What a Biden-Harris Win Means for Venture Capital
Venture capital hubs are historically based in cities such as San Francisco and New York and have a predilection for supporting Democratic candidates. (Thorne, Pitchbook). The most recent election proved to be no exception, venture capital contributions to the democratic party were even higher than they were in the 2016 election. [1] (Center for Responsive Politics). The industry’s support for the democratic party grew in the most recent election due to Biden’s favorable policy proposals and industry grievances with the Trump administration. (Thorne, Pitchbook).
President-elect Biden’s campaign closely aligns with the venture capital industry’s priorities. (Kokalitcheva, Axios). The National Venture Capital Association (“NVCA”), a preeminent trade association known as one of venture capital’s biggest lobbying groups, has a positive outlook for the Biden-Harris era. [2] (Thorne, Pitchbook). Justin Field, the Senior Vice President of Government Affairs at the NVCA, said, “Broadly speaking there’s a lot that the Biden administration wants to accomplish that they’re going to need venture capital participation in order to accomplish.” Field and Jeff Farrah, General Counsel at NVCA, believe the Biden administration will rely on venture capital to help achieve the administration’s goals including clean energy, economic opportunity expansion through technology innovation, and countering the rise of China. (Thorne, Pitchbook).
The venture capital industry is well positioned to help carry out the Biden administration’s clean energy plan. Biden’s climate and clean energy plan seeks to have a carbon-free electricity grid by 2035 (Harder, Axios) and aims to get the United States to net-zero emissions by 2050. (BidenHarris). The plan calls for $2 trillion worth of investment in sustainable infrastructure and clean energy, creating ample opportunity for cleantech startups. (Thorne, Pitchbook). Currently, 80 percent of domestic energy production and consumption come from oil, natural gas, or coal, and just shy of two-thirds of the United States’ electricity is powered by natural gas and coal. (U.S. Energy Information Administration). Biden has also framed this initiative as a way to compete with foreign powers, such as China, in growing markets like electric vehicles. (Thorne, Pitchbook).
Another reason many venture capital firms supported Biden’s campaign was because of his proposed immigration reform. The Trump administration’s immigration program has been harshly opposed by the tech industry (Thorne, Pitchbook) because immigration and the startup ecosystem have a long-standing, symbiotic relationship. (Mathus and Thorne, Pitchbook). Many successful startups are founded by foreign-born founders who launch their companies in the United States. Id. Moreover, startup companies often rely on overseas talent and investment to develop and scale their operations. Id. Trump’s hostility towards immigration, demonstrated in the June decision temporarily banning H-1B visas [3], linked here, has been widely contested by the tech and venture capital industry. (Thorne, Pitchbook; Kokalitcheva, Axios). Trump’s barriers to immigration and foreign investment have brought challenges and unpredictability to the venture capital industry. (Kokalitcheva, Axios). Alternatively, Biden’s administration is expected to be much more welcoming of immigrants and foreign investment, which will facilitate venture capital activity. (BidenHarris) (Kokalitcheva, Axios).
Lastly, Biden’s running mate and Vice President-elect, Senator Kamala Harris, enticed many venture capitalists. Harris, San Francisco’s prior district attorney and current California senator, has historically taken a more moderate approach toward regulating tech giants than other democratic leaders such as Elizabeth Warren and Bernie Sanders. (Thorne, Pitchbook). Nihal Mehta, a General Partner at Eniac Ventures, a venture capital firm based in New York, stated, “Silicon Valley is already used to their relationship with her [Harris] as a senator.” Id. Mehta believes their pre-existing relationship will be very beneficial for the industry. Id.
However, Biden’s tax plan does not score highly among venture capital firms. While the Trump administration promised and delivered significant business and individual tax cuts (Thorne, Pitchbook), if Biden’s tax proposals are adopted the consequences to venture capital could be grave. (Kokalitcheva, Axios). Under Biden’s proposed plan, those with incomes over $1 million may face long-term capital gains taxes of 39.6 percent. Id. Yet despite this unfavorable tax treatment, Biden gained more support from venture capital than the Trump administration due to the abovementioned reasons. (Thorne, Pitchbook).
If the incoming administration follows through on its campaign promises, there should be a significant opportunity for growth in the venture capital industry over the next four years.
Footnotes
[1] Democrats received 79% of election funds contributed by the venture capital industry, up from 70% in the 2016 election. (Center for Responsive Politics).
[2] The NVCA does not endorse individual candidates. (Thorne, Pitchbook; Kokalitcheva, Axios).
[3] The H1-B visa program allows employers to hire nonimmigrant aliens to work in specialty occupations in the United States by authorizing temporary employment.