It’s hard to imagine 2022 could have been any more dramatic. Elizabeth Holmes was sentenced to prison. One of the largest crypto exchanges blew up. Klarna’s valuation fell 85%. Roe v. Wade was overturned.
And the major correction in the private markets—which has followed one of the longest-standing bull markets we’ve ever seen—has shaken up the dealmaking world.
So what comes next? How are regulators and policymakers thinking about the mayhem in crypto? Will the sentiment toward startups start changing?
Each year, Term Sheet asks Bradley Tusk, the co-founder and CEO of Tusk Venture Partners, to predict which regulatory battles tech companies will be up against in the coming year.
Tusk has spent a lot of time in the political sphere—as Mike Bloomberg’s 2009 mayoral race campaign manager and as the former Deputy Governor of Illinois. Since then, he’s been advising startups (as Uber’s first political advisor) and as an investor in companies within highly-regulated industries (think Bird, Wheel, Coinbase, or Lemonade).
Here’s how Tusk says 2023 will play out:
Health care: The pro-life movement never considered the threat of women just using telemedicine to get access to abortion pills, and now they're realizing it's a massive hole in their system. So they'll pass bans in red states across the country, but given that these are FDA-approved medications, it's not clear their bans have any validity. None of this impacts the economics of digital health, but because abortion remains among the most controversial issues in this country, it will get a lot of attention and could spill over onto digital health regulation broadly.
The ability of digital health to demonstrate a strong, non-ideological (abortion excepted) value proposition means that states will be open to more permissive uses of the medium like administering medicines or taking x-rays and other ideas in the development pipeline.
Gig economy: President Biden paid back the effort the unions used to help elect him with a new proposed rule at the Department of Labor that makes it much easier to classify gig economy workers as full-time employees rather than independent contractors...For gig economy companies, these issues are still mainly decided at the state level, not federal, but many states will take guidance from the federal government on these issues, so the risk is not immaterial.
Fintech: NFT regulation could go in multiple directions—consumer protection against fraud or price gouging, regulation around assets that are both physical and digital and in custody of a NFT company, registration requirements. The most sophisticated state financial regulator is the New York Department of Financial Services, so they would probably be the first. But you could also see states like Wyoming that have tried very hard to be pro-crypto laying out a different framework that's much more pro-NFT.
Securities and Exchange Commission Chair Gary Gensler has been looking to crack down on crypto since he took over the SEC nearly two years ago, in large part because he thinks it wins him favor with Elizabeth Warren and put him on the fast track to replace Janet Yellin as Treasury Secretary. FTX gives him all the cover he needs. Expect SEC-proposed rules around crypto lending, borrowing, use of customer funds, and what stablecoin actually means. Bipartisan legislation is also not out of the question, especially if the major crypto players are smart enough to embrace a sensible regulatory framework rather than just fighting anything and everything.
Transportation: The politics of autonomous vehicles is tricky because, while it's a future that most drivers will embrace (easier, faster, safer), there's no specific community to champion new legislation and regulation. On the other hand, there are clear constituencies (the Teamsters, some auto insurers) who want to kill or slow down the creation of a new regulatory framework. Department of Transportation Secretary Pete Buttigieg seems like his political future (the candidate of youth and tomorrow) would lean towards embracing AV, but so far, he has not demonstrated that. So the entire sector sits, paralyzed.
Drugs: The Biden Administration has proposed removing cannabis as a Schedule 1 drug. Schedule 1 is the reason why most cannabis-related business activities (interstate banking, advertising, transportation) are all illegal. Once that changes, there is no reason for consumer giants like Unilever or Kraft or Philip Morris not to jump into the space. And once that happens, how are existing cannabis startups that can only offer expertise and some revenue around branding or growth going to compete with massive multinational companies that have been doing this for decades or more? They won't. A few will have something worth buying instead of building, but most will struggle until they die a slow death.
Infrastructure: All of the federal money in the infrastructure bill and the climate change provisions in the Inflation Reduction Act will start to make cleantech an attractive proposition again to investors.
Startup Ecosystem: Cities and states will start to need money, which changes the balance between startups that can create jobs and advocates that are unhappy about something. It won't return it to the levels of political sway startups held in the mid-2010s but will cut against the anti-startup sentiment in cities and states over the last few years.
We're way past just pointing fingers over a crypto meltdown. The entire economy is under immense pressure and we've already seen the public markets dramatically slash valuations as new startups become public. The widely understood but never really acknowledged practice of venture funds raising more money than they need (makes their 2% management fee a lot bigger), investing too much money at too high valuations to make their fund math work, and then this continuing at every stage along the cycle until the capital markets step in is finally coming back to haunt the sector. That forces valuations to reflect a better version of reality, check sizes get smaller, and the economics of VC over the last few years changes.
Antitrust: Legislation strengthening antitrust laws and funding for antitrust investigations and prosecutions will become law because bipartisan majorities in both the House and Senate judiciary committees have already advanced the legislation. This will then enable and embolden the Department of Justice and the Federal Trade Commission to take on Amazon, Apple, Google, and Meta more aggressively.
It’s never Sunny in Palo Alto...The former COO of Theranos (and Elizabeth Holmes’ ex-boyfriend) Sunny Balwani was sentenced to nearly 13 years in prison yesterday. In his trial earlier this year, Balwani had been found guilty of defrauding patients and investors. Holmes was convicted of defrauding investors, not patients, and was sentenced to 11.25 years in prison near the end of November.
See you tomorrow,
Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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