Veteran Investor Warns Against FOMO as Software Money Floods SpaceX Alumni Hard-Tech

Van Espahbodi, a two-decade-plus veteran of aerospace and defense, has watched the venture landscape shift from space-centric startups to a broader class of hard-tech companies. After co-founding the Starburst Aerospace accelerator and selling his stake, he launched Generational Partners, a fund that has backed 14 companies since its first investment in January 2023. In a recent interview, Espahbodi warned that software-focused investors are chasing SpaceX alumni more out of “tourist” curiosity and fear of missing out than a clear understanding of the sector’s economics.

Espahbodi’s career began as a congressional staffer before moving to Raytheon, where he worked in the CEO’s office on foreign military sales. He later helped commercialize technology from a U.K. national laboratory and, a decade ago, co-founded Starburst Aerospace, an accelerator for aerospace and defense startups. On advice from friends at Founders Fund, he opened an office in El Segundo, California, close to SpaceX, just as alumni from the rocket maker began launching hard-tech ventures such as Anduril Industries.

The decision to leave Starburst stemmed from an “inflection point” Espahbodi observed: many SpaceX alumni were moving horizontally into physical industries beyond space. He sold his equity, took part of his investment team, and created Generational Partners to follow that migration. The firm’s thesis focuses on industrial infrastructure, manufacturing, energy and water desalination, sectors where hardware can be paired with software to create new business models.

According to Espahbodi, artificial intelligence has altered the narrative that hardware must be capital-intensive. AI tools enable companies to design, simulate and operate physical products with far less upfront spend, allowing “hard-tech” to be approached more like software. He stresses that his interest lies not in deep-science ventures such as quantum computing or nuclear fusion, but in firms that combine commoditized hardware with creative software talent, strong customer demand and innovative revenue structures.

One portfolio company, Vital Lyfe, illustrates the model. Founded by engineers who built the Starlink user-terminal factory, the team repurposed the high-volume assembly line to produce a compact, AI-enhanced water-desalination device. The product can be deployed at the point of need, bypassing the massive, nation-state infrastructure traditionally required for clean-water projects. Vital Lyfe secured its first contracts with the Defense Health Agency and U.S. Special Operations Command, enabling field units to generate potable water without air-freighted bottled supplies.

Another example stems from the autonomous drone-ship team that once operated at SpaceX. Using software and AI to automate station-keeping, the group spun out to retrofit legacy tugboats and barges, embedding digital controls and global communications enabled by Starlink. The effort demonstrates how former aerospace engineers can apply a “digital-first” foundation to modernize maritime logistics, a sector previously limited by analog operations.

Espahbodi cautions that the surge of software-centric capital into industrial hardware risks attracting “tourists” who lack the patience for longer product cycles and the nuance of safety-critical markets. He argues that investors should evaluate whether a company’s technical defensibility, rooted in business model innovation rather than sheer capital spend, justifies the risk. For founders, the message is clear: leverage AI to lower hardware costs, but build defensible, demand-driven models that can survive the slower pace of physical product adoption.

The broader implication for the venture community is a need to balance enthusiasm for SpaceX alumni with disciplined scrutiny of underlying economics. As AI continues to lower barriers, the next wave of hard-tech startups may indeed flourish, but only those that pair robust software with pragmatic hardware will earn lasting investor confidence.