Investing During the Tariff Era

By: Izzy Melgar, Luca Troop, Tina Ngo, Mya Bynoe, Kabir Ramnani

Introduction: Why Tariffs Matter to VC

Tariffs and trade policies have become increasingly important in today’s globalized economy, impacting everything from raw material prices to supply chain reliability. For venture capital firms, even those focused on early-stage or domestic startups, ignoring these macro forces is no longer an option. Tariffs can significantly alter unit economics, delay go-to-market timelines or limit the scalability of hardware-dependent and internationally sourced products. This is especially critical in sustainability-focused sectors like clean energy, advanced materials, and green construction, where startups often rely on global suppliers or emerging international technologies. As protectionist policies grow and trade tensions evolve under new administrations, venture investors must proactively factor in trade policy exposure during diligence---not just to mitigate risk, but to identify emerging opportunities in reshoring, local manufacturing, and climate-aligned infrastructure.

Quick Policy Pulse: What the Current Administration Means for VCs

Under the new administration, the United States has implemented significant tariff increases targeting imports in key sectors such as electric vehicles, lithium-ion batteries, solar and wind energy equipment, and steel and aluminum. Tariffs on Chinese goods now 145%, including a notable 100% tariff on electric vehicles and a substantial increase on lithium-ion batteries. Additionally, imports of solar and wind components from Southeast Asia face tariffs ranging from 24% to 49%. These policy changes mark a shift from previous friendshoring strategies towards direct reshoring, reinforced by the “Buy American” provisions that prioritizes domestic manufacturing for federal projects. Meanwhile, many climate-related initiatives under the Inflation Reduction Act (IRA) have been paused or modified, with potential further adjustments anticipated, especially concerning electric vehicle incentives and domestic sourcing requirements. These developments have introduced near-term supply chain complexities for U.S.-based manufacturing and sustainability startups, but also highlight potential opportunities driven by increased domestic demand and policy incentives supporting local manufacturing and innovation.

Sustainability Startups and Global Supply Chains

Tariffs on imported goods have tremendously affected sustainability startups, particularly those striving to offer cost-effective solutions in spaces like solar energy, green building materials, and EVs. In the solar industry, increased tariffs on Chinese materials like polysilicon, glass, and solar cells, have led to increased equipment prices; this has caused slowed residential adoption, job losses, and reduced investments in solar. Similarly, tariffs on aluminum and steel have surged construction costs for manufacturers producing recycled materials, which have deterred investments in this avenue as well. In the EV sector, the U.S. significantly relies on China for minerals like lithium and graphite. This has led to supply chain vulnerabilities and disruptions, with recent tariffs exacerbating production costs and threatening the progress of the clean energy transition. Moreover, these challenges underscore the need for sustainability startups to continue navigating complex geopolitical issues while trying to maintain affordability and scalability in their goods and services.

Hillside’s Response: Shifting Diligence and Strategy

In light of rising global trade tensions and shifting tariff policies, Hillside Ventures has increasingly integrated tariff risk into our investment committee discussions. What was once a macroeconomic afterthought is now a core diligence filter, especially as we assess supply chain exposure. Companies heavily dependent on overseas manufacturing or lacking reliable alternative suppliers now raise red flags during diligence. Conversely, we’ve begun to prioritize green flags such as domestic manufacturing strategies, vertical integration, and local supply chain resilience. At a recent Investment Board meeting, we voiced our concerns about navigating this new landscape, and the resounding takeaway was simple but powerful: this is uncharted territory for everyone. Tariff volatility at this scale hasn’t occurred in recent memory, and even seasoned investors are figuring it out in real time. Amid the uncertainty, Hillside is focused on backing startups that not only weather policy headwinds but turn them into a competitive edge.

Strategic Responses: How Founders and Funds Are Adapting

In response to growing trade friction and unpredictable tariff environments, founders and venture funds are taking proactive, strategic steps to stay ahead. Many startups are embracing nearshoring or reshoring---moving production closer to home to reduce risk and increase control over supply chains. Others are diversifying their supplier base, ensuring that a single geopolitical shift doesn’t derail operations. In capital-intensive industries, some founders are even pre-buying inventory or raw materials to hedge against future price spikes.

Beyond the supply chain, some startups are rethinking their entire go-to-market strategy. For instance, shifting from a B2C model to a B2B model can reduce shipping costs, stabilize demand, and offer stronger pricing power. Meanwhile, in the sustainability space, we’re seeing more founders engage in collective policy advocacy---joining industry coalitions to influence legislation, secure incentives, and promote fair standards. These adaptations aren’t just survival tactics; they’re smart positioning moves that show a deep understanding of the evolving market landscape. At Hillside, we see this kind of agility as a competitive advantage---and a key signal of a founder worth backing.

Why We Still Focus on Sustainability

At Hillside Ventures, sustainability is not just a vertical we explore---it’s the foundation of our long-term investment thesis. We believe that addressing climate change is not only a moral imperative but also one of the most significant economic opportunities of the next decade. While tariffs and trade policy shifts can slow a startup’s path to scale by increasing costs or interrupting global supply chains, they can also serve as catalysts for domestic innovation. For instance, when tariffs were placed on imported solar panels, it sparked a wave of U.S. based manufacturing, creating fertile ground for clean energy startups to thrive. These moments of disruption reinforce the need for localized, resilient supply chains---especially for climate-focused technologies.

We continue to prioritize sustainability because that’s where the world is headed. Capital markets are increasingly rewarding ESG-aligned companies, top-tier talent is flocking to climate tech, and public policy is pushing for decarbonization across every major sector. Tariffs are just one example of the broader systemic shifts that are reshaping how and where climate solutions are built. Rather than viewing trade policy as a roadblock, we see it as part of a larger realignment---one that favors startups building for a more sustainable and self-sufficient future. At Hillside, we invest in founders who are not only ready to navigate this complexity but who see it as an opening to lead.

Conclusion

Tariffs are no longer temporary disruptions---they're a permanent fixture of the global business landscape. For early-stage companies, especially in climate and sustainability sectors, navigating this environment isn’t just about survival, it’s about strategy. At Hillside Ventures, we see smart adaptation to trade and policy shifts as a signal of founder strength and long-term viability. The startups that will win are those building resilient, regionally grounded solutions that can scale regardless of geopolitical headwinds. A more localized, sustainable future isn’t just possible---it’s already underway. And it’s one we’re proud to invest in.