At the start of the year, Tom Drummond, managing partner at San Francisco-based venture capital firm Heavybit, felt mildly anxious about global political volatility and its potential impact on capital markets. By April, his concerns had escalated: “No one knows what the hell is going on,” he told WIRED, referencing President Donald Trump’s reciprocal tariffs that sent global markets into a tailspin when announced on April 2.
Trump later paused import duties on most countries for 90 days, but a 145 percent tariff on Chinese goods remained. The uncertainty surrounding the tariffs’ future has venture capitalists worried. “There’s just as much chance for these tariffs to be pulled as for Trump to dig his heels in,” Drummond said.
Concerns Among Venture Capitalists
Several VCs at small to midsize firms expressed concerns to WIRED that Trump’s tariffs could slow tech investments, further decelerate the already sluggish IPO market, and potentially put some tech startups out of business. Some investors plan to lengthen their investment cycles and look to sell stakes in private companies to other asset managers. Others are avoiding hardware investments, which may be particularly hard hit by the tariffs.
“The tariffs are undoubtedly the main thing discussed in every partner meeting over the past couple weeks,” said M.G. Siegler, an independent investor and former GV Management Company partner. The key question is how significant and lasting the tariffs will be.
Impact on Venture Capital Firms
The biggest factor determining a VC firm’s exposure to the tariffs is whether its portfolio companies are directly affected by global trade or will feel the secondary effects of reduced customer spending in a potential recession, according to Drummond. “If you’re looking at industries that rely substantially on cross-border trade, like hardware or clean tech, you’re in a world of hurt right now,” he said.
One of Drummond’s portfolio companies, an IoT platform, is reevaluating its inventory management strategy, considering when to order from suppliers and whether to find new ones outside China. Siegler believes that if the tariffs remain, VC firms will “distance themselves even further from hardware startups,” as hardware is already considered riskier than software.
Strategic Adjustments
Chip Hazard, a Boston-based general partner at Flybridge Capital, warned over 400 startup founders not to panic but advised them to assess risks and opportunities created by the tariffs and evaluate their financing strategies. “To the extent you are midstream in raising capital, get that closed as soon as possible,” Hazard urged.
Charles Hudson, managing partner at Precursor, noted that his firm’s ecommerce startups could be heavily impacted. Precursor recently raised over $65 million for its fifth fund and plans to invest over three years instead of the standard two, hoping to give limited partners more time to see returns.
Shift to Secondary Market
Hudson predicted that selling stock in private startups on the secondary market will be the primary source of liquidity for investors over the next five years, rather than acquisitions or IPOs. Drummond agreed, saying VCs are becoming more disciplined sellers, needing to deliver liquidity sooner due to rising interest rates and increased caution.
Cooling Effect on International Investments
PitchBook analysts warn that the tariffs could cool international investments. In the first quarter, US capital flowing to VC deals in Europe and China decreased, with around 47 percent of European deals including US funding, down from the previous quarter.
Challenges for IPOs
The tech IPO market was recovering in 2024 with 176 IPOs in the US, up from 90 in 2022. However, “lingering market uncertainties” have led some startups like Chime, StubHub, and Klarna to delay their IPOs. KPMG’s Conor Moore noted that this could shift VC firms’ investment priorities as some companies may need additional funding before a more distant IPO.
Potential Opportunities
Despite the uncertainty, some investors see potential in areas like AI, defense tech, and security. “Pockets like defense tech might be ‘safe’ bets because those startups were already trying to avoid the Chinese supply chain,” Siegler said. Logistics startups, especially those specializing in nearshoring, may also benefit from the policy changes.
Hazard remains confident about long-term AI trends, noting that AI companies focused on helping customers be more agile and generate revenue have significant potential value. While massive AI investments have been made, with OpenAI and Anthropic announcing over $43 billion in investments this quarter, Hazard is “a little less alarmed than I was two weeks ago.”
