How Startup Fundraising Will be Impacted by the Global Trade War in 5 Charts
Beyond the micro elements of each individual twist in turn in the global trade war, the biggest impact on startup fundraising will be the negative impact through investor uncertainty. For startups thinking about fundraising over the next 6–18 months, it’s worth having a framework for the connections.
Anyone claiming to have done an analysis of how this plays out using AI might as well be using darts.
We can, however, look at some history for context.
It’s been a while since there has been a massive global trade war. Mostly because the last one didn’t work out too well.
The peak of global trade just over 100 years ago was right before World War I. Things then took another big hit with tariffs rising in 1930.
While rising tariffs were not the only problem for stock markets during the early 1930s, they played an important role in the overall picture.
Public equity markets collapsed during the last global trade war.
After tariffs rose in 1930, the end result was a decline of almost -90% peak to trough for the large stocks of the Dow Jones Industrial Average (DJIA), which of course meant that smaller stocks did even worse.
We don’t know what would have happened to startup fundraising within this backdrop, but we can at least see how things evolved the last two times public equity markets had big drops.
20 years ago, the dot-com bust was very much related to tech while 10 years ago it was the banking and housing sectors. In both cases, the S&P 500 declined by about -50% peak to trough.
Startup fundraising does get impacted by large declines in public equity markets.
The dot-com bust included a much larger decline in fundraising, at -85%, though even during the financial crisis 10 years ago the decline was meaningful, at -43%.
What about the rise of local startup investment outside the US? Of course this helps at the margin, but the real test of each local ecosystem will be performance during a downturn. Regardless, the US is still easily the largest venture investment market globally and by definition a global trade war will impact investor confidence around the world.
With a global trade war on the horizon, expect startup fundraising to decline by up to -80% from the recent peak.
There is a lot money sloshing around, so declines of up to -80% in startup fundraising will still allow for plenty of companies to raise money.
That said, at some point in the next two years, it’s like that startups will have to work through the toughest fundraising backdrop in at least 10 years.
So is there any good news? Yes. For companies that manage their cashflow, competition for both talent and customers will decline and ultimately there are many ways for startups to still have massive success within this backdrop.