Hey, folks. It’s Kyle, filling in this issue for Natasha, who’s taking a much needed break from the news cycle (and the spectacle that’s become Twitter). While it’s my first Startups Weekly column, you’ve likely seen me on TC here and there, covering chiefly venture, AI and enterprise-related items. It’s a real pleasure to round up this week’s startup news — partially because it doesn’t center around Musk shenanigans.
But before we collectively tune out for the weekend, let’s recap the week, which was marked by the midterm elections in the U.S.
As loathsome and distressing as the U.S. election cycle has become, the outcome always has major implications for the tech industry. U.S.-based chipmakers are holding out hope for relief as the U.S. increasingly decouples from China. Crypto businesses are awaiting regulations to establish guardrails for so-called stablecoins and settle jurisdictional issues. And the largest tech giants are bracing for a possible last-ditch effort by the White House to pass antitrust legislation — pending, of course, the post-midterm political climate.
It goes without saying that the stakes are high. Sanctions, alongside supply chain constraints and inflation, threaten to depress the stateside chipmaking industry — one chip machine firm, Lam Research, has already predicted losses up to $2.5 billion in revenue next year due to newly imposed trade rules. The antitrust bills, if passed, could significantly restrict the ability of Amazon, Meta, Microsoft and other tech incumbents to acquire and punish rivals to boost their own products and services.
Unsurprisingly, the industry was out in force for the 2022 midterms, judging by the top donors. Google, Amazon, Meta and their trade groups poured almost $100 million into lobbying as they sought to derail antitrust legislation — and its supporters. Meanwhile, according to an analysis by the Washington Post, FTX CEO Sam Bankman-Fried, Larry Ellison and Peter Thiel gave tens of millions of dollars to their preferred campaigns, exerting a stark technologist influence on the acerbic field.
Whether the industry succeeded in securing a bright two-year future for itself is up for debate.
Excepting those in sectors with bipartisan support, like defense, startups could be the ones to suffer the most in this politically divided stretch — especially those in the chipmaking, green and crypto businesses. At least one study finds that congressional gridlock contributes to income inequality, while another implies that political stalemates have a greater negative impact than even hostile government policies on a company’s ability to innovate.
Consider how a recession might play out. Assuming Congress is slow to act (as divided branches often are), there could be less federal government spending on social safety net programs, leading to a drawn-out recovery. There’s the prospect of debt ceiling fights, too, which could be damaging in a different aspect. Recall that as result of debt ceiling bickering during President Barack Obama’s first term, the U.S. lost its perfect AAA credit rating from Standard & Poor in August 2011, prompting the stock market to plunge more than 5%.
In a note to investors, Morgan Stanley predicts that the current Congressional divide means fiscal expansion will be reactive as opposed to proactive over the next two years, coming only as “a reaction to deteriorating economic conditions or an external shock to the economy.”
Of course, partisan gridlock needn’t be entirely a bad thing where it concerns the economy — or startups. According to data from Edelman Financial Engines cited in a piece by CNN Business, the S&P 500 had an annualized return of 16.9% since 1948 during the nine years when a Democrat was in the White House and Republicans had a majority in both chambers of Congress. That compares to 15.1% during periods of full Democratic control and 15.9% in years when there was a unified GOP government.
A silver lining, but a relatively weak one, admittedly.
In the rest of this newsletter — which is less of a downer, I promise! — we’ll talk about Twitter’s fleeing user base, the rise of generative AI and e-commerce’s enduring VC appeal. For more content along those lines, give me a follow — I’m at @Kyle_L_Wiggers on Twitter (Mastodon migration pending).
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