Spent the weekend talking to dozens of founders at YC alumni reunions and realized that we’re in the middle of an inflection for hard-tech companies. (10% of the recent batch of 240 startups are in hard-tech)

Sharing some thoughts on why this is happening below ⬇️

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🧠 Improvements in compute and novel AI models

- AI reduces the barrier to entry for startups in capital intensive industries like pharma where they can bring the cost of developing viable drug candidates from $1b to tens of millions. Pharma companies are willing to commit to large contracts and foot the R&D bill of these startups for the potential payoffs.

- Powerful foundational models like AlphaFold are now capable of generating viable synthetic data for training new models, creating an explosion in training data that can be purchased at affordable prices.

- New models like o1 with advanced reasoning capabilities can synthesize complex scientific papers/concepts, making it easier for motivated founders to gain the technical knowledge needed for hard-tech.

- AI is creating massive new demand for energy and chips that outstrips supply, creating market opportunities for profit and innovation in industries that had previously been relatively competitive and commoditized.

☁️ A realization of limits in software startups

- Revenue slowdowns have hit startups in many software categories where markets were not as big as projected. Productivity gains from AI are further eating into the growth of those markets.

- Many hot SAAS startups raised too much money at too high valuations during low interest rate environments. Though they are flush with cash, they are not positioned to IPO or return capital to investors.

- SPACs proved largely unsuccessful and the bar to IPOs have increased, all while the FTC has increasingly barred big tech from acquiring startups in niche areas. Basically, exit opportunities are drying up across the board.

✈️ Process, quality, and incentive failures at legacy monopolies

- Mismanaged incentives between professional managers and labor are causing chaos at legacy manufacturing companies like Stellantis and Boeing. There new points of entry in these markets that just a few years earlier had been unthinkable.

- Inability for existing companies to pivot their business models at the risk of existing profits or backlash from partners, such as GM with electric cars or Intel with x86.

❌ Learning opportunities from the missteps of prior hard-tech startups

- An increasing realization that many hyper-scaling startups need founders to be more hands on and pivot the business at a moment’s notice with changing market conditions (see Founder Mode from PG).

- Many late-stage b2b companies had previously focused on selling to startups but are realizing there are insufficient growth pathways and the most viable route of a venture-scaled b2b is selling to enterprise companies.

A few areas I’ve been really excited by:

🧠 Foundational models in biology, physics, and chemistry
🚀 Defense tech (lower cost weapons that take advantage of advances in software+hardware)
🧬 Proteins and enzymes to replace traditional chemical manufacturing (think Solugen)
⚡️ Hardware to transform critical legacy industries like energy and mining
💻 Novel specialized chips for AI

Shoutout to @jpren.eth @jacky and Hamsa (not yet on Warpcast) for helping me refine these ideas!

If you’re a founder or investor focusing in these areas, hit me up! I’d love to hear some more contrarian takes.

Founders

Also, casting directly to my feed because I’m not a member of /founders 😢 @dwr.eth

💥 Global conflict including wars are causing significant policy shifts

- Defense tech has broadly been “uninvestible” at the startup level due to the dominance of existing oligopolies, but Palantir and Anduril have broken through as flag bearers for innovation.

- LPs at funds are now changing their perceptions around weapons due to wars and are loosening restrictions for what VCs can and cannot back.

- Deglobalization is resulting in a focus on domestic manufacturing through both tariffs and subsidies. This enables manufacturing startups that would otherwise be uncompetitive at a global level to emerge through government support.

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Glad you found it valuable! I really do wish the world were in a more stable place, but the reality of conflict necessitates innovation in these areas

This is a fantastic thread and I’m really happy it landed on my home feed. I think you are spot on about what LPs are willing to invest in. A lot of things that were taboo or vice are starting to look appealing when global unrest is a clear and present danger.

This cast thread was amazing! 
Thanks for taking the time to put this all together.

It doesn’t make hardtech any easier and VC and IPO funding is drying up in general because of the same trends - there is definitely a rotation happening but I am not sure it will create for the outcomes for everyone. Maybe some highflying nuclear, space startups… bullish though on anything precision farming that you can spin up in your house and AI/AR wearables!

Amazing 
Cast
Happ to see You 
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