How a US sovereign wealth fund could change the startup funding landscape

The U.S. government is considering establishing a sovereign wealth fund (SWF) to manage strategic investments, including a potential acquisition of TikTok, though the plan still faces legislative, financial, and logistical challenges.

Why it matters: If it goes ahead, the SWF could significantly impact the domestic venture capital sector by introducing government-backed capital, altering competitive dynamics, and potentially shifting investment priorities toward strategic industries.

Super-sized wallet: Having Uncle Sam as a major, strategic investor would change the rules of the VC game considerably, and undoubtedly inject substantial funds into the VC ecosystem, providing startups with additional financing options and potentially accelerating innovation.

Politics and investment: The government's role in the SWF may lead to investments driven by policy objectives rather than purely financial returns, potentially affecting market dynamics. As has happened in some countries, the SWF might prioritize investments in sectors deemed strategically important, such as technology or infrastructure, potentially guiding the direction of innovation. It’s decisions to make certain large-scale investments could lead to market distortions, affecting the natural flow of private capital and possibly leading to overvaluation in some sectors.