As President-elect Barack Obama lays the groundwork for his administration, buyout and venture investors alike are worried about higher taxes and tighter regulation, although they are optimistic overall, hoping to see a government that is more focused, less political, and a friend to innovation.

Of course, it is too soon to tell how his presidency will be shaped by larger forces -- as Obama said in his victory speech, the nation faces the tremendous challenges of "two wars, a planet in peril, the worst financial crisis in a century." It's also too early to assess how he will seek to implement his economic and tax proposals.

Nonetheless, the long campaign has given the private equity and venture industries a sense of what to expect from the new administration and a Democrat-dominated Congress.

A major issue that is weighing on the minds of almost everyone in the industry is widely anticipated tighter scrutiny over sectors that are lightly regulated at present.

"I don't think the administration has a particular bias against private equity as an ownership structure," said Bruce Morrison, a former U.S. Congressman who now runs a lobbying firm. "But there is significant concern over a lack of regulatory oversight in a wide range of contexts."

Some aren't looking forward to this prospect. "In the end, this is not great for private equity," said a middle-market PE firm executive, who declined to be identified. "Any time you talk about targeting Wall Street and all those nasty hedge funds and private equity funds, everything gets thrown into one big pot...You tar everybody with the same brush."

But Scott Sperling, co-president of Thomas H. Lee Partners, said tighter regulation isn't necessarily a bad thing. Ultimately, intelligent oversight will be conducive to restoring stability to the financial system, which can only be beneficial to PE firms, he said.

"We need the government to understand the nature and level of leverage," Sperling said. "If we don't have transparency, banks don't trust each other, and the government will make poor judgments."

Another issue that has drawn some renewed attention from both PE and VC professionals is possible changes in capital-gains tax rates and taxation of carried interest. Taxation of carried interest gains is widely expected to be back on Congress's agenda sometime next year, as taxing carry as ordinary income has populist appeal. Obama said during the campaign that he supports an end to the taxation of carried interest at the lower capital gains rate. But addressing that is likely to be part of a much larger tax package.

"It's our expectation that that's not going to get taken off the table," said Scale Venture Partners Managing Director Kate Mitchell.

There could be some leeway on timing, though, depending on how badly the economy slumps in the coming months. Mark Heesen, president of the National Venture Capital Association, said there is division among Democrats about whether to tackle tax reform while the economy struggles or to wait until President Bush's tax cuts expire at the end of 2010. "You don't have to force that process," he said.

Michael Greeley, a general partner at Flybridge Capital Partners, said getting the economy moving is a bigger concern, even if higher taxes on the wealthy are part of the plan. "If my tax rates go up I assume it will be in an environment that will be such an improved economic climate that we'll be paying taxes on higher income," he said.

Buyout and venture professionals agree that the new administration promises to bring fresh perspectives to multiple issues of direct interest to the private equity industry, such as health care, infrastructure and energy.

"Obama exhibited a calmer, cooler approach to the situation," THL's Sperling said. "The change in administration gives us a chance to have a much more analytical approach to identifying and solving these problems."

Several venture industry leaders said they are hopeful that Obama will bring to the White House an open mind, an understanding of technology and a willingness to listen to entrepreneurs, although they worry that political considerations could overly affect decisions.

"When you look at how professionally his campaign was run there is great hope that policy will reign supreme," said the NVCA's Heesen. Although Obama gets high marks for his ability to bring people together, VCs worry that the loss of several moderate Republicans and Democrats in Congress could make this harder.

Right out of the gate, venture investors are looking to the economic stimulus package that Congress might pass this year to pump money into projects such as modernizing the electric grid and extending broadband Internet access throughout the country. Buyout firms, meanwhile, hope that a stimulus package might translate into more investment in infrastructure and the expansion of public-private partnerships in funding such projects.

The Obama campaign has also outlined a $5 billion small business rescue plan that might aid venture portfolio companies that run into trouble in the current environment. Among other things, this plan would set up an emergency lending plan for small businesses to be financed by the Small Business Administration, whose budget and capacity would be strengthened. It is unclear, however, if the plan would extend to companies backed by venture firms or with other sources of capital they could tap.

VC executives also expect Obama to push through an energy program early in his term that will encourage development of renewable energy sources. "But budget constraints and issues of tax policy put some pretty difficult guardrails on what we're able to do," said Trevor Loy, managing partner of Flywheel Ventures and adviser to the Obama campaign on cleantech.

When it comes to taxes and the economy, the picture gets complicated, and while the venture industry is enthusiastic about Obama promises on such topics as tax breaks for start-ups, they want to see the details. "I think this is going to be much more incremental and take a lot longer than people would want based on the sweeping electoral results," Loy said.

Although major reform of the health-care system probably will have to wait until the economic crisis passes, Greeley said he is looking for some smaller steps such as patent reform, more financing for the National Institutes of Health and a more open-minded attitude toward stem-cell research.

VCs also look for an easing of immigration restrictions on skilled foreign workers, who are essential to many venture-backed companies. Heesen said he hopes that the new Congress will make a distinction between legal and illegal immigration. "The Republicans successfully tied those two together," he said.