Startup investment news 2025: Will Q2 be a rollercoaster?

Monday morning, 7th of April: It looked like another gut punch for the stock market but turned out to be fake news. A popular X account, Walter Bloomberg, falsely claimed that Donald Trump was considering a 90-day pause on his controversial tariff plan. Index funds like the Dow Jones were shaken: rapidly rising, before falling minutes later.

This kind of volatility goes beyond the usual daily ups and downs of a stock—that’s why the false report grabbed so much attention. It shows just how much sway a U.S. presidential announcement can have on the markets.¹

He recently declared that “foreign trade and economic practices have created a national emergency” for the US.²

In this article, we discuss what US and European startups can expect in the following months of his presidency.

One thing is sure: the tech sector needs to be prepared for a rollercoaster Q2.

The economic context for tech companies

Trump’s moves range from blanket import tariffs to major tech initiatives and regulatory shifts and startups are feeling the ripple effects.

Many economists warn that the White House has set in motion one of the largest shifts in global trade in decades, and among the results could be higher prices for US consumers and more inflation. With his aggressive “America first” agenda around tariffs, Trump holds on to the idea that US consumers are willing to pay higher prices for American goods, while there is no evidence of that ever taking place, according to Tibor Besedes, professor at the School of Economics at the Georgia Institute of Technology.³

Another noticeable announcement is Project Stargate: a $500 billion AI infrastructure initiative led by OpenAI and SoftBank, aiming to build massive data centers across the US to support advanced AI development and establish American dominance in the AI field. The project is expected to create 100,000 jobs and bolster U.S. capabilities in artificial intelligence, “outpacing rival nations” in this critical tech domain.⁴

By the way, The Heard and McDonald Islands are among the dozens of Trump's latest round of tariffs. But they have no exports, because no one lives there: those islands can only be reached by sea and are known for their high population of penguins and sea birds.⁵

Before we dive into the consequences for companies in the US and Europe, let’s summarize what happened in the startup ecosystem in the last quarter.

Q1 in a nutshell: Major tech startup trends

Broadly, Q1 2025 marked a rebound in venture funding; it marked the strongest one for venture investment since Q2 2022 with $113 billion.

A critical moment for AI in the US

A significant driver was the generative AI boom: more than half of all global VC funding last quarter went into AI-related companies, making AI the hottest sector of Q1.⁶

Talking about AI: Multimodal AI is the next generation of AI we will need to get familiar with in 2025. Multimodal AI refers to systems capable of processing and integrating multiple forms of data, such as text, images, and audio, simultaneously. This integration allows AI to understand context more deeply, leading to more natural and intuitive interactions. For instance, an AI assistant could interpret a user's spoken words alongside their facial expressions and tone, enhancing communication.⁷

The US captured the lion’s share of capital: roughly $80 billion (71% of global funding) flowed to US startups, thanks in large part to mega-deals like OpenAI’s record $40B round.

By the way, Open AI invested in its first cybersecurity startup: $43 million went to another AI startup that helps companies defend against attacks like deepfakes, New York-based Adaptive Security.⁸

Other sectors saw notable activity too. Immersive reality/metaverse tech made a surprising splash. US-based Infinite Reality raised a $3 billion round in Q1.⁹

Silicon Valley regaining traction

The San Francisco Bay Area alone accounted for nearly half of global venture dollars in Q1. This reminds us of San Francisco mayor Daniel Lurie:

He wants to bring his city back to its glory days, focusing on empowering tech leaders.¹⁰

Europe’s startups backed by EU grants

Outside the US, funding also improved but at a gentler pace. Europe and Canada saw venture activity tick up from 2024 levels. According to Dealroom data, European startups attracted $14.5 billion in Q1, a solid number but we missed blockbuster deals. From AI and fintech to clean energy and biotech, startups have attracted large amounts of funding, signaling investor confidence in Europe’s potential to lead in technology, health, and sustainability. Large amount of this money is due to a $12 billion investment from EU grants and Framework Programs.¹¹

‍

Q2: What does the quarter hold for startups in the US and Europe?

How will US startups be affected?

Trade and tariffs: Higher costs and market volatility

Trump’s tariffs have consequences especially for those that manufacture products or rely on global supply chains. A 10% blanket tariff on imports means higher prices for components, hardware, and raw materials across the board. Considering that in 2024, the US imported nearly $486 billion in electronics, startups building gadgets or IoT devices must pay more for parts sourced overseas or find domestic alternatives. Venture investors and founders worry these tariffs will raise the cost of doing business and squeeze margins.¹²

Startups aiming to raise new venture rounds in Q2 may face more skeptical VCs and lower valuations if this uncertainty persists. There’s also concern about exit opportunities: an IPO window that was just starting to reopen might shut again if markets stay volatile, and big tech firms could pause acquisition plans while they “wait and see”.¹²

However, the situation could benefit certain firms. Take, for example, a US manufacturing startup that sees increased demand as larger companies look for onshore suppliers to replace Chinese imports. Indeed, Trump explicitly wants to facilitate “re-shoring” production to the United States.²

Paradoxically, the tariff policy may even undercut one of Trump’s own tech initiatives: the AI infrastructure build-out.

Analysts warn that steep duties on servers, networking gear, and electronics from key suppliers (Taiwan, South Korea, China) could “hamstring” Big Tech’s data center expansion plans.¹³

Domestic tech policy: A double-edged sword

Generally speaking, Trump has adopted a deregulatory stance which is largely welcomed by startups. The administration’s early moves repealed or paused some planned tech regulations, arguing that those were “hindering innovation”. This means startups in fields like AI or autonomous vehicles face fewer federal mandates (at least for now) and can iterate faster without waiting on compliance checklists.¹⁴

AI startups could benefit: with government backing for AI growth, they might attract even more capital and customers. However, this beneficial outlook depends on the company:

Smaller AI players must also contend with the dominance of well-funded leaders (like OpenAI or Anthropic).

Lastly, Trump’s crypto-friendly rhetoric has empowered US fintech and blockchain entrepreneurs. After years of regulatory crackdowns, there’s hope for easier compliance and government support: for example, if the US were to buy or hold strategic crypto assets, that would enormously validate the market. For now, though, fintech startups are operating in a more optimistic atmosphere than a year ago.¹⁵
‍

In sum, American startups in Q2 2025 face a landscape of higher operating costs and macro uncertainty due to tariffs, but also enjoy a home-field advantage of pro-industry tech policies and large-scale domestic investment. Those focused on hardware or global trade must tighten belts and adapt supply lines, while those in software, AI, and crypto are seeing tailwinds from Washington’s new priorities.

‍

How will European startups be affected?

Transatlantic trade tensions: Challenges for European startups

Europe’s startups enter Q2 2025 confronting a more hostile trade relationship with the U.S. than they’ve seen in years. Trump’s new tariffs apply to virtually all European goods at a base 10% rate. For European tech startups that export to the US, this is a serious hurdle. Take, for example, a Swedish electric bike startup or a German IoT sensor manufacturer trying to sell in the U.S. market: starting April 2025 their products face an extra 10% cost, influencing negatively price competitiveness.¹³

European startups may delay or rethink US expansion. However, the US market is a key market for growth-stage European companies, but additional tariffs act like a tax on scaling. Margins, which are often thin for young companies, will be squeezed.

If the EU imposes counter-tariffs on US goods, it could indirectly affect European startups as they might see their costs rise, especially for hardware.¹⁶

Also, the threat of a trade war adds uncertainty. This comes at a delicate time: Europe’s economy in late 2024 had been stagnant, though by Q1 2025 some improvement was seen as inflation started to ease.

A trade conflict could undercut that recovery and make investors more risk-averse.⁶

But there is also an optimistic outlook for the European market: If US market turbulence continues in Q2, European startups might actually look more attractive to some investors. Europe’s tech ecosystem is less trade-dependent in certain areas. For example, a German SaaS software startup selling purely digital services to global customers isn’t directly touched by goods tariffs. Services are not subject to these duties, so Europe’s strong software and fintech scene can keep scaling in the US without tariff costs.¹⁷

Of course, we have to be careful with such assumptions, as digital trade barriers, which Trump has not announced, are not completely unthinkable.

Regulation and competitive landscape

A defining feature of Europe’s environment for startups is regulation. Europe is on the verge of adopting the AI Act, a comprehensive law governing artificial intelligence. As of Q1 2025, the AI Act is in final negotiations and could be passed later in the year. It will classify AI systems by risk and impose obligations (transparency, human oversight, etc.) especially on “high-risk” AI (like facial recognition or algorithms used in hiring).¹⁸

European AI startups are preparing for this by building compliance into their products. But compare this to the US, where Trump has explicitly avoided new AI regulations and even revoked guidelines that he felt over-regulated AI. This could lead to serious drawbacks for European AI startups as they face stricter rules (and potentially higher costs) than US startups in the same domain.

On the flip side, Europe’s regulatory approach can create unique opportunities for startups that focus on compliance and ethical tech. For instance, there’s a growing niche of regtech and privacy tech startups in Europe that help other companies comply with GDPR, DSA, etc. Demand for such solutions rises.¹⁹

In this sense, while Trump’s America might be the Wild West of tech innovation in 2025, Europe is positioning itself as the responsible adult.

‍

Wrapping up, European startups in Q2 2025 face a more complex environment. The US has become a source of cost and risk due to tariffs.

Q1 2025 showed that innovation is very much alive in Europe, but the real test will be maintaining momentum if external conditions deteriorate. Startup founders therefore need to prepare for how their business can thrive despite geopolitical shifts: