What the 2026 Midterms Mean for Startups and VC

Intro 00:01
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Kate 00:18
Welcome to Startup Success. We have one of our favorite guests in studio, Steve Lord, who’s the COO and Chief Knowledge Officer at Burkland. And Steve offered to come in and do a special episode about the midterms and what we can expect now that we have results. Thank you, Steve. Welcome.

Steven Lord 00:39
Yeah, you bet. Thanks for having me in. Pretty amazing in a way, you know. Leave the politics aside of it, but it is pretty rare that we have that big of a shift in the kinds of places that we had. And when you and I were talking about potentially doing this, you know, we tend to kind of stay focused on the venture space, but this one I was watching as we were getting closer to it, and most of us are now pretty skeptical of polls. But I started detecting a little bit of an undercurrent, particularly in the bond market, and thought it might be helpful for us to look at what yesterday really means, what the midterms might actually do or portend, and what they aren’t going to do, right? Because I’m sure everybody out there right now, you’re getting a lot of noise around what this means, and you know it does mean a bunch of stuff that won’t really have a whole lot to do with our ecosystem. But there are some things here that I think are worthwhile pointing out, particularly in light of our conversations from a macro perspective in prior episodes.

Kate 01:41
Awesome. Let let’s delve into it. You take the floor.

Steven Lord 01:45
Sure. Thank you. I think the conventional wisdom right now is that this is going to mean you know data centers are stopped dead in their tracks. AI, as we know it, is over, and all. And I don’t think that’s actually going to happen. I think there’s a lot of press being or a lot of ink being spilled on that sort of alarmist thing. But the reality is, I mean, I was on the phone this morning with an AI-powered progressive, very left-wing liberal company. They are using AI like every day. I don’t think it’s going to be nearly what everybody is up in arms about. What I do think is going to happen is there’s going to be greater regulation and greater conversations around data centers. But that was going to happen anyway. So I think like everybody, deep breath. Yup, data centers are a thing, right? Back when we were laying fiber optic cable all around the country, that was a thing too, right? So it’s not, it’s not conservative left or conservative liberal Republican Democrat, it’s people want to have a say in how these things are being built out.

Kate 02:51
Okay.

Steven Lord 02:52
So financially, though, where there is an interesting intersection with our world is the debt that these companies are accumulating to go build the data centers. I think that’s going to end up being probably the bigger break on this build out, at least for now, than anything political. Because you know you get to a place where there’s only so much debt you can carry, and if the thing you’re building doesn’t start throwing off enough cash flow to carry it, then stuff starts to change. So that’s really what I wanted to call out right away for the AI data center emotion right now. I don’t think it’s going to come from politics. Politics. It’s going to come from the debt markets.

Kate 03:33
Oh, interesting. Okay,

Steven Lord 03:35
You know, and then I think the headwinds that are now going to probably be at least felt from a headline perspective is obviously things like defense, right? Things that have been allowed – crypto – things that have been allowed to kind of like run unencumbered up to now, are now going to have of congressional oversight that they haven’t really had. I don’t know if that really trickles all the way down to VCs funding startups or not. But you’re going to read a lot about it. You’re going to hear about hearings, and you’re going to hear you know Congress is digging into this, and then you’re really going to start hearing it when the budget conversations start. That’s really going to be where I think people feel this shift because now there’s different people in charge of the money.

Kate 04:23
Interesting. Okay. Okay.

Steven Lord 04:25
So that’ll be a place we see. On the flip side of that, I think you know for the last couple years in particular, green, ESG, social, any of that sector has really had a hard time of it, right? That’s been, they’ve been a little bit out in the wilderness. I think you’re going to see a return, and that will impact our space. You’re going to see an interest returning to funding, you know, renewable energy, wind, battery, all of that, solar. I think that’s going to get a little bit back on people’s radar, and that is helpful for the startups in the space that we work with.

Kate 05:02
Yes, that will be a shift for them.

Steven Lord 05:05
You know, and it’s going to take a little bit because this sort of stuff takes some time. But I do think there’ll be a bit of a tailwind versus a headwind that has been in place for a while. And then sort of broadly laying over all of it, you’re going to see conversations around this in headlines and things. I don’t think the result yesterday does anything in terms of M&A and IPO. Those are still going to happen. You do still have a presidential administration or an executive branch that is very pro-business when it comes to M&A, and I don’t think that’s going to change. You still have this – this is still there, that’s not gone, right? There was some stuff I saw this morning that basically was like, “Oh, you know, antitrust is going to come.” I don’t personally, I don’t think so. Less of a thing for this market, but definitely the food chain of VC to PE to IPO or to M&A is still going to be, in my opinion, very healthy.

Kate 06:03
That makes a lot of sense. I’m glad to hear that. Good.

Steven Lord 06:06
The flip side to that will be greater SEC oversight than we’ve seen in the last couple of years. I think that will revert sort of back to the mean. And honestly, a lot of this is that right. This kind of result yesterday is not. I mean, it’s not going to be the first time a president has had Congress dominated by members of the other party. We’re really just kind of reverting back to the standard political situation that the framers actually

Kate 06:36
Right, the old checks and balances we all learned about in U.S. history back in the day.

Steven Lord 06:41
That’s right. And actually that’s a good segue to something else. The bond market actually likes this okay because and we’ve talked in this show a lot about interest rates and what that means for the VC ecosystem, and that’s an actually that’s probably one of the most important areas of interest after yesterday is what does it mean for interest rates? And what it means for interest rate is exactly what you just said: the checks and balances with the Congress being in the hands of one party and the executive branch in the hands of another, particularly this one, where the Democrats are in the former and the Republicans are in the latter, is actually healthy because it means you’re going to have fiscal restraint. You’re not going to have as much deficit spending. You’re actually going to have a bona fide budget conversation that actually has to reach a compromise for anything to happen. Bonds like that; they like sort of a, you know, I don’t know if you can really call it a, you know, gridlock per se, but they like when one party can’t just start printing money until the cows come home, which is what you started seeing it do, is the bond market began pricing that. So, personally, I think what we’re going to see is, or let me rephrase that: it will be very instructive if we start seeing bond yields tick down, because I think you’re going to start seeing a repricing of that risk, repricing of inflation risk, repricing of some of the safe haven things we started seeing happening in the last few weeks as we had this big run up in 10 year yields, and then it started to get closer to the midterms, and you actually saw those yields coming down. Why? Because people were terrified about what was going to happen, and they wanted to go to a safe haven. So, all of that said, I think this will be healthy for bonds. In turn, healthy for lower interest rates, which does help our ecosystem.

Kate 08:40
Absolutely. I remember an econ professor telling us that you know the U.S. checks and balances works well for the economy.

Steven Lord 08:50
Yes, yes, and and actually, when you look at it, I know it’s a little bit further than this conversation, but generally, the equity market likes this.

Kate 08:58
Yes. I saw that. Yes,

Steven Lord 09:00
There’s a lot of yeah, a lot of stats flying around. You know, since 1950, it’s 19 out of 19 instances where the S&P was up pretty strongly after you know in the year following this kind of midterm result. So, never a guarantee, who knows. But again, bringing this back to the venture space and our ecosystem with startups, valuations in venture typically follow the equity market valuations. So, to the extent that is healthy and doing well, then valuations for startups tends to follow.

Kate 09:33
Great, I’m glad you pointed that out and emphasized that for everyone listening.

Steven Lord 09:38
You know, I also think for founders, it can be very easy to get distracted with all of this sort of stuff. And I would just suggest everybody, like our show and the things we talk about, they’re really just the backdrop or the environment in which you are in. It isn’t really determinative, it’s just informative of where you happen to be. Don’t over-index on this headline or that headline. You have a startup, you have an idea. Actually, you’re so passionate about your idea that you started a company and you’re getting funding for it. Stay there. That is actually going to be the catalyst that creates the plan or the forward arc that you envision. This is all just kind of like information to have, so you know, you know, the temperature of the water through which you’re swimming.

Kate 10:30
I like that. That’s very helpful. I think, for the founders listening, I literally, before recording this, got off with the founder who was talking about the midterms and what it meant. I think it’s very helpful you pointed that out.

Steven Lord 10:44
Yeah, it’s important. Of course. But it isn’t determinative. That’s going to be what’s your idea? Do you have the finance figured out? Do you know what things cost? Do you know where you’re going to be in a year? You know, VCs are relatively uninterested in the company you were six months ago. They’re very interested in the company you’re going to be in two years. So this is all kind of in the backdrop of all of that, but nothing beats all the stuff that our founders know. Product market fit. You know what is it going to cost you to get a new client, and what’s the revenue you can expect from that new client? Like basic stuff like that is still really the primary driver. Doesn’t hurt that there may be a more favorable funding environment going forward if some of this stuff works out. But anyway.

Kate 11:33
Excellent, so helpful, Steve. Good reminders. You really broke it down well, all the different areas.

Steven Lord 11:42
I think also something to call out is everyone is very rightfully very focused on inflation, right?

Kate 11:49
Yes.

Steven Lord 11:50
And there may be quite a lot of volatility between now and the end of the year. So remember, you’re in this zone where we are all we’re all along for the ride here. We’re in this weird place where you have the election results from yesterday, then you have the new Congress seating in January. So you have this window here where lots of stuff can happen. Again, don’t get too caught up in the whipsaw headlines that are going to be flying around here: Iran, oil, gas, energy prices, all of that. I do think tendentially, inflation will start to drop between now and say the middle of next year. But between now and then, between now and January, there might be quite a lot of noise. Deep breath. It’s all actually probably going to move in in positive directions for the businesses that we help here at Burkland.

Kate 12:44
Great. I like that. It’s a good positive note to wrap it up in. I like it. We need that. Well, thank you, Steve. As always, great to see you. Very, very helpful. Appreciate your time. Thank you.

Steven Lord 12:58
Likewise. Thanks for having me aboard.

Outro 12:59
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