VC election impact guide

1. Key Themes

Theme: AI dominates venture, but the concentration creates policy risk

AI concentration makes VC's strength fragile

The newsletter's central thesis is that today's healthy VC market depends heavily on one sector, which leaves it exposed to a regulatory shift.

• "That strength, however, rests on a narrow base, our latest research explores. AI, which has received a lot of political attention but has yet to receive much in the way of regulation, represents roughly 83% of US VC deal value and is approaching half of deal count."
• "A more restrictive policy environment toward AI itself, or toward the computing power buildout with datacenters, could change AI's growth trajectory."

Midterm outcomes would reshape sector winners and losers

Investors should map election scenarios to sector exposure.

• "A Republican sweep would be a clear win for defense and defense tech. Solar, wind, and clean energy would face further pressure."
• "With a Democratic win for either chamber, defense budget would still grow, but slower, and investors would become more bullish toward alternative energies heading into the 2028 presidential election."
• "The midterms won't rewrite venture, but they could shape the stability of the market's current strength."

Theme: Mega-rounds are flowing into AI infrastructure, enterprise AI, and prediction markets

Capital is concentrating in AI compute and enterprise AI at large valuations

The day's deal list shows large rounds clustered in AI chips and enterprise AI.

• "Enterprise AI company Cohere completed the initial close of a Series E targeting C$7 billion ($4.5 billion) led by Schwarz Group at a C$35.7 billion ($25.5 billion) valuation."
• "Seoul-based FuriosaAI, which develops AI chips, raised a $620 million Series D from investors including Infinitum, Jericho Capital and QUDA Capital at a $2.9 billion valuation."
• "Fractile, a London-based AI chip startup, raised a £540 million Series C, Sifted reported."
• "Serval, the developer of an enterprise automation platform, secured a $150 million Series C at a $3 billion valuation led by Sequoia."

Prediction markets are consolidating around a leader

Kalshi is pulling away from Polymarket on valuation, while a security incident hit Polymarket.

• "Kalshi's latest round closed yesterday, giving it a valuation of about double Polymarket's as we previously predicted."
• "Prediction markets company Kalshi raised a $1 billion Series G led by Sequoia and Wellington Management at a $40 billion valuation."
• "Meanwhile, Polymarket briefly paused trading due to a cybersecurity incident."

Theme: Regulatory and structural changes in private markets (secondaries, CVs, QSBS)

Legislative proposals could ease liquidity and reporting, but QSBS is at risk

Several bills could affect liquidity and disclosure, and recent tax benefits could be reversed.

• "Policymakers also have proposals in front of them that could lessen restrictions on secondary activity and ease public reporting. The INVEST Act and DEAL Act have largely bipartisan support but haven't moved to law."
• "QSBS changes enacted with the Big Beautiful Bill could be back on the chopping block with a transfer of power in Congress."

Continuation vehicles are eroding LP co-investment economics

The growth of CVs is eating into the fee advantages that institutional LPs negotiated through co-investment.

• "Fee-free co-investment is central to driving down the costs of PE investing for institutional investors. But the growing continuation vehicle market threatens their ability to hold onto these hard-earned economic rights."
• "ILPA released new guidance last week that details disclosure and best-practice expectations for GPs running CVs, including instances in which co-investments are rolled into a continuation fund."

2. Contrarian Perspectives

Record AI-driven strength may be a vulnerability, not a signal of health

The consensus reads AI-dominated deal flow as proof of a robust market. The newsletter frames the concentration as a source of fragility, since the policy risk is largely unpriced.

• "AI, which has received a lot of political attention but has yet to receive much in the way of regulation, represents roughly 83% of US VC deal value and is approaching half of deal count."
• "A more restrictive policy environment toward AI itself, or toward the computing power buildout with datacenters, could change AI's growth trajectory."

Prediction markets: a leader emerges, yet there is room for both

Despite the valuation gap and the Polymarket incident, the publication suggests this is not winner-take-all.

• "Read more about why there is still room for both companies in our Prediction Markets Go Head-to-Head report."
• "Kalshi's latest round closed yesterday, giving it a valuation of about double Polymarket's as we previously predicted."

Even a Democratic win doesn't cut defense spending

One might expect a power shift to hurt defense tech, but the newsletter says the budget keeps growing in either case, only more slowly.

• "With a Democratic win for either chamber, defense budget would still grow, but slower, and investors would become more bullish toward alternative energies heading into the 2028 presidential election."

3. Companies Identified

• Kalshi: Prediction markets company. Mentioned for its $40B valuation and Series G. Quote: "Prediction markets company Kalshi raised a $1 billion Series G led by Sequoia and Wellington Management at a $40 billion valuation."
• Polymarket: Prediction markets platform. Mentioned for a cybersecurity incident and its lower valuation. Quote: "Polymarket briefly paused trading due to a cybersecurity incident."
• Cohere: Enterprise AI company. Mentioned for a large Series E. Quote: "completed the initial close of a Series E targeting C$7 billion ($4.5 billion) led by Schwarz Group at a C$35.7 billion ($25.5 billion) valuation."
• FuriosaAI: Seoul-based AI chip developer. Mentioned for a $620M Series D. Quote: "raised a $620 million Series D from investors including Infinitum, Jericho Capital and QUDA Capital at a $2.9 billion valuation."
• Fractile: London-based AI chip startup. Mentioned for a £540M Series C. Quote: "a London-based AI chip startup, raised a £540 million Series C, Sifted reported."
• Dren Bio: Antibody drug biotech for cancer and autoimmune diseases. Mentioned for a $350M round. Quote: "raised a $350 million round led by Juvia Group and Lightspeed."
• Serval: Enterprise automation platform. Mentioned for a $3B valuation. Quote: "secured a $150 million Series C at a $3 billion valuation led by Sequoia."
• Group14 Technologies: Silicon battery materials manufacturer. Mentioned for a Series D extension. Quote: "raised a €150 million Series D extension."
• Solink: AI vision intelligence platform for physical operations. Mentioned for a $100M+ round. Quote: "raised more than $100 million in a round led by Vertu Capital."
• Wabi: Personal AI assistant startup. Mentioned for a unicorn-level valuation. Quote: "raised a $55 million round led by IVP at a $1.25 billion valuation."
• PhotonPay: Stablecoin-based financial operating system. Mentioned for a Series C. Quote: "raised a $40 million Series C led by Blockchain Capital."
• Opentrons: Laboratory automation startup. Mentioned for a Series E. Quote: "secured a $40 million Series E led by Avego."
• Bites: Frontline performance and training platform for restaurants and retail. Mentioned for a Series A. Quote: "secured a $40 million Series A led by PeakSpan Capital."
• Braid: Netherlands-based mobile connectivity startup. Mentioned for a Series A. Quote: "raised a $38 million Series A led by Octopus Ventures."
• StimCardio: Wearable device for cardiac rhythm disorders. Mentioned for a Series A. Quote: "raised a $30 million Series A led by Metis Medtech."
• Midstream Health: Healthcare financial operations platform. Mentioned for a Series A. Quote: "received a $20 million Series A led by Valtruis."
• Dream: Architectural design and engineering startup developing world models. Mentioned for a seed round with notable backers. Quote: "raised $17 million in seed funding from investors including Andreessen Horowitz, SV Angel and XYZ."
• Black Sea Oil & Gas: Romania's largest offshore natural gas producer. Mentioned as an exit. Quote: "The Carlyle Group and the European Bank for Reconstruction and Development agreed to sell Black Sea Oil & Gas... to Mazarine Energy."
• Deepgram / Daily: Deepgram is a conversational voice AI startup acquiring Daily, an open-source voice agent framework. Mentioned as an M&A exit. Quote: "Deepgram agreed to acquire Renegade Partners-backed Daily, the developer of an open-source voice agent framework."
• Nimble: Nail polish application robot builder backed by the Google AI Startups Fund. Mentioned as an exit. Quote: "was acquired by 10Beauty."
• GamePix: Browser game distribution company. Mentioned as an exit. Quote: "backed by Zest Group, was acquired by video game commerce company Xsolla."
• Capital Factory: Accelerator focused on defense, space, energy, advanced manufacturing, robotics and life sciences. Mentioned for new investment from ARK Invest and Tim Draper. Quote: "ARK Invest and Tim Draper agreed to invest in accelerator Capital Factory."
• Alphabet: Mentioned in Side Letters for a technical stock signal. Quote: "Alphabet's stock just completed a 'death cross'—the 50-day moving average of the share price fell below its 200-day moving average as the company shed half a trillion of its market value yesterday."
• ILPA (Institutional Limited Partners Association): Trade association for institutional PE investors. Mentioned for new CV guidance. Quote: "The industry group, which represents more than 600 institutional investors in private markets, called for no net increase in fees or carry costs for rolling LPs in CV processes."

4. People Identified

• Genie Cesar-Fabian: General counsel and COO at ILPA. Mentioned for her expertise on co-investment and CV contract gaps. Quotes: "In most cases, the agreements governing co-investments don't address what happens if a company is subject to a CV transaction, said Genie Cesar-Fabian." And: "LPs are saying, 'I had this co-invest deal with a GP that I've been investing in for several legacy funds. We've had this financial partnership for 15, 20 years. Now CVs are a thing, and my economics are changing dramatically. I can't really do anything about that,' Cesar-Fabian said."
• Tim Draper: Investor. Mentioned for investing in Capital Factory. Quote: "ARK Invest and Tim Draper agreed to invest in accelerator Capital Factory."
• Jessica Hamlin: PitchBook Senior Funds Columnist and author of the CV article. Quote: "By Jessica Hamlin, Senior Funds Columnist."
• Kyle Stanford and James Ulan: Authors of the PitchBook midterms VC research. Quote: "By Kyle Stanford and James Ulan."

5. Operating Insights

Negotiate CV and roll-over rights into co-investment agreements up front

Because most co-invest agreements are silent on continuation vehicles, LPs and GPs should address this explicitly before a deal, rather than after.

• "In most cases, the agreements governing co-investments don't address what happens if a company is subject to a CV transaction."
• "Co-investors are entitled to proceeds from exits, but they don't have an explicit right to roll into the CV with the existing no- or low-fee stipulations."

Stress-test portfolios against AI-policy and election scenarios

Founders and investors with concentrated AI or datacenter exposure should model the effect of restrictive regulation on compute buildout, and of sector shifts under different congressional outcomes.

• "A more restrictive policy environment toward AI itself, or toward the computing power buildout with datacenters, could change AI's growth trajectory."
• "A Republican sweep would be a clear win for defense and defense tech. Solar, wind, and clean energy would face further pressure."

Build security resilience, especially for trading and financial platforms

Polymarket's incident shows that operational security can interrupt core business activity even for a prominent player.

• "Polymarket briefly paused trading due to a cybersecurity incident."

6. Overlooked Insights

QSBS tax treatment may not be permanent

The tax benefits enacted recently could be revisited if control of Congress changes, which matters for startup founders and early investors planning exits.

• "QSBS changes enacted with the Big Beautiful Bill could be back on the chopping block with a transfer of power in Congress."

Niche accelerator Capital Factory is attracting marquee investors in dual-use sectors

ARK Invest and Tim Draper backing an accelerator focused on defense, space, energy, advanced manufacturing, robotics and life sciences suggests growing institutional interest in hard-tech and defense pipelines, consistent with the defense tailwind discussed above.

• "ARK Invest and Tim Draper agreed to invest in accelerator Capital Factory, which backs startups in the defense, space, energy, advanced manufacturing, robotics and life sciences sectors."