Based on President-elect Donald Trump’s campaign promises, his new administration’s policies and programs potentially could upend the status quo and usher in changes that impact the private equity and venture capital industry, as well as the entrepreneurial community ─ but in different ways. These anticipated headwinds and tailwinds may open up lucrative opportunities for some market players, but at the same time close off vital avenues for others, predicts David Brophy, professor of finance and director of the University of Michigan Center for Venture Capital and Private Equity Finance, or CVP.
“In the immediate future, I don’t see a gigantic challenge to the activities or market strength of venture capital and private equity,” Brophy observes. “Everyone is kind of nervous, which is understandable.” However, the far-reaching and complex nature of many of the Trump administration’s stances has stirred uncertainty among investors and start-up founders alike. “It’s not as simple as asking whether you should start a business or make an investment in a company,” he adds. “Now there are tons of additional considerations.”
While it’s still too early in the game to make accurate scoreboard predictions, Brophy foresees ways in which the Trump administration’s potential policies could either aid or impede venture investors and entrepreneurs.
Private Equity ─ “The private equity industry thrives on chaos, uncertainty and the shaking up of the system, so changes under the new administration may benefit PE funds focused on buyouts and growth equity investments,” Brophy says. “As certain industries fall in or out of favor, there will be opportunities for people who want to expand their businesses through acquisition as well as for people who want to divest by selling off companies, divisions or product lines.” He notes that private equity plays a vital role by becoming the temporary owner of underperforming companies and moving them up to the position of “prime-time players” that can be purchased by strategic buyers. One caveat: Fund founders looking to raise money from limited partners for “spinoff funds” that pursue new departures in technology may face challenges if government support for research and innovation is curtailed by the Trump administration.
Venture Capital ─ “The venture capital industry is a little different from private equity because it relies heavily on federal and state government programs, such as the National Science Foundation, the National Institutes of Health and the Michigan Economic Development Corporation, for its funding for innovation,” Brophy says. “Those institutions may come under pressure from the new administration. This would make it more difficult to fund the commercialization of pure research and move it through the pipeline from the lab to a company where it is ready for venture funding.”
Entrepreneurs ─ “A shakeup in the administration can create new opportunities for entrepreneurs, but also generate uncertainty that impedes entrepreneurial progress,” Brophy explains. “Under the new Trump regime, government support for entrepreneurial initiatives may not fit into the administration’s plans, leading to the cancellation of programs and the closing of avenues essential for fostering innovation. In addition, uncertainty may prompt people who have been thinking about launching a company to stay in their current jobs and postpone their entrepreneurial ventures, thereby missing the window of opportunity.”
Other issues raised by the advent of the Trump administration remain murky and a bit perplexing, according to Brophy. These include cross-border merger and acquisition deals, which already have become more complicated by Britain’s exit from the European Union and other protectionist moves around the globe. For American business, the nationalistic fervor now taking root in Washington raises many questions. “Who will we be encouraged or discouraged to do deals with?” Brophy asks. “What is going to happen to any in-bound deals when other countries step up to buy one of our companies? Are they going to be allowed to do so?”
Trump’s concern about the impacts of globalization and the expansion of immigration on the U.S. jobs also clouds the future of cross-border innovation and collaboration among scientists, engineers, technologists and other knowledge-economy experts. “What we should be looking for instead are opportunities to retrain American workers whose jobs disappeared or were replaced by technology,” Brophy insists. “In Michigan, for example, the knowledge developed by auto workers, particularly practical engineers, over the years is incredibly valuable and vital to commercialization and advanced manufacturing of tech-based products.”
In the final analysis, the winds of change blowing through the nation’s capital are not that different from any other aspect of the evolving business landscape, according to Brophy. “Business is still a mixed bag,” he says. “Some people will leap and land on a lily pad while others will fall into the water.”