Why deep tech venture capitalists have resilience in the face of global tariffs

When President Trump announced a package of tariffs on April 2nd 2025, intended to reset global trade in favour of the USA, it understandably sent shockwaves through the markets. 

Understandably, it also sent VC investors in some sectors into a spin because investing in startups, many of which fail, already carries high risk rates.

A "pause" in the imposition of tariffs until July 9th has now been extended to August 1st. However, the President says it will not be extended again, and has posted on his social media platform Truth Social warning a number of countries of the introduction of double-digit tariffs. 

The President has also escalated his trade war further by threatening a 50% tariff on imported copper from Aug 1st on the grounds it is crucial for national defence. He is also said to be considering further tariffs on a range of critical industries.

Despite this, we at Beyond Earth Ventures, believe that deep tech will remain resilient in this environment. 

Investors dislike uncertainty and, although the USA has made deals with a number of countries and, crucially, with China on rare earth minerals, the imposition of tariffs will affect the deep tech sector which is a global enterprise. The hardest hit companies are those which rely on imports.

Higher borrowing costs and contracting world trade discourages investors as capital flows tend to dry up. For venture capitalists there is also a negative effect on exits, the point at which investors realise returns on their investments usually through an IPO or acquisition. Less capital in the financial markets means investors' preferences may switch to slower-growth, less risk-laden holdings and venture valuations may face downward pressure.

However, deep tech inventions – from advanced robotics to quantum computing to clean energy –  are not fads but fundamental innovations grounded in physics, biology, and chemistry. Like semiconductors in the 1960s, today's deep-tech breakthroughs – AI chips, synthetic biology, energy, space, advanced materials and more – are reshaping industries and commanding strategic importance worldwide. 

The numbers tell a compelling story. According to BCG, deep tech now claims approximately 20% of all venture capital funding, doubling its share from just a decade ago. The sector is projected to grow at a staggering CAGR of 48.2% between 2025-2031, reaching $714.6 billion. More tellingly, according to Mckinsey, deep tech funds have generated an average net IRR of 17% compared to 10% for traditional tech funds. This isn't just a temporary shift - it's the beginning of a supercycle.

Unlike consumer-facing startups, which are often vulnerable to market sentiment and short-term economic cycles, deep tech ventures are built on breakthrough scientific discoveries and engineering innovations that target foundational, long-term challenges. This resilience may be a critical advantage in today's turbulent environment.

A report from the Royal Society featured in the Times concludes that the space economy could become as influential as the Industrial Revolution over the next 50 years. New pharmaceuticals, bioprinted organs, molecules made at zero gravity and semiconductors made in orbit are all within range.

Investors put their funds into deep tech as a long-term commitment. Typically, deep tech startups will have an investment horizon of 5-10 years, meaning they are less susceptible to day-to-day market fluctuations.

High net worth individual investors, angel investors, may be motivated by more than financial gains, enjoy mentoring young entrepreneurs, sharing expertise and knowledge. Where these angel investors form networks, they are able to pool their resources and share opportunities, spreading the risk across a broader range of startups.

In addition, governments recognize that technological leadership is a critical component of national security. The U.S. CHIPS Act, the EU's European Chips Act, and China's aggressive semiconductor push are all part of a broader trend where technology independence is seen as a strategic asset. This focus is creating significant demand for startups developing core technologies that reduce reliance on foreign suppliers.

For investors, this trend presents a unique opportunity. Startups that align with national priorities in areas like AI, advanced manufacturing, space tech, and quantum computing are likely to benefit from both public funding and favorable regulatory environments. For example, companies like Commonwealth Fusion Systems are pioneering compact fusion reactors, potentially solving one of the greatest energy challenges of our time, while Zeno Power is developing next-generation radioisotope power systems that can provide decades of reliable, clean energy for space and terrestrial applications. 

Deep tech and space tech firms are able to mitigate tariffs through a combination of strategic, operational, legal, and diplomatic approaches. These sectors typically involve high-value, specialized components that cross multiple borders, making them vulnerable.

But many space tech firms may qualify under national defence or strategic interest clauses. Deep tech firms can also work with industry associations or directly with trade representatives to argue for exemptions.

For venture capitalists and limited partners, investing in deep tech requires a different mindset and strategy than traditional tech or consumer startups. Here are a few key considerations: deep tech ventures often require longer R&D cycles but potentially transformative outcomes.

Understanding the underlying science and engineering is critical. This often means assembling a network of technical experts who can assess the feasibility of a startup's technology.

Given the capital-intensive nature of deep tech, aligning with corporates, governments, and research institutions can be a powerful way to accelerate commercialisation and reduce risk.

As the geopolitical landscape continues to evolve, deep tech's role as a strategic asset will only grow. Investors who recognize this shift and position themselves accordingly will find themselves at the forefront of the next industrial revolution.