Tech trade groups and congressional leaders send letters to the Trump administration requesting VC-backed startups not be excluded from the stimulus' SMB loans
Issie Lapowsky / Protocol :
Context & Ripple Effects
With the $350B CARES Act small-business loan program about to open, the question of whether VC-backed startups count as 'small businesses' had become a live fight inside Washington: Rep. Ro Khanna had already walked through how the stimulus' SMB loans treat VC-funded companies in late March, and tech trade groups plus congressional leaders now formally petitioned the Trump administration not to lock them out.
The letters land in an awkward political history — many of the same investors and founders pressing for access had earlier signed letters against Trump, from the 145 tech leaders calling a Trump presidency a disaster for innovation to the industry-wide protest of the travel ban — making this an unlikely alliance of convenience around payroll survival.
First-order effects
- VC-backed startups facing COVID revenue collapse get a direct shot at SBA-guaranteed payroll loans if the administration relents, rather than being disqualified by their investor backing; House Minority Leader Kevin McCarthy subsequently said they would become eligible for the $350B loan program.
- The SBA becomes the deciding gatekeeper: its guidance determines whether venture backing is treated as disqualifying assets or ignored.
Second-order effects
- When the SBA issued new program guidance days later, it still appeared to exclude most VC-backed startups — meaning lenders and startups were left operating under rules that contradicted congressional leaders' public assurances, pushing the dispute toward further clarification rounds.
- Venture firms gain a stake in lobbying infrastructure they historically avoided, since portfolio-company payrolls now depend on federal eligibility definitions rather than fundraising cycles.
Third-order effects
- If the pattern holds, eligibility fights over who counts as a 'small business' become a recurring lever of industrial policy, forcing the startup ecosystem into permanent engagement with the administration it once openly opposed.
- A durable precedent either way: formal recognition that venture-backed companies are systemically significant employers would blur the line between private-risk capital and publicly backstopped small business.
The trend: COVID-era stimulus is pulling the venture-backed startup sector into direct dependence on federal policy, converting Silicon Valley's adversarial stance toward the Trump administration into transactional lobbying.