On Stranger Tides: How the 2025 Tariff Regime is Stirring the Startup Seas
By: Anthony Bontrager, Managing Director, WestRiver Group
“Close your eyes and pretend it’s all a bad dream; that’s how I get by."
- Capt. Jack Sparrow, Pirates of the Caribbean
Beware a receding tide: A tsunami on the horizon?
As if early-stage companies didn’t have enough to contend with coming out of the COVID-induced hangover of the last two-plus years, the Trump administration’s 2025 reciprocal tariff regime and its abrupt pause have dropped a proverbial turd in the punchbowl.
While hardware companies braced for part-deux of the 2018 Chinese tariff program, early-stage software startups were no longer going to be immune to the obvious market disruption. Software stocks were hammered alongside companies with direct exposure to physical supply chains.
For example, software and media companies like Palantir Technologies (PLTR) and Netflix (NFLX) saw their stock prices drop by 14% and 8% respectively despite having no physical supply chains directly impacted by tariffs. By the end of trading, the median software NTM (Next Twelve Months) revenue multiple had dropped to 4.8x – a level we've only seen twice in the past decade. For context, we briefly hit this level in February 2016 (3.8x) and for a short period in November 2022 (4.6x).
By contrast, those with direct exposure such as Nike (NKE) and Tesla (TSLA) saw their stock prices drop by similar percentages – 14% and 9% respectively. This seeming overreaction actually revealed deeper investor concerns about the broader economic impact of these tariffs.
And the market has yet to factor in the 2nd and 3rd order effects coming out of the broader economic uncertainty these tariffs unleashed.
Fortunately, we were all able to breathe a sigh of relief when the administration announced its 90-day pause. For early-stage companies, this temporary reprieve creates both opportunities and challenges. On one hand, it offers a moment to catch their breath and develop contingency plans. On the other hand, the continued uncertainty about whether tariffs will ultimately be implemented after the pause may actually extend the decision paralysis affecting potential customers and investors.
Make no mistake though, as the uncertainty remains as we saw with the April 10th renewed sell-off. This suggests that despite the irrational exuberance exhibited on April 9th, the market is taking a "wait and see" approach rather than assuming the tariffs are permanently off the table. In fact, many investors are using this pause as an opportunity to reposition portfolios away from companies with significant international exposure, regardless of whether they're in software or hardware.
The 2nd Order Effect: From “slowing” sales to “slower” sales
Prior to the pause, the most immediate effect software startups were feeling was a dramatic slowdown in sales cycles, fueled in large part by the COVID-induced hangover of the past two years. Just as the market was starting to see light at the end of the procurement tunnel, this new economic uncertainty has the potential to make clients hesitant to commit to new expenditures, especially for SaaS products that represent ongoing financial commitments.
As Jamin Ball noted in his Clouded Judgement Substack, "Every CIO is now going to be more cautious. Budgets won't be as loose. Everyone will 'batten down the hatches' to some extent." The potential for a re-tightening of budgets is leading to a real "growth scare" in the market, with recessionary concerns becoming more widespread.
Even if this 90-day pause holds, it is unlikely to fully restore buyer confidence in the near to mid-term. Most organizations will likely use this period to stress-test their budgets under different scenarios, including one where the tariffs are fully implemented after the pause. For software startups, this means sales cycles may improve slightly but likely won’t return to pre-tariff announcement levels anytime soon.
The 3rd Order Effect: The capital spigot starts to trickle
The tariff announcement and its knock-on impacts also look to trigger significant third-order effects through the software startup ecosystem, particularly as it relates to venture capital funding. Limited partners, responding to broader market instability (e.g. the IPO market being unlikely to ignite anytime soon is one example) and the denominator impact of their public equity portfolios trending towards bear territory, are very likely to maintain their risk-averse stance. This will extend to the venture capital and private equity markets – the primary source for early-stage funding.
Therefore, the 90-day pause could present a strategic window for early-stage software startups seeking funding. Savvy founders, those who are running capital efficient businesses and driving real value for their customers, will use this period to accelerate fundraising efforts, making a compelling case that their solutions remain viable regardless of the ultimate tariff decision. The pause may create a brief "FOMO" effect among investors who want to deploy capital before potential market disruption resumes. That said, financing terms may still reflect the heightened risk environment, with investors seeking more favorable conditions than they would have pre-tariff announcement.
Adapting to survive: Enhanced strategies during the pause
The 90-day tariff pause creates a strategic opportunity for forward-thinking startups to adapt and strengthen their positions:
Geographic Strategy Reassessment: Using this pause to evaluate whether product development, hosting, and employment should be distributed differently to minimize tariff impacts if they're ultimately implemented.
Accelerated Growth Initiatives: Temporarily deploying more aggressive growth strategies during the pause, knowing they may need to pivot to efficiency if tariffs are implemented.
Contract Structure Innovation: Developing new contract terms that provide customers with flexibility regarding pricing or commitments if tariffs are implemented after the pause.
Supply Chain Software Opportunities: For startups offering supply chain management, procurement, or logistics software, the pause creates heightened interest in solutions that can help businesses navigate potential tariff impacts.
Focus on Recession-Resistant Verticals: Using the pause to reorient go-to-market strategies toward industries that typically maintain software spending even during economic downturns.
Looking ahead: Beyond the 90-day window
While the 90-day tariff pause provides temporary relief, startups must recognize this as a reprieve rather than a resolution. Commerce Secretary Howard Lutnick's sharing of President Trump's 35-year history of tariff advocacy suggests these policies reflect deeply held beliefs rather than mere negotiating tactics.
The most likely scenarios to watch for include:
Full Implementation: Tariffs being implemented as initially announced after the 90-day period.
Targeted Implementation: A more selective approach to tariffs following negotiations during the pause.
Extended Pause: Further delays to implementation while maintaining the threat of tariffs.
Policy Reversal: A complete abandonment of the tariff approach, though this appears least likely given the administration's consistent messaging.
For startups, particularly those at early stages, the wisest approach is to use this time to build resilience into their business models while taking advantage of any temporary market improvements. The companies that will thrive are those that view the pause not as a return to business-as-usual, but as a strategic opportunity to prepare for a potentially more challenging business environment ahead.
As we navigate this uncertain period, one thing remains clear: the era of easy money and unconstrained growth for software startups continues to evolve into a more demanding environment that rewards careful planning, operational discipline, and strategic foresight. The current pause isn't an endpoint—it's a planning opportunity for the leaders who will define the next generation of successful software companies.
#ONWARD
