Defense Tech Veteran Warns VC Investors of FOMO Over SpaceX Alumni

Van Espahbodi spent 25 years working around advanced technology in the aerospace and defense sector. His career began on Capitol Hill as a congressional staffer before he transitioned to defense contractor Raytheon, handling foreign military sales within the CEO’s office. Later, he assisted in commercializing U.K. national laboratory technology.

A decade ago, Espahbodi co-founded Starburst Aerospace, an accelerator for aerospace and defense startups, and relocated to the United States to scale operations. Following recommendations from acquaintances at Founders Fund, he established an office in El Segundo, California—adjacent to SpaceX. This move coincided with an influx of SpaceX alumni departing to form their own hard-tech enterprises, alongside next-generation defense firms like Anduril Industries.

Eventually parting ways with his stake in Starburst, Espahbodi founded Generational Partners. The firm focuses on industrial infrastructure, manufacturing, energy, and water desalination, having supported 14 companies following its inaugural investment in January 2023.

In addition to investing, he advises federal agencies on engaging with nontraditional, venture-backed enterprises. During a conversation with Crunchbase News, he explored how artificial intelligence reshapes hardware economics, the drivers behind software investors entering industrial tech, and common industry misconceptions.

This interview has been edited for length and clarity.

Crunchbase News: What led you to leave Starburst and launch Generational Partners?

Espahbodi: Roughly four years ago, I observed acquaintances leaving the space vertical at SpaceX and transitioning horizontally into broader physical industries. I reached a personal crossroads where I no longer wanted to remain confined to the space sector and preferred to follow my peers.

I divested my equity in the accelerator, and a segment of the investment team accompanied me to establish Generational Partners. Over the past four years, our focus has centered on the SpaceX-mafia and hard-tech domains—encompassing industrial infrastructure, manufacturing, energy, and water desalination.

Our initial investment took place in January 2023 with a North Dakota drone enterprise. It served as a rigorous test and a validation of our thesis, leading to investments in 14 companies since.

You were already investing in physical, safety-critical industries before the generative AI boom. Has AI materially changed where you invest, or has it mainly reinforced your existing thesis?

Espahbodi: I generally arrive earlier than others. I adopted the premise that hardware does not inherently require heavy capital expenditure. Observers frequently conflate hard tech with deep tech, but terminology aside, winning in these areas does not necessitate investing in basic science.

Artificial intelligence has fundamentally shifted this narrative, prompting broader participation. I do not target scientific investments; opportunities in quantum computing, nuclear fusion, or laboratory spin-outs are not my focus.

Alumni from organizations such as SpaceX, Tesla, and Rivian established their original foundations digitally. AI has vastly amplified that performance capacity, empowering these firms to disrupt legacy industries aggressively through innovative business models.

Furthermore, frontier labs have grown more capital-intensive than legacy hardware companies. The triumphs of frontier AI labs, paired with the massive wealth generated by the SpaceX IPO, define a novel ecosystem. This dynamic challenges traditional notions of capital intensity, intellectual property defensibility, and product reengineering.

Hardware has historically been capital-intensive, slower to commercialize and difficult to scale. Under what conditions does its technical defensibility compensate for those challenges?

Espahbodi: It fundamentally centers on the business model. I seek out creative software engineering talent paired with commodified hardware, robust customer demand, and a fresh operational approach.

One of our portfolio companies originated from the exact team responsible for building the Starlink user terminal factory. When consumers purchase a retail Starlink antenna, these individuals constructed and scaled the high-volume assembly line.

While deploying these terminals worldwide to broaden internet connectivity, the team recognized that global poverty frequently stems from water scarcity. They investigated whether the proliferated satellite and terminal architecture could apply to edge water desalination.

Rather than pursuing multibillion-dollar, nation-state infrastructure characteristic of the Gulf states, they chose to mass-produce every element within a vertically integrated stack. Their objective was a cooler-sized unit capable of purifying water at the exact point of consumption.

Vital Lyfe utilized a digital, software-driven strategy to establish the bill of materials required for mass manufacturing. While AI integrates into its operations, the true breakthrough was inverting and scaling the traditional infrastructure model.

I assisted Vital Lyfe in securing initial clients within the Defense Health Agency and U.S. Special Operations Command, enabling field usage instead of shipping bottled water via air freight. This established a foundation for international partnerships and humanitarian applications, demonstrating an alternative delivery model for clean water.

Such inventive business models remain a primary driver for my investments.

What other companies founded by SpaceX alumni demonstrate how hardware businesses can overcome the traditional challenges of the sector? What can these founders build today that would have been difficult five years ago?

Espahbodi: Another key instance involves the personnel SpaceX assembled to construct autonomous drone ships designed for mid-ocean booster recovery, a group comprising former Coast Guard members and oil-and-gas technicians.

While at SpaceX, they utilized software and AI systems to automate station-keeping—enabling these vessels to autonomously navigate and maintain precise oceanic positions.

Upon spinning out and recruiting former colleagues, they targeted commercial maritime shipping. They retrofit legacy harbor and waterway vessels to streamline supply-chain transport.

Introducing a digital-first foundation to tugboat and barge controls was previously impossible due to communication limitations. Starlink transformed operational concepts, allowing software expertise to direct physical vessel equipment and transmit sensor data globally.

This capability fundamentally transforms how legacy transport vessels navigate U.S. waterways, showcasing how SpaceX alumni apply foundational methods to expansive commercial sectors.

You’ve said AI is eroding traditional software moats. What evidence are you seeing that investors are responding by moving into hardware and industrial technology?

Espahbodi: I encounter numerous software investors experiencing FOMO regarding hardware without possessing a functional comprehension of it. I have even met beauty-focused investors now identifying as defense-tech backers.

Los Angeles serves as a hub for firms historically dedicated to software, media, or consumer packaged goods. Observers frequently overlook that Southern California—specifically El Segundo—functions as the aerospace epicenter and houses the densest concentration of mechanical engineering talent.

Across the region, stretching from China Lake to San Diego, technical builders and vocational experts intersect with democratized software and AI accessibility. Local venture capitalists who historically ignored proximate hardware talent are now experiencing steep learning curves.

Ironically, Bay Area venture capitalists have leaned into this trend intensely, though it spans nationwide. Presently based in Washington, D.C., I note that Lavrock Ventures in Virginia backed hypersonic missile developer Castelion prior to Andreessen Horowitz and others entering the cap table.

Los Angeles investors recognize the ongoing talent migration from established companies into these sectors, yet they frequently struggle to underwrite opportunities. Distinguishing legitimate potential from cosmetic trends or fear-of-missing-out investments remains a hurdle.

So investors’ lack of experience in the space isn’t deterring them from writing checks or competing for deals?

Espahbodi: The driving force behind this behavior is their limited partners.

Sophisticated allocators—including endowments, foundations, and pension funds—alongside high-net-worth investors and family offices driven by FOMO, are monitoring alumni from SpaceX, Palantir, and Anduril as they establish new entities and raise prominent rounds.

A significant portion of these enterprises no longer raise capital solely for intellectual property development; instead, they build treasuries to execute corporate acquisitions. The historical distinctions between private equity and venture capital are blurring as VC-backed firms execute private equity-style buyouts.

Consequently, limited partners demand exposure. The momentum of frontier AI labs also perpetuates a perceived “SaaS apocalypse”—a concept I view with skepticism, though Salesforce’s stock price 1 offers amusement.

This dynamic fuels venture capital’s tendencies toward tourists and FOMO. Limited partners query fund managers regarding missed allocations, pushing for participation to prove relevancy. This explains how unfamiliar investors enter the ecosystem.

Prominent Silicon Valley institutions missed initial waves of dynamism and now commit aggressively, occasionally accepting inflated valuations for pre-revenue enterprises.

If more venture funding continues to flow into defense, aerospace and industrial technology, what prevents hardware from developing the same problems software experienced, including too many competing companies?

Espahbodi: Bring it on—hard and fast, and as extensively as possible.

The venture category originated around hardware investments. The software-as-a-service era, spanning from the dot-com era onward, represents a brief deviation compared to venture capital’s original mandate.

I suggest moving past the hardware versus software dichotomy to evaluate who is rearchitecting the business model. Unlocking customer value through novel integrations of software and hardware is the central inquiry.

How important is geography for these startups? Does locating near a major government customer help a company win contracts, and how do startups navigate procurement if they aren’t based near Washington, D.C.?

Espahbodi: A prevalent misconception assumes Washington houses all capital. The Los Angeles Air Force Base hosts Space Systems Command, effectively managing the Space Force budget. El Segundo drives purchasing decisions for the military’s fastest-expanding budget segment.

While Washington requires active engagement—and venture capital currently holds unprecedented executive branch influence—portfolio companies backed by influential investors routinely secure government contracts nearing $1 billion.

Geographically, startups must position themselves near talent as much as customers. Government customers should act as indicators rather than organizational focal points.

My guiding philosophy promotes commercial focus paired with mission awareness, avoiding direct mission dependence on the government. Government bodies should signal priorities while companies retain commercial objectives.

The convergence of hardware and digital technology centers its talent war in Southern California. Neglecting builds and recruitment in this region induces falling behind. While the Bay Area pursues automotive and humanoid-robotics talent, the factory-of-the-future talent foundation initiates in Southern California before expanding nationally, as demonstrated by Anduril in Ohio and Louisiana.

Consider an investment we made, founded by veterans of SpaceX and K2 Space who immediately relocated to Austin to establish a raw-material processing smart factory aimed at automated sourcing.

Given the concentration of cotton farming near Lubbock in the Texas Panhandle, the enterprise constructs automated facilities to mill cotton into yarn, completing a digital, vertically integrated stack that undercuts outsourced production in China, Vietnam, and elsewhere.

Although ambitious, proving this model within textiles enables translation to copper, pharmaceuticals, and beyond.

Do startups located near Space Systems Command have an advantage?

Espahbodi: Not exclusively for proximity. The primary benefit lies within ecosystem integration and regional culture—frequenting local establishments and sharing community networks allows teams to witness operational velocity firsthand.

Space Force confronts escalating demands to safeguard orbital assets. Independent of individual program budgets, it remains the Pentagon’s fastest-growing funding segment.

Startups should not establish operations nearby merely for customer proximity, but rather to access requisite engineering talent.

Related Crunchbase queries:

• Global Defense Tech Venture Funding In 2026
• Space And Satellite Tech Startup Funding

Related reading:

• Sector Snapshot: Space Tech Startup Funding Orbits New Highs
• Sector Snapshot: Defense Startup Funding Hits An All-Time Record As VCs Begin To Eye Exits

Illustration: Dom Guzman