In the face of tariff-related ‘chaos,’ early-stage tech investors sound an optimistic note

Investing in young startups is a long-term game. But early-stage companies and their investors are not immune from short-term market pressures. The potential for a tariff-induced reordering of the world economy would seem to qualify.

The new global tariff policy announced by the U.S. on April 2 and the ongoing negotiations regarding its implementation have indeed already begun to change the way that some early-stage tech investors are approaching the work of backing and building startups. 

But the global machine of startup fundraising is still churning along. David Roos, a partner at Core Innovation Capital, says that the changes he’s seen have tended to be proactive strategic adjustments rather than reactive responses to unforeseen upheaval. For his team, at least, deal flow remains strong, and the bulk of Core’s portfolio companies have felt minimal effects. 

“For all the chaos in the macro markets and the constant headline noise, we’ve done seven deals over the past nine months, which is a decent pace for us, and the pipeline in Q1 was probably our strongest quarter ever,” says David Roos, whose firm focuses on early-stage deals in fintech and health sectors at seed through Series A. “There is still a lot of optimism.” 

Aziz Gilani, general partner at early-stage software investor Mercury, agrees that the tariff impact on the companies in the software space may be minimal. From his perspective, the current macro environment could make for a particularly appealing time to invest. 

“As a venture capitalist, it is the times of turmoil that unseat legacy incumbents,” Gilani says. “And we are talking about potentially massive disruptions to the economy. In that world where there is a lot of displacement, there’s a lot of opportunity for new companies to come in.” 

Founders adapt to uncertainty

The idea that uncertainty in a market can create attractive opportunities for investors and companies is not isolated to VC. But Gilani thinks that the disruptive nature of startups leaves them particularly well positioned to capitalize.

In a shifting market, the needs and desires of customers might shift, too. Startups with leaner teams and an inclination to innovate may find it easier to be agile.  

“Large companies are built around trying to do the same thing repeatedly and efficiently,” Gilani says. “Getting them to do something net-new is really hard, and startups exist exactly to take advantage of. It’s finding that new situation and giving the customer what they want for today’s environment.” 

As companies and investors around the world have been adjusting to the new U.S. positioning on tariffs, they’ve also been adapting to what many in the industry believe is another transformational event: the arrival of AI. In today’s market, Roos is looking for founders with the ability to navigate both of these shifts at once. 

“You want to back founders with grit and the ability to persevere through a lot of uncertainty. Because there will be uncertainty,” Roos says. “It’s also about leaning in on founders who are utilizing AI tooling and leaner teams to extend runways and hit milestones with fewer dollars spent. That becomes more meaningful when there’s uncertainty around how easy it will be to fundraise.” 

Short-term questions, long-term thinking

Even as they are adapting to changes in the near term, early-stage venture investors must keep their ultimate focus in the future. But these near-term changes might have long-term implications. 

For Edwin Loredo, also a partner at Core Innovation Capital, the current market environment is a reminder of how quickly things can change. Past assumptions about how companies will grow and what sort of valuations they may be able to attain are not guaranteed to hold.  

“You can obviously see that the uncertainty in the macro market impacts where things trade and the types of multiples you’re getting,” Loredo says. “We’ve talked about this a lot. We can’t bank on companies getting a high-flying multiple or on valuations going through the roof, even though we have this tailwind of AI behind us.”

In this sense, the recent market ambiguity around tariffs and trade has been a reminder to remain prudent. In every type of market, investing in startups involves a certain balancing of risk and reward. Sometimes, there’s cause to rebalance that equation. 

“We try to be pretty disciplined about the positions that we’re taking, the entry points that we’re coming in at, the ownership that we’re taking up front,” Loredo continues. “Because it may be the case that this uncertainty continues, and these things may take a lot longer to provide liquidity, which can mean a lot more dilution.” 

While VC firms and their portfolio companies may adjust based on market conditions, they also try not to over-index. Venture funds operate on long lifecycles. Events that seem seismic today might prove irrelevant by the time an early-stage VC fund starts to realize gains from investments it makes in 2025.

“At a high level, we are looking a decade down the line toward an exit,” Roos says. “We are always thinking, what’s the vision for the future? There will certainly be ups and downs, but you have to take your head out of the micro and think on a longer time horizon.” 

A diverging venture market

Before the U.S. unveiled its new tariff policy, the venture fundraising market had started 2025 on a relatively quiet note. Startups on Carta combined to raise 1,122 new rounds over the course of Q1 2025, the slowest quarter for venture investment in more than five years. At the same time, median early-stage valuations have soared, signaling that many companies are still able to raise capital on attractive terms. 

For Roos, these twin trends demonstrate a split in the venture market that has deepened in 2025. More than ever, the most attractive companies with standout financials are operating in a different world than the rest of the startup pack. 

“I would say there’s a big bifurcation of the market, in terms of the hot deals versus the deals that maybe struggle to fundraise,” Roos says. “We’re definitely not seeing a slowdown in terms of the deals that are in interesting places and companies that have hit their metrics.”

One of the common traits of many of the hot deals, Roos says, is the use of AI. The most attractive companies in today’s market aren’t necessarily AI-first business models, but they are almost invariably deploying AI in some way to streamline and improve their services. 

The startup industry has always been about change. Sometimes, that change just happens a little more quickly.

“People are trying to make changes to adjust to new realities faster and faster,” Gilani says. “We’re seeing customers ask our portfolio companies, how do you make me faster? How can you make me more efficient? How can you help me adapt to this change? If you have a story to tell around that, then you’re having a fantastic time.”