How Trump Tariffs Are Forcing Indian VCs to Rethink Startup Investments

Global markets have been rattled since U.S. President Donald Trump announced reciprocal tariffs on imports in early 2024. While the U.S. granted India a 90-day tariff hike deferral, the uncertainty has left Indian VCs and startups in a limbo. With fears of a trade war escalating, investors are scrambling to reassess fundraising strategies, export-reliant startups are bracing for turbulence, and deeptech sectors are eyeing unexpected opportunities.

What Triggered the Tariff Turmoil? A Recap of “Liberation Day”

On April 2, 2024—dubbed “Liberation Day” by Trump—the U.S. imposed tariffs matching the duties it faces from other nations. For instance, while the U.S. charges 2.5% on imported cars, India levies 70%. Trump labeled this imbalance “unfair,” slapping India with a 26% tariff on select exports.

Though the 90-day pause brought temporary relief, the Sword of Damocles still hangs over Indian startups, especially those exporting to the U.S. The reprieve sparked a rally in Indian manufacturing stocks, but VCs warn: “This isn’t a victory lap—it’s a cautionary pause.”

Why Indian VCs Are Hitting the Pause Button

Investors like Blume Ventures’ Arpit Agarwal note that tariff shocks disrupt long-term valuation models like discounted cash flow (DCF). *“Tariffs weren’t in anyone’s 20-year projections. Now, everyone’s recalculating,”* he says.

Foreign LPs and family offices are holding back capital, wary of geopolitical risks. Exfinity Ventures’ Chinnu Senthilkumar adds: “Global clients are delaying purchase orders. Until clarity emerges, LPs won’t loosen their purse strings.”

Indian VCs are split: consumer-focused funds remain bullish on domestic plays, while those backing exporters brace for choppy seas.

Indian Startups in the Crossfire: Exporters vs. Domestic Players

Startups like agritech exporters and SaaS firms serving U.S. clients face immediate headwinds. Paytm’s Vijay Shekhar Sharma warns: “Tariffs could squeeze margins and delay IPOs.”

However, domestically focused startups—edtech, fintech, and logistics—may dodge the bullet. As Sharma notes: “India’s internal demand story remains intact.”

But the bigger worry? A liquidity crunch if LPs stay sidelined. PitchBook reports that U.S. IPO-bound startups are already postponing plans, and Indian VCs fear a domino effect.

Deeptech Dreams: Can Trump Tariffs Boost India’s Manufacturing Momentum?

Amid the chaos, sectors like semiconductors, defense tech, and advanced manufacturing see a silver lining. With China facing 245% tariffs, investors like Speciale Invest’s Vishesh Rajaram are doubling down: “India can fill the supply chain gaps—if the policy framework supports it.”

Bharat Innovation Fund’s Ashwin Raguraman agrees: “This is India’s moment to attract deeptech capital. But we need clearer policies to channel investments.”

Funding Winter 2.0? How Tariffs Could Reshape India’s VC Landscape

The million-dollar question: Is another funding winter looming?

Blume’s Agarwal draws parallels to the COVID-era chip shortage: “Unpredictable shocks reshape industries overnight. Tariffs could reroute global supply chains permanently.”

While most VCs believe India holds an edge over China and Mexico, the short-term outlook is cautious. As Raguraman puts it: *“Slow decision-making will prevail until the tariff fog clears.”*

Conclusion: Navigating the Tariff Storm—What Lies Ahead for Indian VCs?

Trump’s tariffs have thrust Indian VCs into a high-stakes game of wait-and-watch. While deeptech and manufacturing startups could emerge as winners, the broader ecosystem faces months of uncertainty.

For Indian VCs, the playbook is clear: diversify portfolios, lobby for policy support, and prepare for a volatile fundraising climate.

As Senthilkumar quips: “In chaos lies opportunity. India just needs to grab it.”