Things I Think I Think - Q4 2024
Out with the old, in with the new. That goes for the year, the administration and whatever it is I’ll be working on next 👀.
Let’s ring in 2025 with another homage to legendary sports columnist Peter King. Here are 5 Things I Think I Think - Q4 2024 Edition:
1. The Return of Trump
I’ll start with the biggest news of Q4 2024: the return of Donald J. Trump to the Oval Office.
From a strictly business standpoint, this is shaping up to be a very different administration than the first Trump presidency. In particular, all signs suggest that it will be particularly favorable towards the tech industry. This is due in no small part to the degree to which VCs have embraced (and been embraced by) the incoming president.
I’m not sure that folks outside of Silicon Valley truly understand the degree to which VCs and former VCs are slotting into roles within the new administration. Here are some of the official positions that are set to be filled by venture capitalists:
JD Vance, Mithril Capital - Vice-President Elect
David Sacks, Craft Ventures - AI and Cryptocurrency “Czar”, Chair of Presidential Council of Advisors on Science and Technology (PCAST)
Jim O’Neil, Mithril Capital and Clarium Capital - Deputy Secretary of the Department of Health and Human Services
Michael Kratsios, Clarium Capital - Director of the White House Office of Science and Technology Policy (OSTP)
Scott Kupor, a16z - Director of the Office of Personnel Management
Sriram Krishnan, a16z - Senior Policy Advisor for Artificial Intelligence
Ken Howery, Founders Fund - U.S. Ambassador to the Kingdom of Denmark
That’s in addition to the numerous VCs who are unofficially connected with the administration and/or in remain in consideration for roles (a list that includes Marc Andreesen, Peter Thiel, Joe Lonsdale, Keith Rabois and Trae Stephens). This is an astonishing degree of representation for what is objectively a cottage industry. Fred Wilson shared his thoughts on how this came about a few days ago.
I won’t pretend to have any background whatsoever in government or public policy, but I do know a lot about tech and venture capital. Here are a few things I think:
This has the potential to be the most technologically competent administration in history — both from a technical standpoint and a “business of technology” perspective. Virtually all of the VC appointees are widely respected and many of their appointments were praised by tech leaders across the political spectrum (despite the fact that some of them hold polarizing political beliefs). The incoming administration has also tapped a number of experienced tech executives with ties to Silicon Valley.
Many of the VCs working with the new administration hold a political viewpoint referred to as techno-libertarianism. That perspective directly conflicts with a number of core beliefs held by traditional MAGA adherents, notably on immigration, education and a tolerance of diverse lifestyles. I expect that we will likely see one or more of these conflicts arise in the first half of 2025. The new administration hasn’t even been sworn in and we’re already seeing these come into conflict. This past weekend, clashes over support for H1-B visas (the type of visa that I personally worked under for nearly 6 years) came front-and-center following the appointment of Sriram Krishnan as Trump’s Senior Policy Advisor for AI. In the past few days, Trump has signaled his support for H1-Bs, suggesting that the VC wing within the incoming administration will hold considerable sway on policy. I expect that we will see more of these conflicts come to the forefront as the policy differences between Trump 2.0 and 1.0 come into view — which could ultimately lead to backlash directed towards both VCs and the broader tech industry from the MAGA wing of the Republican party.
Speaking of backlash, I expect that we will see a meaningful amount of vitriol directed at VCs in the U.S. from across the political spectrum as the incoming administration makes moves that are seen to have been influenced by the newly-powerful “VC arm” of the Republican party. “Venture capitalists” are an easy punching bag for both left- and right-wing media looking for inflammatory, clickbait headlines and I’m sure they’ll take full advantage of that. Case in point: David Ingram of NBC’s recent post that referred to VCs working with the administration as “right-wing tech barons”.
It will be fascinating to see whether or not startup-style “efficiency improvements” can actually be enacted within government. An impressive number of experienced people from Silicon Valley are signing up for 6-month tours of duty within Elon Musk’s “Department of Government Efficiency” (which doesn’t require the same level of divestiture as the formal positions some VCs have accepted within the administration). But that experience comes almost entirely from operating private businesses. What happens when these enthusiastic change agents come head-to-head with decades of policies and procedures, entrenched career bureaucrats and the very-different ways in which government operates? Few people would argue that there aren’t gains to be had from cutting red tape and improving government efficiency, but it’s never that easy. Will eager VCs and tech leaders succeed in enacting meaningful change within the notoriously bureaucratic U.S. government, or will they give up and return to the comforts of Silicon Valley when the going gets tough?
2. The First Half of 2025 is Going to be 🔥
Startup fundraising activity increased rapidly during the back half of 2024. Q3 was the busiest quarter at Panache Ventures in 3 years while Q4 saw a frenetic pace of deals long after U.S. Thanksgiving, which is historically the unofficial end of the fundraising season.
Combining the economic optimism surrounding the new administration with an already-strong resurgence in Startupland™ and a reopening of the IPO window, and Q1 2025 is lining up to be the hottest quarter in years. Expect to see a massive increase in the number and size of deals, with funds that have been sitting on dry powder returning to market in a serious way. I suspect that we’ll also see a sharp increase in LP activity, particularly in support of new funds led by experienced GPs who are venturing out as part of venture capital’s changing of the guard (see this recent Bloomberg article for more on that).
With a doubt, H1 2025 will be “risk on” in the investing world.
So why am I only predicting a strong first half of 2025? Because there are still so many unknowns about the incoming U.S. administration.
President Trump’s first term was mired in unpredictability and conflict — so it’s reasonable to expect that Trump 2.0 will have it’s fair share of drama. Will the incoming administration’s alliance with Silicon Valley remain strong or will the President sour on some of his advisors and allies as was the case in his previous term? What impact will conflicts between the pro-business / libertarian arm of the Republican party and the hard right / MAGA arm have? And I haven’t even touched on geopolitics, tariffs, inflation or social issues.
By the summer, we should have a sense of what this administration is going to look like over the longer term and we’ll be better poised to predict how long this tech “bull run” will last.
3. The Rest of the G7 is Stuck in the Past
Canada has become something of an international punching bag as of late, with its productivity plummeting relative to its southern neighbor and its government on the brink of collapse, but the reality is that the entire G7 is economically stuck in the past. And with the world’s leading economy and tech sector set to go into overdrive, absent significant policy changes the gap is only going to widen.
Fun fact: one G7 country still requires that incorporation documents be read out loud and in person by a notary… 🤦♂️
It isn’t so much that the U.S. is playing chess to other countries’ checkers. It’s that the rest of these countries continue to be led by politicians with little-to-no real-world experience and limited understanding of the disruptive and distributed nature of tech. From Canada’s stuck-in-the-nineties obsession with IP and domestic ownership of startups to Germany’s obstinate stance on nuclear energy, I could easily fill several blog posts with examples of archaic (but often domestically popular) policies that hold these nations back. But could that change?
With Canada, the UK, Germany and Japan all headed towards 2025 elections, it will be interesting to see if the tech communities in any of these countries become as involved and influential in their elections as was the case in the U.S. There are plenty of calls for other countries to implement DOGE-style efforts and for experienced tech leaders to get more involved in government, but will anything manifest?
In the meantime, I expect that we will continue to see a significant increase in the flow of ambitious founders and tech workers from the rest of the world to the U.S. as they look to capitalize on the resurgent U.S. economy.
4. San Francisco’s “Maker Faire” Phase is Over
Back in 2006, a small gathering called “Maker Faire” was hosted in San Mateo. It was the first of many events inspired by Make: Magazine, a publication dedicated to do-it-yourself projects (mostly involving robotics and simple electronics). The fledging event attracted all manner of engineers, tinkerers and builders — and was a ton of fun (I’m pretty sure it was the first time I saw battling robots in person). Each year, Maker Faire attracted groups of people who wanted to build stuff, learn about building stuff or simply meet other people who liked to build stuff.
That’s what San Francisco has been like for the past 18 months.
With the rise of AI and the resurgence of the City by the Bay, “builders” from around the world have been flocking to San Francisco — and the Bay Area more broadly — to be a part of it. I first wrote about this phenomenon a year ago, noting that,
“…what’s happening in the Bay Area right now is different. It’s special.
What’s happening right now represents a convergence of excitement and creativity around a new technological wave (AI) and a long-awaited resurgence of a struggling yet world-leading city. I’ve been to SF four times in the past two months and the momentum is vicerally building week-over-week.
I believe that this is a unique moment in time for both San Francisco and tech in general. And it’s one that likely won’t last long.”
A few weeks ago, I traveled to San Francisco for YC Demo Day (my 9th visit of the year) and it was clear that the energy had shifted.
Gone was the collective enthusiasm of new builders all trying to figure out AI and startups and the Bay Area at the same time. There were still plenty of meetups and hackathons taking place, but it was no longer the best-and-brightest attending them (those folks are all now heads down building the companies that they ultimately founded). And while there are still waves of new arrivals coming, not all of them are builders.
It’s clear that we’ve moved from the “innovators” phase of this edition of the San Francisco technology lifecycle to the “early adopters” phase. And that’s a good thing.
This isn’t to say that you shouldn’t go to San Francisco in 2025 if you’re a builder — you absolutely should — just don’t expect it to have the same level of serendipity as last year. On the other hand, if you’re a founder a bit further along on your journey who’s looking to meet other high-quality founders focused on building their companies, there’s no better time to come. Just know that you need to be more intentional about your visit and manufacture the outcomes you want.
The “Maker Faire” phase of this startup cycle is now over. And if history’s any indication, it will be another 20 years before it’s back.
5. A New Type of Zombie Company
The term “zombie company” typically refers to a company that earns just enough money to stay alive. Most zombie tech startups failed to achieve product-market fit yet are able to make ends meet with a skeleton crew, minimal revenue and, in certain countries, well-meaning but woefully misallocated government subsidies (cough cough SR&ED). In late-2024, we saw the emergence of a new type of zombie company that arose from the ashes of the ZIRP bubble.
These startups raised over-inflated Pre-Seed rounds — typically $3 - 5M or more — in buzzy areas that are now out-of-vogue. To the founders’ credit, many of them drastically cut burn when interest rates shifted, allowing them to ensure 36 months of runway or more. Sounds ideal, right? But what we’re seeing with many of these companies is something quite different.
As time passed, the early enthusiasm of many of these companies was replaced with listlessness. Their early employees moved on, their investors disengaged and, without any pressing existential threat, motivation or external oversight, they simply continue to exist (many with effectively infinite runway). Almost every VC that was active in 2021-22 has multiple such companies in their portfolio.
The outliers will continue to make progress and a few may ultimately see success. Some of the founders will eventually decide to shutter their company and potentially return some amount of capital to investors in order to move on. But the rest of these companies — with no real product, limited forward progress and no staff to be “aqui-hired” — will be a new species of startup walking dead.