The Big Story: Startup programs caught up in federal spending freeze.
The first full week of the Trump administration brought a sweeping federal spending freeze, forcing agencies to halt grants and loans across multiple departments, leaving startups and others uncertain about what comes next. The abrupt nature of the pause—later reversed—has created confusion for businesses of all stages who rely on government funding to grow.
Small businesses, investors, and policymakers scrambled to grasp the scope of the freeze, interpret court rulings halting it, and navigate the implications of the memo’s rescission. The freeze put programs administered by the Small Business Administration (SBA) at risk, including technical assistance and loan programs—like the 7a loan—as well as a number of broadband access programs critical to startups. Several organizations, including the National Council of Nonprofits and the Mainstreet Alliance filed suit against the Office of Management and Budget who issued the memo, as did Democrat state attorneys general. Even after the administration reversed course on the memo, cases continued due to mixed messages from the White House. While the memo implementing the funding pause was revoked, executive orders like the one barring diversity, equity, and inclusion programs remain in place.
While the spending freeze may have been rolled back, the legal and policy battles surrounding federal funding are far from over. It is unclear if the administration will again try to curb federal spending at targeted programs. The administration has already had to walk back and clarify policy positions multiple times in the first ten days of President Trump’s second term, adding to the uncertainty startups face in navigating an already complex system—when what they really need is clarity and reliable support. Instead of abrupt shifts that create new barriers for entrepreneurs, policymakers should recognize that stable funding is critical for innovation.
Policy Roundup:
State digital replica bills advance, threatening AI innovation. A Virginia committee advanced the Digital Replication Right Act last Monday, which would hold startups liable for developing AI tools that generate unauthorized digital replicas or hosting digital replica content. Just days later, a Maryland committee reviewed the Forged Digital Likenesses Bill, which would impose criminal penalties on platforms that distribute such content. As more states introduce similar legislation, policymakers need to consider the compliance burdens these laws would create for startups.
Siteblocking bill raises concerns for startups. Rep. Zoe Lofgren (D-Calif.) introduced the Foreign Anti-Digital Piracy Act (FADPA) last Wednesday, a bill that would allow copyright holders to petition courts to block websites accused of infringing their copyrights. The proposal raises concerns about unintended consequences, including the risk of blocking legitimate websites, stifling speech, and creating new hurdles for startups navigating such blocking orders.
Trump threatens tariffs on foreign semiconductors. Speaking at the House Republican retreat last week, President Trump threatened to impose tariffs on semiconductors essential for the AI industry. Imposing the tariffs would raise costs across the AI ecosystem and diminish startup competitiveness at a time when international competition has been reemphasized by the success of Chinese company Deepseek.
On the Horizon
WEDS. 2/05: The House Committee on Financial Services will convene a public hearing to discuss the benefits of community banking at 10:00 AM ET.
WEDS. 2/05: The House Committee on Small Business will convene a public hearing to discuss how Congress can better support small businesses at 10:00 AM ET.
WEDS. 2/05: The Senate Committee on Commerce, Science, and Transportation will markup legislation including bills to regulate Internet companies, enhance cyber insurance, and expand rural broadband access at 10:00 AM ET.
THURS. 2/06: The House Financial Services' Subcommittee on Oversight and Investigation will convene a public hearing to discuss the Biden Administration’s previous strategy toward cryptocurrency at 2:00 PM ET.
Startup Roundup:
#StartupsEverywhere: Berkley, California. Navigating the fine print of commerce as a consumer is, at best, tedious and obscure. Kamal Nahas, co-founder and CEO of pap!, is using AI to cut through the tangled web of laws and policies and get consumers money back on their purchases. We sat down with him to discuss his company, the privacy policy landscape, and the American visa process.
