President Trump and Venture Funding

California wasn’t ready for a Trump presidency. With more than 61% of the state voting for blue, California is coming to terms with what his presidency pose.

Bay Area is Completely Blue

What does this mean for Startups seeking for funding in Silicon Valley? How will a political event that is beyond their control affect them? The answer isn’t clear but it is possible to speculate:

1. In the very near term, expect nothing to change. Deals that are brokered now will still get through at original terms. Since Trump takes office on 20th January, expect this awkward period to last for about 50 days.
2. Come his appointment, all eyes will be on the first 100 days of his presidency. Policy changes such as his stance on immigration and foreign trade will have the most impact on Silicon Valley. On how Venture Capitalist may behave, Trump was not the expected winner as indicated by early pooling results. This creates an unstable foundation for financial markets utilising the PESTEL framework to analyse the market. In unstable markets, investments still occur but on a more subdued level. In addition, there is the need to reduce total risk (systematic + unsystematic) to justify financial institution operations. Expect higher levels of diversification based on geographical and/or asset class to lower unsystematic risk; aka risk that investors can control. This is done as systematic risk, or beta that cannot be remove due to macro level activities, is likely to increase. What all these means is that VCs may potentially write smaller checks but spread it across more startups.
3. Assuming that Trump carries out all the unfavorable policies that Silicon Valley does not support. This has the potential to drive money out of higher risk financial instruments. Venture Capital is labelled as a high risk investment vehicle. In volatile and unfriendly financial periods, some investors may get emotional and dump their shares in riskier financial instruments. These monies flow to safer haven, such as Gold and potentially Bitcoin. Less money for Venture funds mean lesser to invest into startups.
4. Beyond all the bleak scenarios painted above, it all rest on the assumption that Trump does not do a good job. This expectation may very well not hold true. Since the Valley has set the bar very low for a Trump presidency, he can very easily exceed expectations. When that happens, the effects on Venture Capital and startups may not be as dire. In addition, external factors outside of the United States may affect Silicon Valley. The global money market may come in to fill in the money gap if there is one. Given that the Chinese appears to be heavily pouring money into Venture, some of that may flow into the US for opportunistic capture of the market.

So the state of affairs for Silicon Valley remain largely unknown. Everything said now is purely speculation. It is uncertain times but I am not of the opinion that this spells the demise of the Valley. There is a reason that this is the most vibrant entrepreneurial ecosystem.

Perhaps President Trump is one of the many reasons.