Trump 2.0: More money may venture into Indian startups

The Indian startup and venture investor ecosystem is looking forward to better business ties and stronger fund flow between India and the US as Donald Trump becomes the 47th US president.

Startup industry executives are watching out for Trump’s policies and their impact on inflation in the US.

In 2021, when the US Federal Reserve adopted a low-interest regime to stimulate economic activity amid Covid-19, it helped startup funding in India reach an all-time high of $36 billion. Later, as the US central bank increased rates to curb inflation, fund flow tightened to a seven-year low of $8.8 billion in 2023.

Trump’s stance against China could be ultimately beneficial for the Indian venture ecosystem, which could be a preferred geography for long-term investment funds.

“There will be some policy clarity with the Republicans controlling the White House, Senate as well as Congress. Any tax cuts would definitely be a major plus for companies as well as large crossover funds,” said a New Delhi-based partner at a venture capital firm.

Additionally, Trump’s opponent Kamala Harris’ stance on increasing taxes on American companies had created a sense of anxiety among Indian startups that are registered in the US. Among the startups looking to reverse flip their holding entity to India, there was some degree of anxiety that the tax outgo could shoot up if Harris came to power. Very recently fintech unicorn Groww reverse-flipped to India. Razorpay and Meesho are working on the process to shift their registered offices to India.

“We were slightly concerned about increasing taxes in the US. This would have a direct impact on companies who are looking to reverse flip to India. But with the Trump presidency that does not seem to be imminent,” the founder of a unicorn startup said on the condition of anonymity.

On a broader note, venture investors said after the last few months of policy uncertainty due to the elections, there will be more sanity in the ecosystem and long-term investment plans will be drawn up.

“American funds have gotten extremely careful about investing in the Chinese tech ecosystem; some of that capital may be diverted towards India, provided our markets and policies remain consistent,” said Sanjay Swamy, partner at Prime Venture Partners, a Bengaluru-based venture firm.

There are some concerns around the inflationary impacts of Trump’s policies, which had been a major issue during his last tenure in office. Some of the investors said that they will watch out for the financial impact of Trump’s protectionist policies on the American domestic scene.

“Trump’s policy rhetoric around immigration and trade is inherently inflationary…this could cause the US Federal Reserve to hold or hike rates, and in turn have an impact on investments,” said the partner cited in the beginning of the story.

“Over the last few years, there has been an increase in startup investments by domestic investors but India isn’t fully deleveraged from foreign funding, yet,” he added.

Indian partners at American venture firms said the overall thinking in the ecosystem is that Trump will slow down investments in China, so there is expectation that investments in semiconductor and artificial intelligence (AI) firms in China will be slow.

"Investments or collaborations in AI and semiconductors might have a pull back of sorts from China and Taiwan, given Trump's stance on China. There might be a push on reducing dependence on territories which have geopolitical sensitivity to China, which might translate into some favourable push for us in India. Though we need to understand that some of these changes are going to take longer, sustained effort beyond his presidency,” said South Park Commons partner Prateek Mehta.

Additionally with JD Vance, who was a venture capitalist himself in his professional life before joining politics, set to become the next vice president, there is a sense among technology investors that he will be supportive of the larger tech and startup ecosystem.