Extra Edition VC Update
(Friday, Apr. 4th)

Hello Reader,

Here are the latest economic developments and various takes on the current Economic situation, along with their implications for venture capital:

Latest Economic Developments

• New US Tariffs and Market Reaction: U.S. President Donald Trump announced new tariffs ranging from 10% to 49% on imported goods, leading to a significant downturn in the stock market, particularly impacting AI-heavy tech stocks. For example, Nvidia’s stock fell by 6%, and Apple’s by 8%. This was described by analysts as “worse than the worst-case scenario” for the tech sector due to the high dependency on Asia-made components. (Eye on AIFortune, 03.04.2025; The Briefing from The Information, 04.04.2025)
• Surging Recession Risk: Following the rollout of the new tariffs, prediction markets indicated a significant rise in recession odds for 2025. This concern stems from potential retaliatory trade measures, supply chain disruptions, and increased inflationary pressure, factors critical for long-term capital allocators and global investors. (The Oracle by Polymarket, 03.04.2025)
• High Early-Stage Valuations Despite Lower Deal Volume: In Q1 2025, early-stage startup valuations reached record highs, surpassing even the peak levels of the 2021 boom, especially for priced seed and Series A rounds. However, this valuation growth was not accompanied by a rise in the number of deals, indicating that capital is concentrated among a smaller set of startups. AI startups are commanding significantly higher valuations compared to non-AI startups. (Peter Walker, 03.04.2025)

Various Takes on the Current Situation

• Tariffs as a Major Geopolitical Risk: The imposition of tariffs is seen as increasing geopolitical risk, which could potentially drive up the costs of AI products and slow down innovation globally, including in Europe. (Eye on AIFortune, 03.04.2025) Tom Henriksson from OpenOcean also weighed in on the potential negative impacts of U.S. tariffs on transatlantic tech and venture partnerships. (FinSMEs, 03.04.2025)
• Shifting Investor Preferences: Investors are showing signs of shifting away from “cyclical” digital retailers like Amazon, which experienced a significant stock drop after the tariff announcement, towards “defensive” physical retailers such as Kroger. This reflects a broader investor move towards lower-volatility assets amidst recession fears and tariff-driven cost increases. (The Briefing from The Information, 04.04.2025)
• Optimism in Early-Stage VC Despite Macro Headwinds: Despite the macroeconomic uncertainty caused by tariffs and rising recession risks, early-stage venture capitalists remain optimistic. This optimism is attributed to their long-term investment horizons and the ongoing AI revolution, which is seen as creating numerous opportunities. (Dealmaker, The Information, 03.04.2025)

Implications for Venture Capital

• Potential Delays in IPO Timelines and Lower Valuations: Tomasz Tunguz from Theory Ventures warned that the new tariffs could delay IPO timelines due to increased market volatility and potentially decrease valuations if market uncertainty persists for 12–18 months. Ethan Batraski from Venrock believes the IPO window expected in late 2025 may now shift 6–12 months later. Rising recession risk may also delay IPOs and lead to downshifts in growth-stage valuations across sectors sensitive to global demand. (Dealmaker, The Information, 03.04.2025; The Oracle by Polymarket, 03.04.2025)
• Increased Focus on Resilient Business Models: Venture capitalists are increasingly evaluating startups that can help businesses adapt to supply chain disruptions and cost inflation resulting from the tariffs. This includes companies in areas like logistics software and enterprise efficiency tools. (Dealmaker, The Information, 03.04.2025)
• Strong and Potentially Less Syndicated Interest in AI: AI startups continue to command significantly higher valuations, and investors are showing more favorable terms towards them compared to the previous year. Syndicated investments in early-stage AI deals have declined, suggesting more aggressive solo investing by venture firms looking to secure deals in this hot sector. (Peter Walker, 03.04.2025; Sifted Newsletter, 04.04.2025)
• Slowdown in European Fintech Investment: In Europe, fintech investment is lagging behind other sectors like B2B SaaS, with a significantly lower number of deals recorded so far this year compared to the previous year. This indicates a potential shift in investor focus or a maturing of the fintech market in the region. (Sifted Newsletter, 04.04.2025)
• Greater Scrutiny and Hands-On Approach from VCs: Major funding rounds are seeing increased due diligence and hands-on support from VCs, as exemplified by Sapphire Ventures’ multi-year engagement before leading Cyera’s $300 million Series D round. Early-stage VCs are also becoming more involved in the product development and strategy of their portfolio companies. (Dealmaker, The Information, 03.04.2025)
• Growing Interest in Non-Dilutive Funding: Given the increased economic uncertainty and potential for lower valuations, non-dilutive funding options such as grants, revenue-based financing, and venture debt are becoming increasingly favored by startup founders who want to maintain ownership and control while extending their runway. (The VC Corner, 03.04.2025)

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