A New Age of Venture Capital: Investing in Hard Stuff

Something changed in Silicon Valley in 2023. I’ve definitely felt a vibe shift. It took me a while to figure out what it was. Basically AI has changed everything and made software a commodity in all its negative connotations. For all intents and purposes, software is dead. But most Silicon Valley investors don’t know it yet. They are following and investing in stuff that is DOA. While software is still great for building bootstrapped lifestyle businesses, for venture style returns, I suspect this will not be the cornucopia we once had. 

There are harsh implications now for software founders and their investors as Steve Yegge writes. "If you do nothing, you’re almost certainly going to get overrun. If you have an Atom Moat, then you stand a pretty good chance of weathering the storm, if you execute well. Just a chance, mind you: It’s a moat, not a force field. But atoms are a pretty good moat. If you make beer, or work with humans, or ship stuff, say, then you’ve got a bit more time to work with, maybe, to find your feet in the AI era.

If you have a strictly online or SaaS software presence, with no atoms in your product whatsoever, just electrons, then you are, candidly, pretty screwed if you don’t pivot. I don’t think there are any recipes for pivoting yet; this is all new, and it’s all happening very fast."

Source: https://steve-yegge.medium.com/the-anthropic-hive-mind-d01f768f3d7b

BuccoCapital states my conclusion better than I could: “For 50 yrs we treated the supremacy of asset-light businesses as a permanent economic law But if AI commoditizes asset-light businesses, we’d just be reverting to the historical mean where value accrued to atoms, infrastructure, energy It would be a 50 year blip. An anomaly.”

Stefan Cohen further elaborates: “The most important businesses will be regulated, capex intensive, operating in the physical world, or have substantial network effects.”

I started moving away from pure software businesses in 2023 on instinct as I started doing defense-tech which by its nature encapsulates both hardware and software combined. And with the discovery of the Reindustrialization movement in America in 2024, it’s pretty clear what the future is. Back to the future that is. 

Anand Iyer tweeted something that sums up everything pretty good. 

“2011-2025: 

Software is eating the world 

Hardware is hard 

Bits not atoms 

2025-?:

AI is eating software 

Hardware is the moat 

Physics over software”

I think it’s spot on. And I have and will be investing accordingly.