The Big Story: Midterm election outcome likely to impact startup policy debates
There are less than two weeks until the Midterm elections, and the outcome could impact the direction of several policy debates affecting startups. Democrats are poised to regain control of one or both chambers of Congress, which would carry significant implications for key policy debates affecting startups, including around AI regulation, immigration, trade, and more. Even if they can’t pass legislation that the president is willing to sign, a Democrat-led Congress is likely to use its oversight powers to make an imprint on key policy debates and the administration’s ability to pursue its agenda. The outcome will also change the dynamic when Congress returns the week after the election to consider lame-duck priorities, including a government spending package and a defense bill.
If Democrats succeed in retaking one or both chambers, the early part of the next Congress is likely summable in a word: oversight. Think hearings hauling in key administration officials and business leaders for questioning, and investigations of the administration’s dealings with the private sector. Several issues central to midterm politics and relevant to startups, including AI, immigration enforcement, tariffs, and more, are poised to be key focuses.
On AI, Democrats have generally put forward more heavy-handed regulatory proposals as opposed to the more light-touch approach being pursued by the administration. They have also signaled interest in probing AI industry leaders’ connections with the administration. It is highly unlikely any framework advanced in a Democrat-led Congress will include provisions to smooth regulatory differences across states.
On immigration, the Trump administration is currently pursuing several rulemakings to impose fees and administrative burdens on visa programs key to the high-tech talent pool. These actions undermine the innovation ecosystem, but Democrats' attention is more likely to be focused on broader immigration enforcement oversight, including ICE-involved shootings.
On trade, tariffs have proved unpopular and damaging to the overall economy, and a Democrat-led Congress could attempt to more strongly assert its Constitutional role in trade policy. At the same time, earlier trade policy ideas that undermined digital trade and startup competitiveness could return.
There are of course several other issues relevant to startups that a Democrat-led Congress would lead in a different direction. For example, capital formation packages have advanced out of the Republican-led House in successive Congresses but died (or are likely to die) in the Senate. It’s unlikely those bills to expand capital access for startups will be seriously considered in a Democrat-led Congress. Proposals restricting acquisitions—a key exit path for startups—and oversight of how the administration has approached merger enforcement are also in the cards.
Before we get to the new Congress, lawmakers will return to town the week following the election. In the lame duck session, they will need to approve a government funding deal before it runs out on December 11th. Also on the to do list is another omnibus package, the National Defense Authorization Act. It is unclear whether lawmakers will have time to consider other tech policy issues, like an AI framework or online safety bills, but bills could always hitch a ride on the larger legislative packages. Whatever the election's outcome, policymakers should ensure that efforts to address legitimate policy concerns do not inadvertently restrict startups' access to capital, talent, technology, and global markets or undermine their ability to compete.
Policy Roundup:
AI helps locate critical security flaws. This week cybersecurity agencies around the globe alerted website owners of two critical vulnerabilities that could allow an attacker to remotely take control of their servers, deface websites, and access sensitive data. The flaws in PHP, an open-source programming language that underlies an estimated 70 percent of the Internet, were discovered by security researchers in August with the help of AI models from Google and OpenAI.
SCOTUS leaves patent review restrictions in place. The Supreme Court declined to hear Google's challenge to a U.S. Patent and Trademark Office policy that allows the agency to deny reviews of older patents based on how long they have been in force, leaving the policy in place. Engine has long called for preserving access to patent review proceedings that help weed out weak and over-broad patents, which can fuel abusive litigation and impose significant costs on startups.
Federal order restricts use of certain AI technologies. This week, the Department of Homeland Security published an order dating back to July barring and ordering the removal of Chinese AI company DeepSeek’s products, including third-party products developed using its models, from federal civilian agencies. Many Chinese AI models, including DeepSeek’s, are open source or open weight, and startups and larger technology companies alike have used those open models to build new products. The order raises questions about whether the restrictions will be expanded to other Chinese AI companies and how it will impact startups’ ability to sell to federal agencies.
Major AI developer outlines proposed safety bill to Congress. Anthropic circulated draft legislation to lawmakers that would set safety requirements for advanced AI models, limit when the federal government could block their release, and preempt certain state AI safety laws. The proposal comes as lawmakers are considering a wide range of proposals amid increasing public focus on advanced AI. After criticism from safety advocates, the company indicated this week it will rewrite the preemption language.
On the Horizon:
TUE 10/27: The Securities and Exchange Commission's Small Business Capital Formation Advisory Committee will hold a public meeting to discuss modernizing the initial public offering process and potential changes to Regulation Crowdfunding to expand access to early-stage capital at 10:00 AM ET.
TUE 10/27: The Federal Trade Commission, Small Business Administration, and National Cybersecurity Alliance will host a webinar on cybersecurity basics and ways small businesses can reduce their risk of cyberattacks at 1:00 PM ET.
THU 10/29: The Federal Communications Commission will convene an open commission meeting to consider several items, including expanding mid-band spectrum for commercial communications, modernizing direct-to-device satellite services, opening cellular spectrum for drone operations, and implementing the Rural Broadband Protection Act, at 10:30 AM ET.
Startup Roundup:
#StartupsEverywhere: Hartland, Wisconsin. Deepak Arora founded Wearable Technologies Inc. (Wear-Tech) in the wake of a family tragedy. In researching prevention, he learned that certain age groups are underserved by current life-sign monitoring infrastructure. Deepak is working to solve that with his next-gen wearable smartwatches. We sat down with Deepak to talk about his company, the state of the patent application process, and more.