The election results have clarified a number of things for venture capital as an industry. The new Trump administration’s approach to QSBS, regulatory simplification, and domestic investment promotion are all strong signals that the venture capital environment will remain favorable. For high-net-worth individuals, family offices, and institutional investors, this combination of factors creates a unique moment to consider deploying capital in early-stage companies.
1. QSBS Safe Harbor for Tax Advantages
With the likely continuation of the Qualified Small Business Stock (QSBS) exemption under a GOP regime, investors can continue to take advantage of up to $10 million in tax-free gains from the exits of small businesses. This policy creates a significant incentive for venture capital investment, particularly in priced rounds where equity stakes are clearly defined. Valor’s focus on priced rounds (rather than SAFEs or convertible notes) and careful administration of our funds supports our investors benefiting from these tax advantages, which are expected to remain intact under the new administration.
2. Regulatory Environment Likely to Remain Business-Friendly
Another likely outcome under the Trump administration is a reduction in regulatory oversight that affects early-stage businesses and startup growth. Historically, a business-friendly regulatory environment has been good news for venture-backed companies, as it reduces the friction associated with building and scaling companies. The National Venture Capital Association (NVCA) has signaled optimism that the new administration’s stance on deregulation could translate to fewer regulatory hurdles for startups, particularly in sectors like fintech and healthcare, which often face heavy compliance burdens. A reduced regulatory load allows startups to allocate resources more efficiently, innovate faster, and reach significant milestones sooner—all factors that contribute to better outcomes for venture investors. We’re also seeing sunny weather ahead for more M&A transactions, continuing the 5 consecutive quarters of uptick in corporate M&A recently shared by Pitchbook.
3. Increased Focus on Domestic Investment and Entrepreneurship
Lastly, the Trump administration’s focus on domestic growth is expected to foster a favorable environment for venture capital by prioritizing entrepreneurship and innovation within the United States. Policies aimed at repatriating capital and incentivizing domestic investments are already being discussed in Washington, and they could lead to increased funding or expansion opportunities for U.S.-based startups. PitchBook’s recent analysis suggests that initiatives such as favorable repatriation rates for overseas earnings could unlock billions of dollars for domestic reinvestment, much of which may find its way into private equity and venture capital. This would lead to increased deal flow and a more vibrant startup ecosystem—a win-win for both founders and investors looking to deploy capital in high-growth sectors.
The U.S. South is uniquely positioned to benefit from this focus on domestic investment during the rapid expansion of applied AI startups and solutions. With a lower cost of living, an increasing number of talented founders and three states (Georgia, Texas and Florida) performing as new applied AI centers of excellence, the South is becoming an increasingly attractive destination for early stage venture capital—driving both economic growth and a more diverse startup landscape.
Now, lots remains to be seen about our state and local policies regarding these potential huge growth drivers. For example, many states in the South, including Georgia and most of our neighbors, currently limit the investment of public plans into VC funds under $100M. That’s a huge headwind for the industry and it hampers local VC in an AI-driven cycle when it seems most beneficial to drive MORE investment by local funds in local founders. (There’s a deeper discussion of this in our Q3 report on startups in the South.) So, there is yet much work to be done–but the federal climate in the near term appears to be a wind at the back of tech forward growth in this region.
If you’re curious about how these trends may impact your venture investing strategies, feel free to reach out. We’re always happy to continue the conversation.