A VC’s Take: As Capital Abounds, Global Volatility Hurts U.S. Venture Ecosystem

As Xconomy’s editors looked back at the year just passed, we asked technology leaders to comment on the trends they’d observed in 2018, and the developments they expected in 2019. Some leaders responded with their views on the business impact of the Trump era, pointing to specific policy positions such as tax code revisions, curbs on immigration, and the decision by federal regulators to roll back net neutrality requirements on telecom carriers.

Alex Niehenke, a partner at Foster City, CA-based Scale Venture Partners, weighed in on the same issue after the start of the new year, and when the partial shutdown of the U.S. government had surpassed two weeks. Taking a helicopter view of the whole geopolitical landscape, including the U.S., Niehenke (pictured above) sees uncertainty and instability as overarching conditions affecting venture capitalists and innovative companies.

Here are his insights, shared with Xconomy via e-mail:

Xconomy: Has the Trump era been good or bad for your company, or companies in general?

Alex Niehenke: We are in the longest bull market in history. Startups and the broader venture ecosystem are huge beneficiaries of that.

Large volumes of capital have been pumped into the global systems over the past decade, some of this eventually being invested into startups, a lot of it influencing buyers of startup products to buy more.

However, a concerning trend is the increased global volatility over the past eighteen months. It’s not just a U.S. phenomenon—you’ve seen (the United Kingdom) look to exit the E.U., Russia getting more aggressive, and China continuing its path of nonconformity.

Volatility is bad for all businesses; it makes projecting future outcomes hard, and therefore slows investments. Startups are no different—if anything, they are less resourced and therefore less equipped to navigate such complex issues.

In the venture ecosystem, we’ve increasingly seen companies navigate increased costs in their production due to Chinese tariffs; companies re-evaluate European expansion plans due to Brexit; the Middle East become a complexity as a source of capital; work visas for skilled labor become increasingly impossible; and low-cost engineering alternatives such as Russia become scrutinized.

I have no doubt that this is to the detriment of the U.S. venture ecosystem, and that our best opportunity going forward is stability and consistency in geopolitical policy.

[Editor’s note: This is part of a series of posts sharing thoughts from technology leaders about 2018 trends and 2019 forecasts.]

Photo courtesy of Scale Venture Partners

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