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In today’s edition:

1. What happened at Trump’s rally yesterday + election context

2. The implications of a Trump presidency on the startup landscape

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AT THE RALLY

Half an Inch from Civil War

Yesterday, at a routine campaign rally in Pennsylvania, former president Donald Trump was shot in the ear, placing him maybe half an inch from death.

Chaos ensued. Quickly, secret service agents neutralized the shooter and swarmed the President.

Amid the panic and disorder, something incredible happened: 20 seconds after the shots, Trump rose from the ground, pumped his fist in the air, chanted “USA”, and brought the entire crowd to their feet in unified, standing vociferation.

The crowd found themselves on their feet, arms in the air, not 30 seconds after an active shooter’s bullets pierced the air.

And, producing possibly the hardest image in modern American politics.

It’s still unclear how the shooter was able to post-up on the closest rooftop to the podium with a rifle. To his credit, President Biden announced a review into the events, and democrats all over wished Trump a speedy recovery and denounced political violence of any kind.

Still, the election remains unclear. At the moment, it’s well-understood that Biden is struggling in polls, particularly after his performance in the national debate last month. Many prominent super-donors and party power brokers have called for Biden to relinquish his campaign efforts.

Biden, however, has said he’s “not going anywhere.”

Interestingly, according to the Federal Election Commission, fundraising cannot be transferred between campaigns, meaning Kamala Harris would be the only alternate nominee eligible to receive the hundreds of millions of dollars raised by her running mate.

Unfortunately, Kamala polls lower than both Joe Biden and any other vice president since Al Gore.

The current odds according to prediction markets:

This election cycle is dramatically complicated.

Trump, positioned as the underdog fighting intense lawfare, was restricted to campaigning only one day a week. Since then, the heavily-conservative Supreme Court has ruled that January 6th allegations are unprosecutable, and that he must be allowed to campaign in 2024.

Opinions aside, his support has grown tremendously in the last year, with Bill Ackman, Elon Musk, and other prominent individuals (many of whom are notable traditional liberals) formally endorsing him.

Thus, it’s not difficult to imagine how our country would’ve responded if the bullet struck merely half an inch to the right.

POLICY

Immigration

Back to research, let’s focus on Trump’s policies; particularly, their effects on startups. Starting with immigration.

Put simply:

• Rate cuts are expected going into the next few years, especially given recent inflation data

• Trump is ardently in support of controlling the southern border and throttling immigration of unskilled laborers

• Last month, Trump promised to provide instant green cards to skilled workers graduating from a multi-year U.S. university

Given this setup, we’ll likely see a higher cost of physical labor (bolstered by wage inflation), but, a lower cost of knowledge work. This is positive news for startups recruiting skilled talent (engineers, management, etc.) but negative news for startups reliant on boots-on-the-ground labor (construction, etc.).

POLICY

Taxes

In 2017, President Trump introduced the Tax Cuts and Jobs Act (TCJA).

Put simply:

• TCJA reduced the corporate tax rate by 40% (35% to 21%)

• It also introduced a 20% deduction for qualified business income from pass-through entities like S corporations, partnerships, and sole proprietorships

  • This does not apply to traditional C corp startups

• It allowed businesses to immediately expense 100% of the cost of qualified property, such as machinery and equipment

  • This would include hundreds of billions of dollars spent on GPUs, though there are limits (huge, bulk purchases by Meta etc. wouldn’t apply)

• Net Operating Losses (NOL) were limited to 80% of taxable income, but, allowed to carry forward indefinitely

  • This means startups could use an indefinite amount of net operating losses to offset taxes on profits

• An R&D tax credit allowed startups to improve their effective tax rate by investing in (as the name implies) R&D

• TCJA imposed a limitation on interest expenses (30% of adjusted taxable income) for (small-ish) startups with $25 million or less in receipts

  • Great news for mid-sized, debt-financed startups. Though, debt-financing is quite unfavorable in the current interest rate environment

Startups rely on deductions, NOLs, and tax credits to minimize their annual bill to the government. Retaining profit is near-impossible as it is. For many companies, the amount they pay in taxes can be the difference between failure and survival.

POLICY

Deregulation

The topic of the hour in VC is undoubtedly the hundreds of billions of dollars spent on compute infrastructure—chiefly, Nvidia GPUs.

David Cahn of Sequoia released a follow up to a September 2023 opinion piece called AI's $600B Question.

The $600 billion question:

In the latest edition of Clouded Judgement (highly recommended publication), Jamin Ball likens the GPU spending phenomenon to the Red Queen effect.

Put simply:

• Many of the largest GPU purchases have been partly debt-financed, including a16z’s latest 20,000 GPU push to incentivize startups

  • Rate cuts and Trumpian tax cuts/debt credits/CapEx deductions would (mildly) alleviate startups burdened by hype-driven hardware spend

  • The fundamental issues remain, though, as taxes were never the root cause of the hardware problem

• GPU shortages are less common than they were last year, with distributed stockpiles increasing

  • Disappointing revenue from app-layer companies doesn’t justify the enormous, trend-induced hardware arms race

  • Huge hardware-in-the-cloud players like Lambda Labs are re-upping, seeking $800 million

Overall

• The velocity of hardware purchases is not only critical to justify startup behavior, but, to justify Nvidia’s valuation (a topic we discussed last week). Trump’s policies will not solve that problem in the slightest. Nor will Biden’s.

• Trump has made an effort to support crypto in his rhetoric; though, he’s shown no evidence or affiliation and has likely been posturing to the Silicon Valley crowd on that particular topic.

• The rest of his policies appear to be strong propellants for startups and businesses at large.

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Last week, we dove into Nvidia’s staying power.

As you know, we’re hell-bent on uncovering future unicorns cruising under the radar. Preeminent companies are lean, quiet, and driven before reaching their watershed moments. By the time people start talking about them, it’s too late.

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