At the annual meeting of the National Venture Capital Association earlier this month, venture capitalist and Venrock partner Ray Rothrock interviewed Mark Heesen, the NVCA’s president, about political developments that could have big impacts on the venture capital industry, and, by extension, entrepreneurs. Here are some of the highlights.

On the health of the venture capital industry: “We are unquestionably going to be seeing a smaller industry,” said Heesen. “I think that trend [of the number of venture capital firms shrinking] is going to continue.” He noted that many limited partners - the money managers at universities, pension funds and insurance companies who put their money into venture funds - will probably be happier with a smaller venture capital industry.

For those who doubt that the venture capital industry is shrinking, Heesen noted, “Last quarter we invested $6 billion and we raised $4 billion. That’s a pretty consistent issue we’ve had for over three years. The time is coming when we’re not going to be able to do that any more. “

Heesen put a typically optimistic spin on the fact that many firms will be unable to raise the funds they had anticipated: “Fewer companies will be funded, but the companies that are going to be funded will be that much stronger. There will be fewer me-too kinds of companies.”

On tax reform: “We’ll be seeing the deficit come down pretty dramatically over next several months. We were supposed to hit the debt ceiling today.” But because of the effects of sequestration and higher taxes, that won’t happen until October or November. That’s changed the political landscape in Washington: “Republicans were thinking they were going to be able to hold Obama hostage around this time for additional budget cuts,” said Heesen. “That’s not going to happen.”

Likewise, the politics of any type of tax reform have shifted dramatically, said Heesen. The Chair of the Senate Finance Committee, Max Baucus (D-Mont.), is retiring. The Chairman of the House Ways and Means Committee, David Camp (R-Mich.), is term-limited. The result: “The specter of major tax reform is much less likely today than we thought it was going to be just a couple of months ago.”

On immigration: Prospects for immigration reform, however, look much brighter. Heesen expects to see “real progress” over the next several months. He says Obama wants immigration reform to happen on his watch, but the real question is whether or not a very important bill can move through both the House and the Senate. Heesen referred to this potentiality as a “JOBS Act Moment: Where the stars align and everyone realizes we have to get this package out of the Senate and the House moves forward as well.” The NVCA is conducting another survey on immigration, highlighting the number of CEOs and founders that are immigrants.

On donuts, not cupcakes: “Government policies, think tanks, and edit boards have all been working on or talking about entrepreneurship and innovation,” said Heesen. “Just like cupcakes have been very hot, even though they’ve been around for a long time. Now cupcakes are starting to lose their luster… Donuts are taking over. Manufacturing in the U.S. is suddenly very important.”

Heesen appeared to momentarily lose his audience here. But his point was that all the attention around entrepreneurship could begin to fade if something else were to catch the public imagination--and that something else seems to be manufacturing in the U.S. “I’m not saying we shouldn’t be talking about manufacturing in the U.S.,” Heesen said. But as an industry, venture capitalists need to be aware of the discussion. “Maybe it’s a flash in the pan,” he said. “But there’s a drumbeat starting.”