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Y Combinator puts hard tech in the spotlight. On Wednesday, the accelerator released an updated list of ideas he would like to see applications – with categories such as space, manufacturing and defense featuring prominently.
YC has already backed many hard tech startups. Launch companies Stoke Space and Relativity Space and satellite broadband provider Astranis are among its alumni. The biggest exit from the accelerator remains General Motors’ billion-dollar purchase of autonomous vehicle company Cruise Automation in 2016.
But generally, Hard tech only represents a very small fraction of the companies that have followed its program. The accelerator is best known for fostering software startups in sectors such as consumer and fintech. Thus, the focus on hard tech suggests that YC views hard tech as underinvested and more likely to generate the massive valuation spikes necessary for a successful venture capital portfolio.
In particular, the SaaS company exit market has been in decline since 2016. As an engineer and scout a16z Andrew Cote put it on his Substack“The number of new project-wide software opportunities is declining outside of strong network effects as software achieves greater overall penetration and barriers to entry continue to fall. »
As a result, more funds, including Sequoia and Bessemer Venture Partners, are moving into sectors like defense. As more venture capitalists get involved, valuations are likely to increase – it’s already happening on defense — but YC’s attention could help attract new talent and larger institutional investors, spurring a tech startup boom.
The “New Startup Demands” list “is a recognition of what a number of people who have been investing in this area for many years have now seen, which is that there is the potential to generate returns on investment on an entire portfolio of investments that have technologies that are not exclusively software-based,” Mike Annunziata, managing partner at Also the capitalsaid in a recent interview.
It is also a pre-seed fund that has invested in many hard tech companies, including Varda Space Industries, Radiant, and K2 Space. Annunziata added that YC’s incredible ability to catalyze entrepreneurial talent will be a plus, as “the real bottleneck in scaling up the impact that this represents [hard tech] companies can have in the physical world, that’s talent.
Aaron Slodov’s company Atomic industries, who works on one of Toughest Problems in Manufacturingautomation of tool and tool manufacturing, joined Y Combinator in its Winter 2021 cohort. Even since then, Slodov said he has seen more and more investors moving into the sector, especially in the early days.
In some cases, it’s venture capital firms that seek differentiation, but Slodov said the more companies “attempt to be both scalable and hard technology,” the more successful they will be in shoring up the case for differentiation. investment thesis.
“If more people work in nuclear, solar, manufacturing and space, more people will eventually come through the filter and have an impact,” he said.
Slodov notes that global tensions and increased attention to securing supply chains (among other government directives) have contributed to increased funding for hard tech: “There are much broader trends at play here that are coming back to creating companies in manufacturing and hard technologies, as being able to actually do these kinds of things [in the United States]”Slodov said. I think it’s exciting that a lot of people are looking at it seriously now and trying to figure out where they can add value.
In a way, even the intense saturation of software is a boon: as Cote notes, even as software startups approach commodity-comparable returns, this commodification has translated into costs of much inferior software and greater flexibility for all types of startups, which will unlock “the next golden age of atoms.”
Slodov notes a similar dynamic: “Ultimately, the long tail of these types of companies happening now is that they can draw on the entire existing ecosystem from the last 40 years of Silicon Valley, like they’re able to build your startup on AWS, for example,” he said. “Building these companies that are hard tech on top of all this existing technology over the last 40 years is a very overdue benefit. [It’s possible that] More and more companies worth trillions are being created today, and they will all actually be hardware technologies, not software. They will undoubtedly have a software component, but they will be elements that touch and process the physical world.
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