How Trump's Tariffs Are Shaking the Startup World: Investors Speak Out

At the beginning of the year, Tom Drummond, managing partner at Heavybit, felt mild anxiety over political volatility in the US. Now, he states, "No one knows what the hell is going on." This uncertainty stems from President Trump's reciprocal tariffs, which caused global markets to tumble when announced on April 2. While a 90-day pause on most tariffs has been implemented, a 145% tariff on Chinese goods remains, leaving many investors on edge about future implications.

The Impact on Tech Investments

Several venture capitalists express concern that these tariffs could slow tech investments and further hinder the already sluggish IPO market. Some are extending their investment cycles or avoiding hardware companies, which are likely to be hit hardest by the tariffs. M.G. Siegler, an independent investor, notes that tariffs have dominated discussions in partner meetings, raising questions about their longevity and impact.

Bracing for Impact

The extent of the tariffs’ impact on VC firms largely depends on whether their portfolio companies are directly affected. Companies reliant on global trade face significant challenges, with Drummond highlighting that those in hardware, clean tech, and even biotech could be in for a rough time. Startups are now reconsidering their inventory strategies to mitigate risks associated with tariffs.

Urging Caution Among Startups

Chip Hazard, a general partner at Flybridge Capital, cautioned over 400 startup founders about the turmoil in capital markets, advising them to finalize any ongoing fundraising as soon as possible. Charles Hudson, managing partner at Precursor, noted that the unpredictability of tariffs complicates strategic planning for funding.

Changing Landscape for IPOs

Before Trump's tariffs, there was optimism about a rebound in the tech IPO market. However, recent uncertainties have led many startups to delay their public offerings. Reports indicate that companies like Chime and StubHub have paused their IPO plans, prompting VCs to reconsider investment priorities.

Silver Linings Amidst Uncertainty

Despite the unpredictability, some sectors like AI and defense tech may present investment opportunities. Hazard remains confident about long-term trends in AI, emphasizing its potential to help companies navigate economic uncertainty. However, the booming AI market may not be enough to counterbalance the volatility induced by geopolitical changes.

In summary, while there are challenges posed by Trump's tariffs, there are also emerging opportunities in sectors less affected by international supply chains.