What midterm madness means for startups TechCrunch

Welcome to Startups Weekly, a nuance of this week’s startup news and trends. To get this in your inbox, Sign up here.

Hello friends. Its Kyle, fill this issue for Natasha, who is in dire need of a break from the news cycle (and the spectacle has become Twitter). While this is my first Weekly Startup column, you may have seen me on TC here and there, which mainly includes sections related to ventures, artificial intelligence, and entrepreneurship. It’s been fun to round up this week’s startup news — in part because it doesn’t revolve around Musk’s hectic antics.

But before we get together for the weekend, let’s recap the week, marked by the midterm elections in the United States.

As the U.S. election cycle turns abhorrent and distressing, the results always matter to the tech industry. U.S.-based chipmakers are keep hope for relief as the United States increasingly separates from China. Cryptocurrency businesses are wait regulations to establish safeguards for so-called stablecoins and resolve jurisdictional issues. And the biggest tech giants are gearing up for a possible last-ditch effort by the White House to pass antitrust legislation — awaiting, of course, the post-midterm political climate.

It goes without saying that the stakes are high. Sanctions, in addition to supply chain constraints and inflation, threaten to cripple the state’s chipmaking industry — one chipmaker, Lam Research, has said. predicted loss up to $2.5 billion in revenue next year due to newly imposed trade rules. The antitrust bill, if passed, could significant limitation the ability of Amazon, Meta, Microsoft and other incumbent tech companies to acquire and penalize rivals to promote their own products and services.

Unsurprisingly, the industry has lapsed for the 2022 midterm elections, according to top donors. Google, Amazon, Meta and their commerce groups to pour nearly $100 million into lobbying as they seek to circumvent antitrust law — and its supporters. Meanwhile, according to a analysis by the Washington Post, FTX CEOs Sam Bankman-Fried, Larry Ellison and Peter Thiel have spent tens of millions of dollars on their favorite campaigns, exerting a powerful influence on the technologist in the acerbic arena.

Whether the industry succeeds in securing a bright two-year future for itself is debatable.

With the exception of sectors with bipartisan support, like defense, startups are likely to be the hardest hit during this period of political divisions — especially those in chip manufacturing, green businesses and cryptocurrencies. At least one study suggests that congressional deadlock contributes to income inequality, while again implies that political deadlocks have a greater negative impact than even hostile government policies on a firm’s ability to innovate.

Consider how a recession might play out. Assuming Congress moves slowly (as split branches often do), the federal government will likely spend less on social safety net programs, leading to a protracted recovery. . There is also the possibility of a debt ceiling dispute, which could hurt in another respect. Recall that due to the debt ceiling controversy during President Barack Obama’s first term, the United States lost its perfect AAA credit rating from Standard & Poor’s in August 2011, causing the stock market to plunge further. 5%.

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

Of course, partisan deadlock isn’t necessarily a bad thing when it comes to the economy – or startups. According to data from Edelman Financial Engines cited in part of CNN Business, the S&P 500 has had an annualized return of 16.9% since 1948 for the nine years when White House Democrats and Democrats alike Republicans have a majority in both houses of Congress. This compares with 15.1% during full Democratic control and 15.9% in years of a unified Republican government.

Admittedly a silver lining, but relatively weak.

In the rest of this newsletter – I promise less disappointment! — we’ll talk about Twitter’s fugitive user base, the rise of artificial intelligence, and e-commerce’s enduring VC appeal. For more content along those lines, follow me – I’m in @Kyle_L_Wiggers on Twitter (pending Mastodon migration).

Twitter’s Losses Are Competitors’ Profits

Almost an hour has passed without news of Twitter’s difficult transition under new management. Last weekend, the network began banning a number of parody accounts after a rule change led by Musk, including those of popular comedians. Then on Tuesday came a report from Platformer’s Casey Newton that Musk is considering putting the whole of Twitter behind a fee wall. Sorry.

Unpredictable policymaking has begun to frighten users, some of whom are leaving what they see as greener pastures. That’s in the interest of startups like Mastodon, a Germany-based platform that offers experiences in many ways comparable to Twitter. (For a rundown of Mastodon’s history, how it works, and how to get involved, read my colleague Amanda Siberling’s book Piecedo the job of breaking it all down thoroughly.)

Here’s why it’s important: Mastodon has grown rapidly since Elon Musk took over Twitter, with nearly half a million users joins the network as of Oct. 27. While the company is a nonprofit, its expansion could spur the rise of Twitter rivals from the ashes — and VC backing for those opponents. Former Google Area 120 director Gabor Cselle is among the opportunists, notification on Monday that he had secured returns (and the promise of capital) from investors and a former Twitter executive to build a Twitter alternative.

twitter bird with mask, background of checked check marks

Image credits: Bryce Durbin / TechCrunch

Let AI create it

Innovative AI is the new thing in technology. Well, it’s probably not new, but it’s recently made its way into VC dictionaries thanks to high-end text-to-image AI systems like OpenAI’s DALL-E 2 and stable AI stable diffusion. Recent stable AI lift up $101 million at a reported valuation of over $1 billion, and OpenAI is said to be in talks for capital from Microsoft and other backers at a valuation of close to $20 billion.

Deepfaked porn and created by AI art contest may be dominating the headlines. But investors see huge potential in generalized AI built for business. This week TechCrunch’s Rita Liao is covered Film, a two-year-old startup that leverages generalized artificial intelligence along with other artificial intelligence frameworks to create videos featuring talking human avatars. A little earlier in the fall, I wrote about Jasperan AI content platform for marketing that has reached $125 million at a $1.5 billion valuation.

Here’s why it’s important: VCs are increasingly optimistic about general AI. In a recent article on its website, VC firm Sequoia muses That innovative 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 sounds 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 / TechCrunch

From home workouts to home decor

What has Peloton co-founder John Foley been up to since leaving the company in September? Obviously becoming something of a carpet salesman. Really. My colleague, Rebecca Szkutak, describes Foley’s latest project for TC+, called Ernesta. With a target launch in the spring of 2023, Ernesta – backed by $25 million in venture capital – will sell custom rugs through a direct-to-consumer (DTC) strategy.

Here’s why it’s important: Carpets online seem random. But the fact that Ernesta made a fortune quickly shows investors’ continued enthusiasm for e-commerce – despite acidulated view of DTC. According to the US Census Bureau’s Annual Retail Trade Survey, the pandemic has boosted online shopping, driving digital goods sales to $815.4 billion by 2020, up from $671.2 billion in 2019. When it comes to DTC, well-known failures like Casper, Brandless, and Outdoor Voices have caused some VCs to pause to be sure. But as Ernesta’s success shows, funding hasn’t run out. Carpet company joins Rad Power Bikes, Madison Reed and Glossier among DTC brands with landing tens of millions of dollars in equity with sizable valuation steps.

Image credits: Cavan Image / Getty Images

A few notes

  • If you missed last week’s newsletter, read it here: Tweep’s Twitter.
  • TechCrunch is heading to Miami next week to host a crypto conference. Some of my absolute favorites will be there, including our star crypto team, so make sure you come and feel free to message me for a great discount code. Buy tickets and see our queue here.
  • Natasha is missing? Don’t worry, she’ll be back next week to write the next issue of Startups Weekly. Be wary!

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Got a story tip? Feel free to hit my up inbox. These days, I’m particularly interested in general AI, so don’t be surprised if you’re working on something that fits it.


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