Excelestar Ventures helps portfolio companies produce growth and sustainable profits with a long-term perspective. Pulse 2.0 interviewed Excelestar Ventures Founding Partner Tasneem Dohadwala to learn her thoughts on the future of VC investments.
Amit (Pulse 2.0): How do you believe that the economic/regulatory policies could shape the VC and startup environment?
Tasneem (Excelestar Ventures): When we see the VC market tightening, and cash being constrained, we have that conversation with our startups. We explain they need to have a sufficient runway and need to consider other creative funding vehicles like cheap working capital lines. We think about how much money we have put in reserve for pro ratas and whether we should consider increasing that. We also make sure companies start fundraising much earlier, before rather than during a Bull market so they do not run out of resources, or what we call the “drywall date.” get close to the drywall date.
Supply chain fluctuations can impact manufacturing timelines regardless of how well-managed operations are. Smart companies must remain aware and prepare for longer timelines… which means more money.
Economic and regulatory policies significantly influence the venture capital (VC) and startup environment in several ways:
- Changes in corporate tax rates can affect larger acquiring companies, potentially leading to fewer mergers and acquisitions (M&A) and limited exit opportunities for startups, which in turn can tighten the VC market.
- Lower interest rates can also enhance liquidity, making capital more accessible for startups. The health of the IPO market is crucial, as a stable market can encourage new investments and bolster investor confidence.
Regulatory changes can either facilitate or hinder innovation, necessitating a balanced approach to support growth while ensuring public safety. For example, the availability of skilled labor through H-1B visas is vital; policies that ease access to talent can enhance a startup’s competitiveness, but restrictive measures may exacerbate labor shortages.
Overall, the interplay of these factors creates a complex landscape; of course, economic stability always fosters confidence and investment in the VC ecosystem.
Amit (Pulse 2.0): What sectors do you believe would face challenges for each of the (potential) administrations?
Tasneem (Excelestar Ventures): The sectors that may face challenges under different administrations revolve around economic and regulatory policies, particularly concerning corporate taxes, labor, and innovation. If we were under a Harris administration, an increase in corporate tax rates could have impacted those larger businesses looking to acquire, potentially leading to a downturn in M&A activity. This would then limit exit opportunities for startups and tighten the venture capital market. The Trump administration could exacerbate economic instability, particularly with a divided Congress, which might hinder effective policy implementation.
Labor shortages, especially in tech and healthcare, could also become more pronounced if H-1B visa policies remain restrictive. The ongoing IPO market challenges may persist under both administrations, although a stable economic climate post-election could open opportunities for exits in 2025.
Lastly, any proposed increases in capital gains taxes could deter investment in startups, impacting the overall health of the venture capital ecosystem. The fact is, that both administrations could present distinct challenges across various sectors, especially in healthcare, technology, and emerging industries.
Amit (Pulse 2.0): How can startup founders prepare for changes in the VC landscape based on each administration?
Tasneem (Excelestar Ventures): Startup founders can prepare for changes in the VC landscape by focusing on several key areas. First, they should stay informed about potential changes to corporate tax and capital gains tax policies, as increased corporate taxes might lead acquirers to reconsider expansion plans, impacting M&A and exit opportunities.
Monitoring interest rates is also crucial, as lower rates generally stimulate investment activity. Additionally, understanding the political dynamics between the executive branch and Congress can help assess the likelihood of cohesive policy action versus gridlock, which affects business operations and investor confidence. Founders should evaluate the potential for an open IPO market post-election, as economic stability could provide new exit avenues in the coming years. Finally, maintaining a flexible business strategy enables startups to adapt quickly to policy changes or shifts in investor sentiment, ensuring they remain agile in a fluctuating landscape.
Amit (Pulse 2.0): From your point of view, do you believe that companies will have a harder time raising funding due to higher standards of reserve funds?
Tasneem (Excelestar Ventures): The current macroeconomic climate is tumultuous at best. We will be actively looking at the runway of each of our companies and advising them to maintain several layers of plans to ensure financial viability. We assess a variety of levers to consider, helping them plan for the worst. We want them to be over-prepared.
Yes, companies may face challenges in raising funds due to higher standards for reserves. Increased corporate taxes could lead acquirers to tighten budgets, potentially reducing both M&A and exit opportunities. A lack of exits may force startups to survive longer without new funding rounds, which can constrain the available capital for investors to deploy in new ventures.
While a lower interest rate environment could stimulate investment, uncertainty around economic policies may dampen investor confidence. Together, these factors suggest that companies might struggle to secure funding if they are required to reserve more capital, particularly in a climate marked by rising corporate taxes and limited exit options.
