A raft of pronouncements and appointments by the incoming administration has finally begun to clarify what the next four years will REALLY mean for the startup ecosystem. As a provider of fractional finance and people operations services to hundreds of startups, we’ve taken a good look at what’s been learned over the past month, and compiled a quick founder’s guide to the impacts of the 2024 election. Spoiler alert: Much will change, and depending on the sector, much will stay the same.
- Energy independence. The second Trump administration will mirror the first in supporting fossil fuel development, exploration and production. But in contrast to conventional wisdom, we think startups in renewable energy production, including nuclear and hydrogen, will retain or gather significant support. Why? Because of the sheer amounts of energy and storage required for new technologies like AI and EVs. They will drive a substantial increase in power demand over the next several years, and even many solar and wind projects viewed with disdain by the far right are (or soon will be) now critical components of the broader domestic U.S. electrical grid.
- On the flip side, electric vehicle popularity will continue to decline in favor of hybrids regardless of whether Trump successfully repeals the climate-oriented portions of the Inflation Reduction Act he has criticized. Such repeals would reduce or outright eliminate many climate-oriented tax credits, grants and other funding that have benefited startups in the sector. Note, though, that Trump’s newfound alliance with Elon Musk may skew exactly which EV incentives get rolled back, and perhaps more importantly, which EV maker may benefit the most.
- Renewal of the 2017 Tax Cuts and Jobs Act (TCJA) tax structures is very likely, particularly with Republicans in control of both the White House and Congress. An interesting twist will be whether Trump’s curious campaign promise to do away with the SALT exemption on state and local taxes survives, since it was a cardinal element of his 2017 Act in the first place. But for startups (and their founders), extension of the Act in 2025 means the business tax environment will remain favorable – low corporate tax rates, business interest deductions, 100% bonus depreciation, etc.
- Removal of Section 174 R&D Capitalization requirement: Both before and during the presidential campaign, Democrats and Republicans alike advocated rolling back the requirement to capitalize R&D expenses under Section 174. Part of the TCJA that took effect in 2022, this provision does not expire and has resulted in billions of R&D-related expenses going onto balance sheets as assets to be depreciated versus costs immediately expensed on P&Ls. For startups, which are often pre-revenue and dedicate significant resources to R&D, and generate substantial losses as they grow, this was – and remains – a big deal from a tax perspective. The R&D tax credit startups can receive, however, will be maintained.
- Improvement in M&A, PE & VC activity: The incoming administration is likely to return the Federal Trade Commission to a more permissive stance, meaning mergers and trade practices will receive less scrutiny. Meanwhile, interest rates, already on their way down under Biden, will continue to drop during at least the first half of Trump’s second administration. This traditionally means capital on the sidelines will move into public and alternative capital markets, which in turn should result in a) greater VC fund and deal activity, b) more fundraising for startups, c) improving valuations, and d) a normalization of exit pathways like PE buyouts and IPOs.
- AI will be less regulated. Among Trump’s stated goals is an immediate repeal of Biden’s executive order regulating AI. Leaving aside the very real questions surrounding the dangers of AI, there’s zero doubt the sector will remain a bright spot in the startup ecosystem under the new administration.
- The return of crypto: Trump, or at least those around him, are very crypto-forward, and tokens like Bitcoin have begun pricing in a much more favorable regulatory environment for cryptocurrency and blockchain companies. Relatedly, the SEC will lose clout in the next administration, particularly when it comes to enforcement actions underway against several major crypto companies.
- Tariffs, again. Among the incoming administration’s most visible policy goals, steep new tariffs on trade between the U.S. and China, Canada and Mexico (to start) will play well with the Republican base, but will ultimately be bargaining chips for Trump to use in the pursuit of broader goals. Despite the showmanship, Trump is savvy enough to know tariffs look terrific in the short run, but are economically disastrous long-term, so we expect he’ll use them more as political stunts/soundbites than as actual policy tools. For those startups utilizing overseas contractors, tariffs equate to a stronger U.S. dollar, and thus less expensive overseas talent; for startups whose supply chains involve a target country like China, tariffs will again force difficult conversations around onshoring and price increases.
The dust has thankfully settled from the 2024 election, and regardless of the one’s opinion of the outcome, the removal of significant overall uncertainly is a final, significant positive for the startup ecosystem. Note the difference between campaigning and governing; like last time, the next Trump administration promises to be broadly pro-business, anti-regulation, heavy on bluster/bravado, and tremendously volatile. For startups, a broad and multi-year cyclical upswing in venture capital activity is chief among the factors we think augur well for 2025 and beyond.