Good morning. Greg McKenna here pinch-hitting for Allie and Leo today. Venture investors have been licking their lips for a wave of deregulation and lower interest rates to unlock pent-up demand for exits and a boom in M&A.
What happens to those dreams—and the venture business broadly—in a trade war though? It's a question that's likely to become increasingly top-of-mind for anyone in the startup economy in coming months, as tariffs, counter tariffs, and other bellicose measures roil the waters of global trade.
I polled some VCs and others close to the startup scene to take their temperature as Trump's tariffs on Mexico, Canada, and China were announced (and in two out of the three cases, delayed).
Bradley Tusk, founder and CEO of Tusk Venture Partners, told me over text that many startups won’t be impacted by the tariffs directly. But the tariffs could have ripple effects that are felt across the technology industry ecosystem. The concern lies in broader economic consequences as VCs and companies expect a liquidity boom from an uptick in IPOs and M&A.
"When the markets are plunging because of tariffs, that hurts potential venture exits too,” Tusk wrote, “so tariffs are a problem even if indirectly.”
Umesh Padval, a managing director at Thomvest Ventures, says the short-term impact of tariffs on his portfolio companies—mostly software firms involved with cybersecurity, cloud, or GenAI infrastructure—is virtually nonexistent.
But, he said, he's assuming everything will be resolved in the next three to four months. If they're not, and widespread tariffs cause persistent inflation, “then I would have a different answer,” said Padval, who is a former tech CEO and partner at Bessemer.
Monday's eleventh-hour deals with Mexico and Canada delaying the tariffs offered a temporary reprieve, but the risk of a trade war continues to loom large, not least because of Trump’s warning to the European Union that it could be his next target.
All that uncertainty creates a challenge for VC dealmakers, says Hooman Yazhari, a partner at law firm Michelman & Robinson with over 25 years of experience in private capital. While Yazhari stressed that he's not professing doom and gloom, he said that VCs may handle the uncertainty by standing pat and waiting for clarity—“which is very difficult if you've got a portfolio company that needs money for the next round,” he said, “or were diligencing someone and suddenly you're like, ‘Okay, we'll talk to you again in six months.’”
Another question is how foreign funds, including Canadian LPs, will react to the geopolitical tensions. The Ontario Teachers’ Pension Plan, which manages $216 billion in assets, per PitchBook, did not respond to a request for comment.
At Eclipse, meanwhile, partner Aidan Madigan-Curtis is focused on companies set on disrupting areas like manufacturing, logistics, minerals, and energy—all places where tariffs loom large. She’s far from panicking, though. She believes Eclipse, which boasts $5 billion in assets under management and is invested in top IPO candidate and Nvidia competitor Cerebras, is well-positioned to take advantage of America’s recent shift to onshoring.
“There [are] lots of different ways things can play out,” she said. “I think what I heard, and what we heard, from the last few days was this focus on re-industrialization is real, and it's going to be a key priority, and that companies and talent that are focused on this will really stand to benefit.”
As the current U.S. President is fond of saying: We'll see what happens.
Greg McKenna
Email: Greg.Mckenna@fortune.com
Submit a deal for the Term Sheet newsletter here.
Nina Ajemian curated the deals section of today’s newsletter. Subscribe here.
