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Y Combinator is putting hard tech in the spotlight. Accelerator was released on Wednesday An updated list of ideas This would look into applications – with categories such as space, manufacturing and defense featuring prominently.
YC has backed many hard tech startups in the past. Launch companies Stoke Space and Relativity Space and satellite broadband provider Astranis are among its alumni. Accelerator’s biggest exit yet is General Motors’ $1 billion purchase of autonomous vehicle company Cruise Automation in 2016.
But overall, Hard Tech comprises a very small portion of the companies that have gone through its program. The accelerator is better known for nurturing breakout software startups in sectors like consumer and fintech. So the spotlight on hard tech suggests that YC views hard tech as a lesser investment, and more likely to generate the massive valuation spikes needed for a successful venture portfolio.
In particular, the exit market for SaaS companies Has been on the decline since 2016. As engineer and a16z scout Andrew Cote put this on his Substack“The number of new enterprise-level software opportunities outside of strong network effects is decreasing as software reaches better overall penetration and barriers to entry become lower.”
As a result, more funds, including Sequoia and Bessemer Venture Partners, are diving into sectors like defense. Valuations are likely to increase as more venture investors join in – This is already happening in defense — but YC’s focus could help attract new talent and big institutional investors, fueling a hard-hitting tech startup boom.
The “New Request for Startups” list “recognizes what many who have been investing in this sector for many years are now seeing, which is the potential to generate enterprise returns across an entire portfolio of investments. Technologies that Not exclusively software based,” Mike Annunziata, managing partner capital alsoSaid in a recent interview.
Additionally there is a pre-seed fund that has invested in a number of hard technology businesses including Varda Space Industries, Radiant and K2 Space. Annunziata said YC’s incredible ability to catalyze entrepreneurial talent will be a plus, as is “the real hurdle in scaling up impact.” [hard tech] “Companies can have talent in the physical world.”
Aaron Slodov’s company nuclear industry, who is working on one of these Most Challenging Problems in ManufacturingAutomated tools and die making, Joined Y Combinator in its Winter 2021 cohort. Slodov said that since that time he has also seen more investors flocking to the area, especially in the early stages.
In some cases, VCs are looking for differentiation, but Slodov said the more companies “strive to be VC scalable and hard tech at the same time,” the more it will help strengthen the case for the investment thesis.
“If we get more people working on nuclear and solar energy and manufacturing and space, eventually more people will be pushed through the filter and they will be impacted,” he said.
Slodov notes that global tensions and an increased focus on securing supply chains (among other government directives) have helped spur more funding for hard tech: “There are huge trends at play here that impact manufacturing and Come back to building companies in hard tech, such as being able to actually do that work. [in the United States], Slodov said. I think it’s exciting that a lot of people are really looking at it seriously now and trying to figure out where they can add value.
In some ways, the intense saturation of software is also a boon: As Cote notes, although software startups are approaching commodity-like returns, that commodification means much lower software costs for startups of all types and more. There is flexibility, and it will unlock the “next” Golden Age of Atoms.
Slodov notes a similar dynamic: “Ultimately, the long tail of these types of companies is now happening that they have to build on top of the entire existing ecosystem that has come out of the last 40 years of Silicon Valley, to be able to build like Having, for example, your startup on AWS,” he said. “Building companies that have hard technology on top of all the technology that’s been there for the last 40 years is a very late-stage advantage. [It’s possible that] There are over trillion dollar companies built today, and they will all actually be hard tech and not software. They will have a software component, no doubt, but they will be things that touch and deal with the physical world.
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