What's happening with Silicon Valley politics?
And what does it mean for startups?
Last week I spoke with the Oxford Entrepreneurs Fund about what the election will mean for startups in the United States from 2025 onwards. The slides for that are here but in this newsletter I’ll dive further into the last section: what does Silicon Valley’s current political shift (if there is one) mean for the wider startup ecosystem in the US.
And, don’t worry, it’s more than just Elon Musk.
Startups are mean-reverting, not just shifting
John Burn-Murdoch provided in the Financial Times on Saturday the best gift an analyst can receive: actual data about a topic. The popular narrative about Silicon Valley moving rightward this cycle both is and isn’t true.
It’s true that there is a huge amount of money being donated from tech execs to the Trump campaign and other Republican candidates.
But it’s not true that Silicon Valley has always been liberal in its politics. Back in 2000 there were more donations to Republican candidates than Democratic ones, and a lot of executives donated to both parties.
Source: https://www.ft.com/content/29426c31-b8f9-49da-bc8b-e6c860935694
The real shift, as I read the data, is twofold:
Giving to both parties, or to moderate candidates, is basically gone (with the exception of Ben Horowitz). This fits with the broader story of polarization between the parties, but also of the style of donations. It’s not as common to give to both Democrats and Republicans as a way of staying in tight with both - people now choose their party and donate accordingly.
There was a shift towards Democrats in the 2010s and now some executives are reversing course. This could be traditional Republicans who shunned Donald Trump in 2016 and 2020 donating again (like Marc Andreessen), or converts (like Elon Musk).
But is this just tech?
However, Murdoch found that the tech story was not seen in the broader data. There, significant leftward drift among executives in all companies in the last twenty years was the story. This fits with the broader trend of educational polarization and the corporate class, which almost all have college or post-graduate degrees, following.
It also makes you wonder about tech: why would this sector go against the grain of wider business world?
I haven’t yet seen any in-depth research on this topic, but based on my own experience in participating in the startup world for the last few years while building Legislata, there are a few tendencies I’ve seen (below slide is from my talk).
In no particular order, some reasons might be:
Wealthy investors being wealthy
Those in higher income brackets are more likely to vote Republican. It shouldn’t be much of a surprise that tech executives, who are in this income bracket, may vote this way.
The tech sector is also dominated by extreme wealth, with successful founders becoming richer than their equivalents in nearly every other sector. Recently, the Biden Administration’s proposed taxing unrealized capital gains on households with more than $100 million in net assets. Tech investors acted like taxing the absolute pinnacle of wealth would be a campaign-killer (it’s also possible they didn’t know about the $100m threshold, see the section on blind spots below).
Opposition to the Biden regulatory agenda
The startup sector of the 2010 was shaped by two macro factors: ultra-low interest rates and a laissez-faire regulatory environment.
You can see this most dramatically in Uber.
It first turned an operating profit in 2023, after accumulating $31 billion in cumulative losses since 2014. This was only possible because investors and venture capitalists were willing to take losses in pursuit of market share - and that is only possible because they needed to park their money somewhere when bonds were giving low yields.
Meanwhile, Uber ignored local taxi regulations as it expanded, leading to a number of disputes in various jurisdictions. Yet that strategy (clearly) worked. Local politicians were reluctant to ban something that was popular with their constituents and offered gig economy work as the country was still emerging from the Great Recession and there was considerable slack in the labor force.
Under the Biden Administration, that began to change. Tech went from existing in its own bubble, often moving faster than regulators could catch up to it, and started to see government action.
Specifically:
the SEC started to treat cryptocurrency as a security and prosecuted some of the biggest players in the space;
FTC Chair Lina Khan pursued anti-trust action on some mergers and acquisition that were the typical exit strategy for startups;
the Biden Administration made an emphasis of pro-union policies, which is allegedly the reason why Musk first turned against him.
Here we see something that should not be that unexpected. A business sector opposes regulations supported by a party, and so many executives from that sector support the other party. In this story, the semi-shift rightward is politics 101.
Hubris and blind spots
The difficulty with analyzing those who work in the world of tech and startups is to first recognize that they are not a “typical” group of people.
More than 90% of startups fail, but those that succeed can make people richer than they’d ever imagine. They often are working on some of the hardest technical problems, creating genuine innovation that can change the world, surrounded by incredibly smart colleagues. It breeds its own mythology, media, and culture - for good and for ill.
This has also created, I’ve found, some serious blind spots.
Those who succeed often act like they’re masters of the universe, who got to their elevated status through sheer brilliance, and spend their days being pitched by founders who want their investment and aren’t afraid of a little flattery to get it.
They also have the natural human tendency of assuming the best in themselves and the worst in others, downplaying the negative consequences of their actions and playing up how great their products could be.
And there’s finally the cult of innovation that surrounds Silicon Valley, that equates new and disruptive with de facto good, and anything that stands in the way of that as a de facto bad.
It all combines for distorted thinking.
Regulation becomes not just a part of doing business to be debated for its pros and cons, but “strings that are holding Gulliver down and preventing us from making progress as a civilization,” as Elon Musk put it.
Investors think that just as they got rich by going against business conventional wisdom, political conventional wisdom can also be discarded. Here’s Calacanis not understanding that plurality voting is not a system you can simply disrupt through adding more candidates. (Note: I use Calacanis as an example because he’s so public in his musings, but I’ve heard similar from others in tech who are, like him, very skilled in their areas of expertise but less so when it comes to elections).
The risk-reward ratio is different between tech and policy. This conversation between Nate Silver and Ezra Klein gets to this point. If your industry is built around taking big swings because you only need one to connect, you can talk past people whose careers are sunk with one gaffe, or who are responsible for the well-being of a nation. Take Tesla’s self-driving cars, for example. Tesla wants to test it out on real roads to see if it’s safe; the National Transportation Safety Board doesn’t want it on real roads unless it’s safe.
This thinking makes understanding any shift difficult, because it may not be due to a widespread partisan movement, or even a connection to politics at all, but some idiosyncratic logic internal to the sector.
What does it mean for 2025 and beyond?
To me, this election cycle shows a deeper change in the relationship between startups and government than executives donating differently.
Rather, I see it as the reaction of an industry to its maturation.
During the 2010s, the tech sector got used to cheap money and few rules to follow. Facebook’s internal motto was “move fast and break things.” This wasn’t always a bad thing. Investment in tech has powered the American economy and fast-moving early-stage startups drive innovation by disrupting obsolete businesses.
But this is on the wane due to a variety of factors not related to any one administration.
After the 2016 election, abuse of social media platforms became a hot topic in Washington and people starting realizing their potential for misuse.
By 2019, the era of move fast and break things was over, according to this article in the Harvard Business Review as businesses considered other stakeholders to consider.
Ultra-low interest rates post-COVID gave momentum to meme stocks and NFTs, but inflation and higher interest rates in 2022 took the froth out of the market.
TikTok may be banned and its algorithmic For You style of feed may cause new regulations.
Social media for teenagers may become regulated.
Google could be broken up by the Department of Justice.
Regardless of who wins the election, I don’t think Silicon Valley is going back to the environment of the 2010s.
New innovation is unlikely to be hyped as breathlessly as the Apple conferences with Steve Jobs were. We’re more likely to see government and society take a skeptical look at what the tech does and more attention paid to its unintended consequences. We’re already seeing this with artificial intelligence, with safety being a topic of governmental conversation far sooner than it was for social media.
This doesn’t mean Silicon Valley has to stop innovating. But those who work in Silicon Valley do have to adjust to it. Whether they are Democratic or Republican, they need to take government seriously, understand how it works and what the motivations for regulations are, and plan to address it.
Perhaps most of all, they need to recognize that the skills that helped them get to the top of the Valley doesn’t always translate to navigating the Beltway.