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  • What the midterm madness means for startups • australiabusinessblog.com

What the midterm madness means for startups • australiabusinessblog.com

Welcome to Startups Weekly, a nuanced look at this week’s startup news and trends. To get this in your inbox, subscribe here.

Hey people. To be Kylea, to fill in this number for Natasha, who is taking a much-needed break from the news cycle (and the spectacle that Twitter has become). Although it’s my first Startups Weekly column, you’ve probably seen me on TC here and there, featuring mostly venture, AI, and enterprise-related items. It’s a real pleasure to wrap up this week’s startup news — in part because it’s not about Musk shenanigans.

But before we collectively wrap up for the weekend, let’s recap the week marked by the US midterm elections.

As disgusting and disturbing as the US election cycle has become, the outcome always has major implications for the tech industry. US-based chip makers are keep hope for relief now that the US is increasingly disconnecting from China. Crypto companies are awaiting regulations to set up guardrails for so-called stablecoins and to resolve jurisdictional issues. And the biggest tech giants are bracing for a possible final attempt by the White House to pass antitrust legislation — pending the medium-term political climate, of course.

It goes without saying that the stakes are high. Sanctions, in addition to supply chain restrictions and inflation, threaten to put pressure on the chip manufacturing industry in the United States — a chip machine company, Lam Research, has already predicted losses up to $2.5 billion in revenue next year due to newly imposed trade regulations. If the antitrust laws are passed, they could… significantly limit the ability of Amazon, Meta, Microsoft and other established tech companies to acquire and punish rivals to boost their own products and services.

Unsurprisingly, the industry was in effect for the 2022 midterms, judging by the top donors. Google, Amazon, Meta and their trading groups cast nearly $100 million in lobbying as they tried to derail the antitrust law — and its supporters. Meanwhile, according to a analysis by the Washington Post, FTX CEO Sam Bankman-Fried, Larry Ellison and Peter Thiel donated tens of millions of dollars to their favorite campaigns, exerting a strong technological influence on the acerbic field.

Whether the industry has managed to secure a bright two-year future for itself is up for debate.

With the exception of those in bipartisan-backed sectors such as defense, startups could be the ones to suffer the most in this politically divided trajectory – especially those in the chipmaking, green and crypto businesses. At least one study finds that a congressional stalemate contributes to income inequality, while another implies that political deadlocks have a greater negative impact than even hostile government policies on a company’s ability to innovate.

Think about how a recession could turn out. Assuming Congress is slow to act (as is often divided divisions), there could be less federal government spending on social safety net programs, leading to a prolonged recovery. There is also the prospect of debt ceiling battles, which can be damaging in another respect. Recall that as a result of the debt ceiling bickering during President Barack Obama’s first term, the US lost its perfect AAA rating from Standard & Poor in August 2011, causing the stock market to plummet by more than 5%.

In a note to investors, Morgan Stanley predicts that the current rift in Congress means fiscal expansion over the next two years will be reactive rather than proactive, only as “a response to deteriorating economic conditions or an external shock to the economy.”

Of course, a partisan stalemate doesn’t have to be all bad when it comes to the economy — or startups. According to data from Edelman Financial Engines, quoted in a CNN Business piece, the S&P 500 had an annual return of 16.9% since 1948 during the nine years that a Democrat was in the White House and Republicans had a majority in both chambers. of Congress. That is 15.1% in periods of full democratic control and 15.9% in years when there was a unified GOP government.

A silver lining, but a relatively weak one.

In the rest of this newsletter – which is less of a downer, I promise! — we’ll talk about Twitter’s fleeing user base, the rise of generative AI, and e-commerce’s enduring VC appeal. For more content along those lines give me a follow – I’m up @Kyle_L_Wiggers on Twitter (Mastodont migration pending).

Twitter’s losses are rivals’ gains

Not an hour goes by without news of Twitter’s difficult transition under new management. Last weekend, the network began banning certain parody accounts after a Musk-led rule change, including the accounts of high-profile comedians. Then on Tuesday came a report from Platformer’s Casey Newton that Musk is considering putting all of Twitter behind a paywall. Yaks.

The unpredictable policy making is beginning to deter users, some of whom are moving to what they see as greener pastures. That’s to the advantage of startups like Mastodon, a Germany-based platform that offers an experience similar in many ways to that of Twitter. (For an introduction to Mastodon’s history, how it works, and how to get involved, read my colleague Amanda Siberling’s piece, which explains it all in depth.)

Here’s why it’s important: Mastodon has experienced rapid growth since Elon Musk’s acquisition of Twitter, with nearly half a million users joining the network since October 27. While the company is nonprofit, its expansion could fuel the rise of Twitter rivals from the ashes — and VC backing from those rivals. Former Google Area 120 director Gabor Cselle is among the opportunists, to announce on Monday that he received interest (and promises of capital) from investors and an ex-Twitter exec to build a Twitter alternative.

twitter bird with mask, background of verified check marks

Image Credits: Bryce Durbin / australiabusinessblog.com

Let AI generate it

Generative AI is the latest in technology. Well, maybe not new, but it’s recently entered the VC lexicon thanks to high-profile text-to-image AI systems like OpenAI’s DALL-E 2 and Stability AI’s Stable Diffusion. Stability AI recently raised $101 million at a reported valuation of more than $1 billion, and OpenAI is said to be in talks for capital from Microsoft and other lenders at a valuation of nearly $20 billion.

Deepfaked porn and generated by AI art contest entries could dominate the headlines. But investors see huge potential in generative AI built for the enterprise. Rita Liao of australiabusinessblog.com this week covered Movio, a two-year-old startup that uses generative AI along with other AI frameworks to create videos featuring talking human avatars. A little earlier in the fall, I wrote about Jasper, an AI marketing content platform that grossed $125 million at a valuation of $1.5 billion.

Here’s why it’s important: VCs are increasingly optimistic about generative AI. In a recent article on its website, VC firm Sequoia muses that generative AI — referring to any AI that can generate text, photos, audio, or video — has the potential to “generate trillions of dollars in economic value.” Trillions may sound optimistic, but what is certain is that LP’s willingness to write checks is fueling an explosion of new ventures in the nascent space.

Stable diffusion

Image Credits: Bryce Durbin / australiabusinessblog.com

From home workouts to home decor

What has Peloton co-founder John Foley been up to since he left the company in September? Apparently becoming some kind of carpet salesman. Really. My colleague Rebecca Szkutak profiles Foley’s latest venture for TC+, called Ernesta. Aiming to launch in Spring 2023, Ernesta — backed by $25 million in venture capital — will sell custom carpets through a direct-to-consumer (DTC) strategy.

Here’s why it’s important: Rugs online may seem random. But the fact that Ernesta landed a major tranche so quickly points to the continued investor enthusiasm for e-commerce — despite sour views on DTC. The pandemic has boosted online shopping, pushing digital sales of goods to $815.4 billion in 2020, compared to $671.2 billion in 2019, according to the US Census Bureau’s annual Retail Trade Survey. As for DTC, high profile flops like Casper, Brandless and Outdoor Voices have given some VCs a break just to be safe. But as Ernesta’s success shows, funding hasn’t dried up yet. The carpet company joins Rad Power Bikes, Madison Reed and Glossier among the DTC brands that have landed tens of millions in equity against significant valuation increases.

Image Credits: Cavan Images/Getty Images

A few notes

  • If you missed last week’s newsletter, read it here: Tweep’s Twitter.
  • australiabusinessblog.com is heading to Miami next week to hold, you guessed it, a crypto conference. Some of my absolute favorite people will be there, including our star crypto team, so make sure to go there and feel free to DM me for a sweet sweet discount code. Buy tickets and view our line-up here.
  • Miss Natasha? Don’t worry, she’ll be back next week to write the next issue of Startups Weekly. Be on the lookout!

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Do you have a story tip? Feel free to hit my inbox. These days, I’m mostly interested in generative AI, so don’t be a stranger if you’re working on something relevant.



Shreya has been with australiabusinessblog.com for 3 years, writing copy for client websites, blog posts, EDMs and other mediums to engage readers and encourage action. By collaborating with clients, our SEO manager and the wider australiabusinessblog.com, Shreya seeks to understand an audience before creating memorable, persuasive copy.

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