A notable trend is emerging in the tech world: successful software entrepreneurs are increasingly pivoting to ambitious hardware and biotech ventures after exiting their initial companies. This shift is pioneered by high-profile founders like Elon Musk, Jeff Bezos, Daniel Ek, Brian Armstrong and Fred Ehrsam who have the capital, network and will to bring these moonshots to life.
Elon Musk's journey from software to hardtech is perhaps the most well-known. Musk co-founded X.com, an online financial services company, in 1999 (before it killed the bird app). X.com merged with Confinity in 2000 to form PayPal. As a major shareholder, Musk significantly profited when eBay acquired PayPal for $1.5 billion in 2002. With the $180 million he received from the acquisition, Musk put his chips back on the table. He invested heavily in two ambitious hardtech ventures. In 2002, he founded SpaceX with about $100 million, aiming to revolutionize space technology and enable the colonization of Mars. SpaceX has since achieved remarkable milestones, including developing reusable rockets and becoming the first private company to send astronauts to the International Space Station. In 2004, Musk invested in and later became chairman of Tesla. He eventually became CEO and has transformed Tesla into a leader in electric vehicles and sustainable energy solutions.
Jeff Bezos's path shares similarities with Musk's. Bezos founded Amazon in 1994 as an online bookstore, which grew to become one of the world's largest e-commerce and cloud computing companies. In 2000, at the height of Amazon's growth, Bezos founded Blue Origin, investing billions of his personal wealth into the space company. Blue Origin focuses on developing reusable launch vehicles and technologies for space tourism. Notable projects include New Shepard, a suborbital spaceflight system for space tourism, New Glenn, an orbital launch vehicle under development, and Blue Moon, a proposed lunar lander. Bezos has stated that he liquidates about $1 billion worth of Amazon stock annually to fund Blue Origin, demonstrating his commitment to this hardtech venture.
Daniel Ek's transition is more recent. Ek co-founded Spotify in 2006, taking on the music streaming industry. Spotify's success in the software and digital services space made Ek a billionaire. In 2020, Ek said he would invest ~$1.2 billion of his personal wealth in deeptech “moonshot projects” over the next decade. Just two years earlier, in 2018, Ek decided to venture into the healthcare sector by founding Neko Health. Launched publicly in 2023, Neko Health aims to revolutionize preventive healthcare using AI and advanced scanning technology. The company has developed a full-body scanner that can detect potential health issues early, coupled with AI-powered software to analyze scan results and provide personalized health recommendations. While the exact amount Ek has invested in Neko Health isn't public, it's clear that Neko Health won’t be the last moonshot he co-founds and financially supports.
Brian Armstrong co-founded Coinbase in 2012. Coinbase became one of the largest cryptocurrency exchanges globally, and its IPO in 2021 valued the company at nearly $86 billion, making Armstrong a multi-billionaire. In 2022, Armstrong co-founded NewLimit, a biotech company focusing on extending human healthspan through epigenetic reprogramming. The venture aims to develop therapies to reverse age-related cellular changes and utilize machine learning to accelerate drug discovery in age-related diseases. The company has raised $150 million to date — Armstrong and VC Blake Byers committed $110 million over the lifetime of the company.
Fred Ehrsam, another Coinbase co-founder, has followed a similar path. After accumulating wealth from Coinbase's success, Ehrsam co-founded Nudge, revealed earlier this year. Nudge is developing an ultrasound headset designed to enhance human experiences. The company's product aims to allow users to alter their brain states with the push of a button, offering capabilities such as improving sleep, boosting focus, breaking habits, and elevating mood.
This software-to-moonshots trend mirrors a broader shift in the venture capital landscape, where the focus is increasingly turning from traditional software startups to innovative hardware and deep tech companies.
While software startups have traditionally dominated their share of venture capital, recent years have seen an increase in funding for hardware and hard tech companies. In 2021, software startups received $121.2 billion in venture capital funding in the United States, which was about 37% of the total VC funding in the country. However, in 2023, SaaS startups accounted for just 28.4% of capital raised, the sector’s lowest share of the past six years.
In 2020 and 2021, deep tech, which encompasses many hardtech categories, claimed a 20% share of overall venture capital funding by 2021, up from about 10% a decade earlier. Venture capital funding for deep tech reached a peak of approximately $160 billion in 2021. However, 2022 marked a notable decline, with deep tech VC funding decreasing to about $105 billion, aligning with a broader contraction in the VC market.
Despite this overall decline, several positive trends emerged. The size of average deep tech investments increased significantly, with many reaching $100 million or more. Certain hardtech sectors continued to attract strong interest, particularly in areas like defense technology, space tech, and biotech. While hardtech funding declined from its 2021 peak, it remained significantly higher than pre-2020 levels, demonstrating the sector's resilience and continued appeal to investors despite the challenging market conditions.
The influx of experienced entrepreneurs and capital into hard tech sectors will continue to lead to breakthrough advancements in space exploration, healthcare, and other critical areas. As high-profile founders move into hard tech, it will further attract top talent from software into these new sectors, reshaping the job market. Meanwhile, established players in aerospace, healthcare, and other sectors are facing disruption from these well-funded, agile entrants.
This trend could mark the beginning of a new era in technological advancement, one that moves beyond bits and bytes to atoms and molecules.
