Defense tech veteran warns against ai-driven rush into hardware

Van Espahbodi, a veteran in aerospace and defense technology, warns of a surge in software investors entering industrial technology, driven by AI and FOMO. Espahbodi, who co-founded Starburst Aerospace and later launched Generational Partners, highlights how AI is reshaping hardware economics and enabling new business models. His firm has invested in 14 companies since January 2023, focusing on industrial infrastructure, manufacturing, and water desalination. Espahbodi notes that AI has made hardware more accessible, allowing startups to tackle legacy industries with innovative approaches, as seen with companies like Vital Lyfe, which uses AI to develop scalable water desalination solutions. Espahbodi also points to SpaceX alumni, such as those who built autonomous drone ships, as examples of how hardware challenges are being overcome through digital-first strategies. He criticizes the influx of inexperienced investors into the sector, driven by fear of missing out, and warns of potential overvaluation. Despite these concerns, he remains optimistic, arguing that venture capital should focus on reengineering business models rather than distinguishing between software and hardware. Espahbodi emphasizes the importance of commercial focus while remaining mission-aware, especially as companies navigate government contracts and talent markets.