Government Shutdown & Startups: What Founders Need to Know

Potential Impacts of the U.S. Government Shutdown on Startups and Tech

The current U.S. government shutdown has the potential to disrupt deal flow, suspend visa processing for essential workers, and create a range of challenges for startups and the wider technology industry. Experts speaking with TechCrunch suggest these issues could become more pronounced if the shutdown extends beyond one week.

A History of Shutdowns and Current Uncertainty

Beginning on Tuesday, this shutdown marks the first in seven years. The unpredictable nature of the current administration, combined with a deeply divided Congress, makes predicting its duration difficult. Since 1990, the U.S. has experienced eight government shutdowns, with four occurring during administrations led by President Trump. The longest of these shutdowns lasted 35 days, setting a modern record.

Investors, founders, and legal professionals have voiced concerns regarding potential delays in both deal completion and the processing of work visas.

Visa Processing and Immigration Concerns

The H-1B visa application process was already facing increased costs, with recent announcements raising the application fee to $100,000 – a significant increase that has caused concern within the industry.

A primary worry centers on the slowdown of the immigration process, as the Department of Labor – responsible for initial approvals for H-1B visas and green cards – is currently inactive. Immigration attorney Sophie Alcorn explained that this effectively freezes the pipeline for both hiring and renewing visas for highly skilled professionals.

“This situation introduces considerable uncertainty for a startup’s workforce, potentially impacting even founders who are themselves reliant on visas,” Alcorn stated.

Michael Scarpati, CEO and founder of RetireUS, emphasized the vulnerability of visa holders during a shutdown. “Their legal status is contingent upon government approvals. Interruptions to processes like E-Verify or labor certifications can jeopardize their status, creating instability for both the workers and the companies that employ them.”

Impact on the Tech Workforce

Thousands of individuals working in the technology sector are currently in the U.S. on visas, often accompanied by their families.

Chris Chib, CEO of BlueFin Solves, noted the anxiety among these workers regarding processing delays and their ability to remain in the country. “However, recognizing their contributions to innovation and problem-solving, we must extend the same diligence and support to them during this challenging period.”

Regulatory Hurdles and Potential Layoffs

Startups may also encounter delays or complete halts in permitting processes and other essential regulatory requirements. This could deplete vital funds and potentially lead to workforce reductions.

Economic Impact and Investment Concerns

Jenny Fielding, managing partner at Everywhere Ventures, expressed her ongoing concern about political instability. While previous shutdowns have had limited economic consequences, a prolonged shutdown could trigger layoffs.

“Given our investments in heavily regulated sectors, the shutdown could halt or significantly slow down critical government functions, such as FDA approvals or aerospace permitting. This poses an existential threat to startups whose business models depend on a single regulatory approval,” Fielding explained.

Fielding highlighted the unfortunate timing of the shutdown, recalling how tariff announcements earlier in the year disrupted fundraising efforts due to investor apprehension. “We initiated fundraising this week, and once again, the timing is unfavorable.”

Fielding acknowledged the need for startups to develop contingency plans. “A shutdown lasting a week is manageable, but extended durations can create significant difficulties.”

Proactive Measures for Startups

Garima Kapoor, co-founder of MinIO, emphasized the importance of proactive preparation, particularly if the shutdown persists. Her husband, AB, initially came to the U.S. on an H-1B visa over a decade ago.

“Slowdowns in government agencies can stall deals in highly regulated industries like fintech, health tech, and M&A. Even companies outside direct federal oversight may experience diminished valuations and less favorable deal terms as uncertainty spreads throughout the market,” Kapoor stated.

She advised founders to maintain open communication with partners and investors, and to plan for potential delays. “Clarity and alignment will be crucial during this time.”

“Preparedness will distinguish those who successfully navigate this disruption from those who are caught unprepared.”

Chib echoed this sentiment, emphasizing the resilience of the tech workforce. “Their perseverance drives progress. To those facing these challenges, remember that this too shall pass.”