# As Software VCs Chase SpaceX Alumni, A Defense Tech Veteran Warns Of 'Tourists And FOMO'
Van Espahbodi, general partner at Generational Partners, is sounding an alarm about the stampede of software-focused venture capitalists into industrial and defense technology. The veteran investor argues that many are latecomers chasing hype rather than understanding the fundamental differences between building software companies and hardware-driven defense businesses.
Espahbodi's concerns center on a specific trend: software VCs are increasingly courting alumni from SpaceX and other aerospace companies, betting that the same playbook that worked in SaaS will translate to hardware and defense tech. The investor calls this a mistake, warning of "tourists and FOMO" flooding a sector where operational complexity, regulatory burden, and customer dynamics differ radically from consumer software.
The appeal is obvious. SpaceX's success has elevated aerospace entrepreneurs to celebrity status within Silicon Valley. Investors see cheaper rockets, reusable launch vehicles, and autonomous systems as proof that hardware innovation can move at software speed. Generational Partners itself invests in industrial technology, giving Espahbodi credibility as a skeptic from within the space. But he sees a disconnect between what software investors expect and what defense tech actually demands.
Hardware businesses face regulatory approval cycles, procurement processes that span years, and customers (primarily government agencies) that value reliability and proven track records over growth-at-all-costs metrics. A defense contractor selling to the Pentagon operates under completely different incentives than a SaaS company chasing market share. Software investors accustomed to rapid iterations and pivots often underestimate the compliance infrastructure and customer relationships required in aerospace and defense.
The influx of capital does have real effects. Defense tech startups are raising larger seed and Series A rounds as software VCs enter the market. Companies like Relativity Space, Axiom Space, and others have benefited from expanded investor appetite for space economy startups. Yet Espahbodi's warning suggests that not all of this capital will be deployed wisely. Some investors may expect the 10x returns characteristic of software companies, then exit when hardware realities set in.
AI is complicating the picture. Espahbodi notes that artificial intelligence is reshaping hardware economics, making autonomous systems and intelligent manufacturing feasible at scales previously impossible. This is attracting even more software talent and capital into the sector. Founders from SpaceX and Blue Origin are launching new ventures around AI-powered logistics, autonomous vehicles, and manufacturing. For software investors, AI feels like familiar territory. They believe they understand the TAM and the scaling dynamics.
But integrating AI into physical systems introduces dependencies that pure software companies never face. Supply chains matter. Manufacturing capacity matters. Regulatory approval for autonomous systems in defense applications is not a solved problem. The difference between shipping an app update and deploying an autonomous system to a government facility is vast.
Espahbodi's position reflects a broader tension in venture capital. The sector has become increasingly winner-take-most, with capital concentrating around perceived megatrends. Space tech and defense tech are clearly megatrends. Yet the vintage of investors entering the space matters. Those without prior industrial or defense experience may misallocate capital and burn through founders' equity on lessons that more experienced investors have already learned.
The warning comes at a moment when defense tech funding is at historic highs. Geopolitical tensions, military modernization priorities, and the space economy's rapid commercialization have created genuine tailwinds for the sector. Yet Espahbodi's advice to software VCs is clear: understand the sector deeply, or stay on the sidelines.