AI-generated editorial illustration; not a documentary photograph.
Generational Partners founder Van Espahbodi says software-focused venture firms are moving aggressively into defense, aerospace and industrial technology, often without the experience needed to evaluate capital requirements, customers or technical risk. In a Crunchbase News interview published Sept. 22, 2026, he attributed the shift partly to pressure from limited partners seeking exposure to companies founded by alumni of SpaceX, Palantir and Anduril Industries.
AI Changes the Cost Comparison
Espahbodi argues that AI has weakened assumptions that software businesses are inherently more efficient than hardware companies. Frontier AI laboratories have become highly capital-intensive, he said, while digitally designed manufacturing and commoditized components can reduce the cost of building some physical products. His investment preference is for companies combining software talent, established hardware and clear customer demand rather than businesses dependent on new scientific breakthroughs.
A SpaceX Alumni Pipeline
Generational Partners has backed 14 companies since its first investment in January 2023, spanning industrial infrastructure, manufacturing, energy and water desalination. Espahbodi highlighted founders applying experience from SpaceX to decentralized water treatment, automated maritime vessels and manufacturing systems. He presented these businesses as examples of software and communications technology changing how existing physical industries operate, rather than eliminating the underlying hardware challenges.
Investor Demand Brings Valuation Risk
According to Espahbodi, endowments, foundations, pension funds, family offices and wealthy individuals are pushing fund managers to participate in the hard-tech surge. He said some startups are raising large pools of capital not only to develop intellectual property but also to acquire other companies, blurring the boundary between venture capital and private equity.
He also warned that firms unfamiliar with defense and industrial markets may struggle to distinguish durable businesses from momentum-driven deals. Espahbodi claimed some large venture firms are now investing at excessive valuations in companies that have not yet produced anything, but the interview provided no specific valuations or named examples for that assertion.
Talent Matters More Than Proximity
Espahbodi sees Southern California, particularly El Segundo, as the central talent market for the convergence of aerospace, manufacturing and software. Although proximity to government buyers can help companies understand demand, he argued that startups should choose locations primarily for engineering and production talent and should retain a commercial focus instead of organizing entirely around government contracts.
Source: As Software VCs Chase SpaceX Alumni, A Defense Tech Veteran Warns Of ‘Tourists And FOMO’
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