For more than two decades, software has defined the trajectory of venture capital. It was efficient, scalable, and, for a long time, unmatched in its ability to generate outsized returns. Investors poured capital into SaaS platforms, marketplaces, and digital infrastructure, confident in a model that prioritized speed, low marginal costs, and rapid growth. I was part of that era, and like many others, I saw firsthand how powerful it could be.
But what I am seeing now is a clear shift. Venture capital is moving toward deep tech builders, and not as a niche allocation. This is becoming a meaningful part of how capital is deployed. The reason is not ideological but structural.
One of the biggest changes has been the collapse of a longstanding assumption that hardware cannot produce venture-scale returns. That belief shaped investment behavior for years. It discouraged capital from entering sectors that required time, infrastructure, and engineering depth. But that assumption has been challenged in a way that is difficult to ignore. Companies like SpaceX have demonstrated that hardware-intensive businesses can generate both strong and durable returns. Elon Musk reset expectations for what is possible.
The implications of that shift are still unfolding. Even if outcomes like SpaceX are rare, the precedent matters. It has reframed how investors think about risk, capital efficiency, and long-term value creation. It has also changed how founders approach building companies.
At the same time, the economics of software have evolved in ways that are less favorable than they once were. The idea of zero marginal cost still exists, but it tells only part of the story. Customer acquisition has become more expensive, competition has intensified, and retention now requires continuous investment. In many cases, maintaining a market position now requires a continuous flow of capital, where companies must keep spending aggressively just to remain visible and competitive.
The rise of artificial intelligence has accelerated this dynamic further. AI has lowered the barrier to entry for building software products. That is powerful, but it also creates a new problem. If a product can be replicated in a weekend, defensibility becomes fragile. Differentiation shifts away from the product itself and toward distribution, marketing, and capital. That is not a sustainable advantage for most companies.
In contrast, deep tech operates under a different set of constraints. It requires time, capital, and expertise. For years, those factors were viewed as disadvantages. Today, they are increasingly seen as strengths. The difficulty of building in the physical world creates natural barriers to entry. It forces rigor in execution. It demands that teams solve real problems before scaling.
I have lived this firsthand. During my time at SpaceX and in the companies I later built, I saw how these constraints shape outcomes. You cannot shortcut physics. You cannot deploy half-finished systems into the real world and hope they work. That level of discipline creates a different kind of company, one that is harder to build but also harder to replicate.
There are also structural advantages that are often overlooked. Once a deep tech company establishes a foothold, it can access forms of capital that are not available to most software businesses. Asset-backed lending, infrastructure financing, and long-term contracts become viable options. These mechanisms allow companies to scale in ways that are more capital-efficient over time, even if the initial investment is higher.
The talent landscape is shifting as well. A decade ago, the majority of top engineering talent gravitated toward software. Today, that distribution is changing. The influence of SpaceX and similar organizations has created a new generation of builders focused on aerospace, energy, manufacturing, and defense. This shift is reflected in growing demand, with a report estimating the sector could need 3.8 million new workers by 2033, with 1.9 million roles at risk of going unfilled.
Government support has also played a role. Early-stage funding mechanisms, particularly in areas tied to national infrastructure and defense, have helped de-risk some of the initial challenges associated with deep tech. This does not eliminate the complexity, but it changes the equation enough to attract more private capital.
What I find most compelling is that this shift is still early. Many generalist venture firms are only beginning to allocate capital to deep tech. In most cases, it represents a minority of their portfolios. But the trend is clear. More investors are entering the space. More founders are building in it. And more capital is following.
At the same time, global instability has underscored the importance of physical systems. Supply chains, energy production, and industrial capacity are no longer abstract concerns. They are central to economic resilience. That reality is pushing both governments and investors to rethink where innovation needs to happen.
None of this suggests that software is disappearing. It remains essential. But it is no longer the only frontier. The next generation of transformative companies will not exist purely in the digital realm. They will operate at the intersection of software and the physical world, solving problems that require both. After all, Silicon Valley’s origins were in hardware. Although that feels like a distant memory, the current situation is returning to that once-strong stance in hardware, continuing the cycle of the tech landscape.
That is why I believe venture capital is shifting toward deep tech builders, not because it is fashionable, but because the fundamentals are changing. The combination of proven outcomes, evolving economics, and global necessity is creating a new center of gravity.
The next wave of innovation will not be defined by how quickly we can write code. It will be defined by how effectively we can build, deploy, and scale physical solutions in the real world. And for investors willing to understand that shift, the opportunity is just beginning.
