By Lavonne Hoang, Valor Ventures
Hosted by general partners Lisa Calhoun and Gary Peat, Valor recently convened a private panel for our partners to discuss the the Biden Harris administration and the venture capital industry, including:
- Congressman Kwanza Hall, U.S. House, who was elected to fill the seat of former iconic Congressman, the Hon. John Lewis
Jina Sanone, Executive Director, HerTerm.org, a political action group
Tiffany McKenzie, Partner, Bryan Cave, and a tax-estate expert
Reflecting on the wise words of our panel, in our view, the Biden/Harris administration should be a net positive for the VC industry. This is a watershed moment for America. It’s the first time that there will be a woman in the executive branch and she’s one of color; there will be both a democratic legislative and executive branch; and it’s a critical time for innovation in healthcare, the environment, and education. This is all happening at a moment in time when less than 50% of all annual venture capital is invested in the US, which is a marked change from America’s historical dominance in this area.
Given Biden-Harris platform’s focus on rebuilding infrastructure, healthcare and a clean environment, the administration will have a necessity to invest in innovation. Thus, it will favor legislation for funding that supports these endeavors, inclusive of venture capital.
Increased money flow and funding for founders
Biden announced a Small Business and Entrepreneurs Advisory Council meant to “build back better through strong investment in small businesses, entrepreneurs, and jobs that will reignite America’s economy.” After a harsh blow to small businesses during the pandemic, this shift in focus to entrepreneurship and innovation should only boost market sentiment. $10 bn from the Small Business Opportunity Fund will be provided for entrepreneurs in lower-income urban, tribal, and rural areas. The Increased State Small Business Credit Initiative (SSBCI), extended through 2025, will create $30 billion in private sector investment. There is also a qualified small business stock exemption increase which would impose 0% taxation on capital gains if held for 5 or more years that favors investors in early-stage enterprises.
Furthermore, the Biden-Harris platform shows an understanding of the apparent underrepresentation in VC and is supporting organizations like the Minority Business Development Agency ($5bn in additional lending and investment authority) and has crafted the Small Business Opportunity plan with black and brown founders in mind ($50bn in investments). Additionally, there will be $100bn in new low interest loans through Community Development Financial Institutions (CDFIs), Minority Depository Institutions (MDIs), and the Community Reinvestment Act. Beyond expanding capital opportunities, the administration also shows a commitment to supporting these diverse founders and businesses and is working to provide incentives for states to support underrepresented founders and has redirected SBA’s resources to these groups as well.
For Valor, this means that underrepresented founders with great ideas will potentially have more necessary governmental support to build break-out businesses.
The National Venture Capital Association is lobbying for bipartisan legislation that will be favorable in the upcoming administration including the IGNITE American Innovation Act, American Innovation and Jobs Act, Energy Sector Innovation Credit Act, Volcker Rule (which allows banks to anchor VC funds), and Developing and Empowering our Aspiring Leaders (which allows VC funds to liquidate angel investors when desired).
Biden-Harris Administration ties to venture capital
These entrepreneurship-friendly stances are undergirded by the upcoming administration’s familiarity with VC. To name just a few, Ron Klain (executive vice president of Revolution, Steve Case’s “Rise of the Rest” fund) was named Chief of Staff; this shows a double-pronged focus on tackling the pandemic and shepherding America into a strong economic recovery. After spending the majority of her career in California, former CA Senator and now VP Kamala Harris is no stranger to the startup ecosystem and has actively networked amongst big tech (Facebook, Apple, Salesforce). As special presidential envoy of climate, John Kerry has a decorated background in VC as senior adviser of The Rise Fund and owning stakes in firms like Summit Partners, Lux Capital, and NGEN amongst many others. The nominee for secretary of state, Antony Blinken, was a partner at PE firm Pine Island Capital Partners. Finally, Rhode Island Governor Gina Raimondo, is the pick for Commerce Secretary and also has a background in venture capital.
Potentially positive legislation for Venture Capital under Biden-Harris platform
Immigration reform is top of mind for investors. The startup scene is reliant on sourcing foreign talent for innovation and development/scaling of startups. Over half of the US companies with $1B+ market caps have a foreign-born co-founder, according to a study just two years ago. Countries with visa-friendly policies like Canada and Switzerland have seen an influx of talent that the US is missing out on. Though it won’t be a rapid change, the Biden-Harris administration’s legislation changes should have a long-lasting effect on the VC industry’s need to keep current foreign talent on-shore and to opportunistically take advantage of technical talent offshore too.
Potential headwinds from tax regulation
Potential headwinds for the VC industry would be tax plans and antitrust regulation; both of these have been shown to negatively impact the industry and are important areas to watch. The Biden administration’s proposal to tax capital gains and income at an equal rate of 39.6% (previously 20%, 98% increase) would have a potential to dent the attractive gains that VC has seen in the past and other areas like the public market may show to be more fruitful to investors. 1031 exchanges will also be limited or eliminated for taxpayers with over $400,000 in income.
The Big Picture: venture capital and Biden-Harris policies
So what does this all mean for Valor and our partners? This should be a net positive for the next four years as legislation that focuses on social issues and innovative investments are all core principles to Valor. As a firm with existing investments in edtech, fintech, and healthtech, we are already positioned favorably in the market with this administration.
–This article and research had many contributors. Thanks to talented Valor Spring 2021 intern Lavonne Hoang for the bulk of the research and writing supporting this post!