The 2025 Policy Outlook: A VC Perspective
An opaque crystal ball on the road ahead
It is that time of year when professional investors like myself are often being asked to peer into our crystal balls for the year ahead. In particular, individual investors are eager to know what is going to change in the economy that could impact their portfolios. While my preferred candidate did not win the presidential election this year, I would never root against the United States and I try to be objective as far as potential bright spots, as well as my concerns and risks for the markets and the country.
Here are 25 key policy issues that I, as a venture investor, am contemplating as we prepare for a new administration and a new agenda in 2025. These represent my personal thoughts, and do not necessarily reflect those of my firm or my colleagues:
Income and capital gains tax policy. Who doesn’t love a tax cut and economic stimulus? The question is who benefits most… and at what cost? Reduced spending could drive negative economic consequences for companies and individuals, while a further ballooning of the deficit could trigger greater inflation, currency devaluation, and potentially other knock-on effects.
Tariffs. While protecting American manufacturing sounds appealing, the question is how long will it be before these new important taxes will result in consumers not being able to afford basic necessities, such as food, clothing, computers, automobiles, household items that come from foreign countries that we depend on?
Interest rates and the Federal Reserve. While ostensibly independent, Presidents have the power to appoint Federal Reserve governors and the possibility of influence over Fed decision-making represents a step toward potential manipulation of sound long-term monetary policy.
The budget deficit and government efficiency. The new “Department of Government Efficiency” or “DOGE” represents both an opportunity to reign in bloated bureaucracy, but also runs the risk of cutting essential spending. With its very ambitious goals, we will be watching carefully to see which programs are cut. Entitlements like Social Security, Medicare, and Medicaid, as well as defense spending are the biggest federal budget expenditures and drastic cuts to either could have significant ramifications for millions of Americans.
Antitrust regulation. A more lax “pro-free market” attitude toward consolidation could be good for large enterprises in technology and other industries, but also could lead to greater challenges to startups and emerging competitors, not to mention potential harm to consumers and new entrants that will have even more formidable barriers to overcome.
Energy and climate change policy. By all accounts, the incoming administration favors a policy of “drill baby, drill.” US energy independence is advantageous for many reasons, even if that includes non-renewable resources. However, the tradeoff or increased carbon emissions must not be overlooked. There is also the question of what will happen to EV subsidies and other programs that are intended to trigger more climate-friendly behaviors. It is not lost on many that Elon Musk, who is expected to spearhead the charge to axe government spending, has also been one of the greatest beneficiaries of federal tax breaks that favor the EV industry. It is therefore not all that clear how all of this will shake out in the months ahead.
Undocumented workers. If we continue to see record low unemployment rates while undocumented workers are deported en masse, it will inevitably create a more acute labor shortage. This could impact agriculture, manufacturing, and services the most. Labor shortages could result in inflation and reduced productivity, output, and revenue. It is clear that our nation should enforce its immigration laws, however the question is what the tradeoff will look like once deportations are implemented and how aggressive the administration plans to be.
Legal immigration. We don’t have very clear signs yet on what stance the incoming administration will take toward opening up more avenues for legal immigration. Arguably, many of those closest to President Trump are immigrants themselves, who should understand the value that a well-trained foreign born workforce can bring to the US market. Having fewer talented scientists and engineers, among other technical professions, will arguably put American enterprise at a competitive disadvantage.
Small business and entrepreneurship. Kamala Harris spoke often about the value of entrepreneurs in society and her plans for increasing the tax deduction for startup business owners from $5,000 to $50,000. Trump’s plans are less clear at the moment, though he is certainly surrounded by many allied business owners, CEOs, and professional investors. Removing burdens on startup venture creation would be a welcome move.
Venture capital and alternative investments. It is true that JD Vance spent part of his career being mentored as a VC by Peter Thiel. By contrast, his VP opponent Tim Walz, for the many qualities he did possess, chose to attack the VC profession in his stump speeches, despite demonstrating little knowledge or interest in what a VC actually does. Kamala Harris, for her part, comes from the Bay Area and did speak favorably about the venture capital industry during her campaign. What impact will Vance’s background have is hard to tell, but presumably he believes in encouraging and incentivizing investment in startups and innovation. What policy decisions come from that remain to be seen.
Crypto currency regulation. By all accounts, the incoming administration will take a favorable stance toward the crypto markets, and this has already been reflected in recent movement in the valuation of Bitcoin and others. Let’s see what impact this could have toward the world’s fiat currencies and the risks that could come from fully deregulated crypto trading.
AI policy. While the expectations are for the Trump administration to take a relaxed policy toward AI, which could help stimulate deeper innovation and adoption, there are of course significant concerns about where things could lead by allowing AI development to go completely unfettered.
Semiconductor independence. The US, and the entire world, are reliant on Taiwan for semiconductor production. However, we also rely on China for many other electronic components. Maintaining a stable geopolitical balance is a tricky task for any administration and requires skilled diplomacy and sound trade policy.
Manufacturing growth. Manufacturing trends have been positive in recent years. Will that continue? What impact will labor unions and tax incentives have? Trump’s message leans toward an “America first” approach, but this knife cuts both ways when it comes to manufacturing, as well as selling to customers both domestically and abroad.
Agriculture. Aside from the worker supply issue, will the US continue to subsidize certain crops at the same pace that they have been? Will we see new regulations to force “big ag” to clean up its methods of producing ultraprocessed and factory farmed foods? On the one hand, the administration looks to take a “laissez faire” attitude toward corporate regulation. On the other hand, there is much talk of shaking things up in a big way from both a taxation and food health policy standpoint.
Public health and processed food. To that end, RFK Jr. as Secretary of HHS, would bring a new voice to the table, in ways that are potentially both helpful and deadly scary. On the more positive side, society cutting back on highly processed foods could indeed have positive outcomes on public health.
Vaccine skepticism. On the other hand, RFK has spewed endless conspiracy theories regarding vaccines and continues to operate in this world. Google “RFK and Samoa” to understand RFK’s direct culpability for measles to returning to Samoa and causing the deaths of scores of children. If we have fewer children getting vaccinated against diseases like polio and measles, not to mention Covid and influenza, everyone will be at risk and we could be regressing as a society in fighting these deadly diseases and viruses.
Biotech and pharmaceutical policy. RFK has also talked about shifting R&D priorities within the biotech and pharma therapeutics space. Again, we see a conflict in the competing priorities of being both “hands off” toward business regulation while also stipulating what private companies “should” and “should not” be doing.
Nuclear power. In spite of Trump and company skepticism toward climate change, perhaps the “greenest” expected agenda item for the administration, in effect, is support for nuclear energy. Numerous startup companies are innovating in and around this potentially significant market and they should expect strong tailwinds over the coming years.
Support for Ukraine. I am not shy in my belief that the US and allied countries should be doing everything in their power to help Ukraine not just defend its territory, but to actually defeat Russia through military and economic means. If the collective West chooses to appease the aggressor, there is no reason to believe that Vladimir Putin will stop at Ukraine. Through his words and actions, Putin appears hellbent on reinstating the Soviet Empire and committing all sorts of atrocities, including genocide, to achieve his goals. Until recent times, Republicans were always the most vocal opponents of Russia’s aggressive and destabilizing actions. Now the tables have largely turned and it remains very unclear how the incoming administration expects to broker a peace agreement that is acceptable to both sides. Trump advisors and confidantes have provided contradictory statements, leading to no one having any idea what to expect in terms of US support for Ukraine and finding a viable pathway to ending this horrific and senseless war.
Relations with NATO and other democratic allies. President Trump’s topsy-turvy foreign relations has led him to cozy up with dictators while challenging traditional allies. Will he back out of NATO, as he has threatened to do? If someone like Tulsi Gabbard is confirmed as Director of National Intelligence, will allies even want to share intelligence with the US going forward? This is a worrying game of Russian roulette and we have no idea at this point where such relationships with our democratic allies across the world will ultimately land.
Public education. Most decisions regarding public education happen at the state or regional levels. However, the White House has a megaphone to cast its desires and set goals. It is not inconceivable that the Department of Education could be abolished in the coming years. How will that impact school funding, particularly around special needs? Will a more free market approach, including school choice, vouchers, and charter schools, be in play? The impact of such reforms may take many years to play out, but could such disruption and competition within public schools drive stronger outcomes for students? Will federal funding cuts to education result in worse quality schools, fewer teachers, and poor academic achievement?
Diversity, equity, inclusion in education and the workplace. DEI is the latest four-letter word that is associated with “liberal woke ideology.” For sure, like most things, if taken to an extreme, there is validity in some of these concerns regarding overuse and abuse. However, DEI didn’t come from nowhere and without reason. There are still vast differences in wealth, education, and opportunities, among different racial and socio-economic groups within society. Will the administration legislate to prevent any sort of race or gender-based tools from being used to help level the playing field? Will we notice the effects of having so few women and people of color in the Trump administration?
An administration of loyalists. Trump’s early appointments seem to lean more heavily toward loyalists rather than finding the most experienced and qualified candidates to fill key government positions. This appears to be true more so than in his first administration. What path does that leave us on if there is little discussion or debate happening within the White House, but everything is simply dictated from the top and executed by “yes men?”
Rhetoric vs. reality. For at least the coming two years, Republicans will enjoy full control of all branches of government. There will be few checks and balances to control their policy agenda from moving forward. How much of what Trump has said will actually get prioritized and accomplished? It will be a true test and the American people will be able to clearly see the gaps that emerge between what’s been said and what gets done.
Overall, I have cautious optimism for the economy, in spite of my deep concerns about many of the policies and characteristics of the incoming administration. The American economy has proven remarkably resilient in recent years and there are fundamentals that show that growth is poised to continue. For startup companies specifically, the market in the past couple of years has been relatively uncorrelated with public markets as valuations have slid and liquidity events few. Like all things, however, sectors operate through economic peaks and troughs. We as investors are seeing positive signs that an uplift of M&A activity and later-stage valuation growth are returning. If the IPO market opens up over the coming year and fiscal policy continues to stimulate new investment and growth, then we should be looking “up and to the right” in 2025 for entrepreneurs and investors alike.