Why venture capital is shifting from software to deep tech

"For more than two decades, software has defined the trajectory of venture capital. It was efficient, scalable, and 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."

"One of the biggest changes has been the collapse of a longstanding assumption that hardware cannot produce venture-scale returns. Companies like SpaceX have demonstrated that hardware-intensive businesses can generate both strong and durable returns, resetting expectations for what is possible."

"The implications of that shift are still unfolding. It has reframed how investors think about risk, capital efficiency, and long-term value creation. It has also changed how founders approach building companies."

"The economics of software have evolved in ways that are less favorable than they once were. Customer acquisition has become more expensive, competition has intensified, and retention now requires continuous investment."

For over two decades, software dominated venture capital due to its efficiency and scalability. Recently, a shift towards deep tech builders has emerged, challenging the belief that hardware cannot yield venture-scale returns. Companies like SpaceX have proven that hardware-intensive businesses can achieve strong returns, altering investor perceptions of risk and capital efficiency. Concurrently, software economics have worsened, with rising customer acquisition costs and intensified competition, necessitating continuous capital investment for market retention and visibility.

Read at TNW | Investors-Funding