. Let this election and the sentiments it stirred be a wake-up call that it’s time for us to expand the economic opportunities of our industry to underrepresented populations and be leaders for the rest of the country.
