Venture

With Election Looming, US VCs And PE Pros Lean More Democratic Than Usual

Prominent private-equity and venture capital investors have collectively amassed enormous fortunes. And with a U.S. presidential election looming, they’re putting at least some of that money to work along party lines. Where is it going?

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Before we delve further into 2020, let us first note how political donations from private-company investors have skewed in previous election cycles. Broadly speaking, venture capital investors tend to support Democratic candidates, while private-equity pros have been more Republican-leaning.

Among VCs, there’s a long history of supporting Democratic candidates. We’ve put together some examples in the chart below.

 

Among private-equity investors, meanwhile, there are a lot of Republican politicians and megadonors. We list a few below:

Obviously, there are exceptions to our generalization about political leanings of VC and PE pros. On the VC side, renowned startup investor Peter Thiel is a prominent Donald Trump supporter, and onetime VC Rick Snyder served as Republican governor of Michigan from 2011 to 2019. On the PE side, Deval Patrick, former Democratic governor of Massachusetts, currently works as managing director at private-equity firm Bain Capital. And there are more, lower profile examples.

Why the split?

We couldn’t find any body of research on why VCs might lean left, but here are a couple  of hypotheses. First, most venture investors are clustered in Northern California and other liberal-leaning coastal enclaves.

Second, startup investors’ core mission is to make risky bets on disruptive industry- and world-changing business models. That’s essentially the opposite of the dictionary definition of conservative, which is “holding to traditional attitudes and values and cautious about change or innovation.”

As for private equity’s rightward tilt, an easy explanation may be that policies helpful to the industry practitioners’ bottom line have been enacted under Republican administrations, including lower capital gains tax rates.

2020 is different

As we look at private-equity and venture capital contributions for the 2020 election, some of the trends in prior campaign cycles are holding steady. Others have shifted.

Venture capitalist support still appears tilted toward Democrats. We see this a bit in campaign contributions to individual candidates, capped at $2,800. But the big money is showing up in larger donations to PACs, such as the Democrat-supporting Senate Majority PAC, heavily backed by prominent VCs and tech founders including Vinod Khosla, Jeffrey Skoll, Reid Hoffman and Reed Hastings, per OpenSecrets.

For the private-equity industry, meanwhile, one standout trend is that it has shifted left in its political leanings in recent years.

A report from the Center for Responsive Politics found that private equity and investment firms gave significantly more to Democrats in the 2020 election cycle than to Republicans ($32.6 million vs $23.8 million). That’s a shift from 2016, when the industry gave more to Republicans ($35.3 million) than to Democrats ($32.2 million).

The really sharp contrast, however, is between 2012 and today. Back in 2012, when private-equity pro Mitt Romney was the Republican presidential nominee, his party raised a whopping $43.3 million from the industry, compared to a mere $16.1 million for Democrats.

Notably, Romney’s old firm, Bain Capital, is now a big contributor to the Democrats’ lead. For 2020, 94 percent of Bain Capital-affiliated contributions went to Democrats. Bain Managing Director Joshua Bekenstein, in particular, has been a heavy donor to Democratic candidates and political groups.

Meanwhile Blackstone Group and in particular its CEO, Stephen Schwarzman, stand out as major Republican contributors. While Blackstone is only somewhat pro-Republican in its 2020 donation records, Schwarzman has gone all in. Among his donations: $10 million to a group aiming to defend the Senate’s Republican majority, and $3 million to America First Action, a PAC supporting Trump’s re-election.

The Trump factor

Schwarzman aside, all-in-all neither venture capital nor private-equity pros are a very pro-Trump bunch. Blackstone is the lone donor from either industry who tops the list of America First Action supporters. And his presidential contributions are dwarfed by his much larger donations to Republican Senate-focused PACs.

One reason financially savvy Republican supporters may be focusing more on the Senate races than the presidency is the perception that they have better odds of winning. Political forecasting site FiveThirtyEight gives Trump a less than one-in-four chance of winning the presidency. It gives Republicans a 39 percent chance of maintaining a Senate majority.

Moreover, Senate contributions seem motivated more by industry-specific concerns than a particular love for a candidate.

The Wall Street Journal noted recently that “many who work in private equity prefer control of the government to remain divided as it would make major overhauls of their industry more difficult.” An example of such legislation is a bill Sen. Elizabeth Warren, D-Mass., introduced last year, the Stop Wall Street Looting Act, which would add restrictions on certain buyout firm practices and increase taxes paid on carried interest. Its chances of passage rely on a Democratic Senate majority.

Where the buck stops

For all the concerns around money in politics, it’s unclear how much impact it will have this time around, with swing voters relatively rare in today’s hyperpartisan political environment. And while money can buy TV ads, much influencer activity–such as viral online memes–can be produced and distributed for minimal cost.

That may be why some of the money that venture and PE tycoons are putting into politics comes in the form of expenditures that don’t show up in campaign contribution databases, such as get-out-the-vote efforts.

With an election just six weeks away, we’ll find out soon how well PE and venture donor-favored candidates performed. For now, it seems, startup investors are focused mostly on squeezing out as many public market exits as they can before November.

Illustration: Dom Guzman

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