The Political Economy of Why Silicon Valley Turned MAGA

One sure sign that Silicon Valley has lost its way is its fervent support of President Trump’s re-election bid. Of course, Silicon Valley has always had a libertarian streak that separated it from deeply liberal San Francisco. However, the recent shift from reliable Obamanauts to MAGA-pilled mavericks among top venture capitalists has more to do with the political economy of venture investing today than traditional partisan issues (save for Ben Horowitz’s flip flop from Trump to Kamala Harris in the last few months, that’s his own personal problem).

The economic winds have shifted post-COVID, exposing Silicon Valley’s lies.  

Following the Great Recession in 2008, the Federal Reserve reduced interest rates to zero (the “zero-interest rate policy,” or ZIRP) in a desperate bid to increase economic investment. Flooded with no-interest loans, money this easy made investors more willing to swallow risk on the chance that they might invest in the next Facebook. After a decade of ZIRP, wasteful, speculative investing paired with the hypergrowth mindset of the digital economy led investors to act more like gamblers, placing huge bets on speculative assets like cryptocurrencies, SPACs and NFTs. VCs paid little attention to profitability or sustainable business plans, instead selecting for potential end market size. The dramatic rise in interest rates beginning in 2022 burned investors who expected we’d continue to live in a zero-interest rate world in perpetuity.

Silicon Valley has nurtured an entire generation of unsustainable businesses primed to struggle with the public. Take the spectacular rise and fall of WeWork, an emblem of this era that once promised to disrupt the multi-trillion retail real estate market. Once valued at $47 billion, WeWork went public at just $9 billion and went bankrupt just two years after that in 2023 due to swollen and swelling costs patched over by debt for years. Many other ZIRP-era companies similarly struggled once they went public.

2024 has tracked 2023’s meager pace of initial public offerings, when it hit the second-lowest number since the Great Recession. One of the two primary ways VCs make money is practically shut off because their unprofitable business models struggle once they meet the public markets. With interest rates burning a hole in their pockets and diminishing the value of their future cash flows, VCs face a long-term risk of paying interest on unprofitable startups they can’t offload onto the public markets. 

Fed chair Jerome Powell said earlier this year that the era of ZIRP is “probably” over. Would a Trump-friendly Fed be more willing to play ball? In 2019, Trump said the Fed “boneheads” should cut interest rates to “zero or less,” and has supported a return to lower interest rate policy as a candidate this year (just not when Joe Biden is president).

If public offerings are choked off as an exit option, VCs look for startups to be acquired, preferably by a Big Tech company with deep pockets, as another exit strategy. Many VCs prefer this route because private valuations can be easier to sustain without pesky investment analysts poking around deep in the company’s books asking things like, “Cool app, but how will this company make any money?” 

However, acquisitions have slowed, too, as an aggressive Federal Trade Commission is reviving trustbusting for the digital era. The agency scored a recent victory against Google, winning the chance to break its digital ad business up, and has Nvidia, Meta, and Microsoft either in court or in its sights. So, acquisitions have slowed, as companies know each deal with tech’s largest players will be more scrutinized. With public offerings already at all-time lows, a chill in the acquisition market adds further drag to a VC’s portfolio. 

On antitrust, Trump has a more complicated, personalized relationship when choosing which companies to sue. Still, he could be persuaded to relax the merger guidelines currently chilling the acquisition markets and it’s a certainty that he would not make Lina Khan his FTC Chair. Strike two against the Biden-Harris administration. 

As if the Biden administration blocking the exit rows wasn’t bad enough, his SEC wants to protect consumers from scams and fraud in the cryptocurrency industry, which is, unfortunately, most of it. Crypto is the ultimate symbol of the bloated, lazy investing of a Silicon Valley that has lost its way. More than a decade after Bitcoin was first released, crypto remains, at best, a speculative, if environmentally damaging, digital version of gold and, at worst, a shadow form of money fit for black markets and riven with scams, fraud, and crime.

Andreessen Horowitz, a leading VC firm, faces $9 billion in stranded assets should the crypto industry fail. Sequoia Capital, another legendary VC fund, had to write down its $210 million investment in FTX to zero when the $28 billion exchange collapsed due to fraud in 2022. In 2021 and 2022, VCs poured $60 billion into crypto and blockchain startups at the height of the COVID-19 investing spike. The crypto industry views the government’s legal challenges as existential and has poured $119 million into federal elections this cycle to fight back, largely backing Trump.

Silicon Valley argues that crypto is more than mere money but less than a traditional financial instrument like stock or bond, using foggy language about disruption and technology to obscure crypto’s true nature while promising riches for anyone who joins their rocketship to the moon. It wants it to be regulated as if it were just money, but, as the Securities and Exchange Commission (SEC) points out, you can’t have it both ways—crypto can’t be both the money and the investment.

Recent victories by the SEC against the crypto industry show that courts and the law largely agree. 

On top of convicting two more top exchange owners, Changpang Zhao of Binance and Do Kwon of Terraform, with fraud, the SEC has also won several court cases affirming the agency’s jurisdiction over crypto. The government wants to find out how much of the crypto industry is fraudulent, as much of it has proven to be a shell game of fake digital coins that, like FTX, could collapse at the slightest stress testing. VCs don’t want to know the answer to that question, fearing billion-dollar write-downs in the future if crypto is mostly a scam. So, they’ve thrown their support behind Trump, who recently endorsed the importance of Bitcoin, signaling he opposes the SEC’s current tack, while, never one to miss a scam, later launched his own Trump shitcoin. 

This isn’t the Silicon Valley of lore. No longer do earnest weirdos and dropouts start a company in their garage with money cobbled together from friends, family, and maybe one rich guy in Palo Alto. In the last two decades, Silicon Valley’s innovation ecosystem has transformed into one rife with monopolies, wasteful spending, and ecologically harmful and legally questionable products. Chasing easy money and gilded mirages, VCs turned the place where the future used to be born into a casino. No wonder they’ve gravitated to former President Trump.