Generational Partners Founder Warns Of 'Tourists' In Defense

Van Espahbodi, a 25-year veteran of the aerospace and defense industry, has launched Generational Partners, a firm that has invested in 14 companies since January 2023. In an interview, he warns that a surge of software venture capitalists into hardware and industrial technology is creating a wave of 'tourists' driven by fear of missing out.

Espahbodi began his career as a congressional staffer before working at defense contractor Raytheon. A decade ago, he co-founded the startup accelerator Starburst Aerospace. He sold his stake to start Generational Partners, which focuses on industrial infrastructure, manufacturing, energy, and water desalination companies.

He says his investment thesis was shaped by observing SpaceX alumni moving 'horizontally across physical industries.' His firm's first investment was in a North Dakota-based drone company in January 2023.

AI's Impact On Hardware Economics

Espahbodi argues that artificial intelligence has dramatically changed the narrative around hardware, making it less capital-intensive. He distinguishes between 'hard tech' and 'deep tech,' stating he is not looking to invest in pure science like quantum computing or nuclear fusion.

'AI has significantly improved that augmentation and performance, enabling these companies to tackle legacy industries more aggressively and, more importantly, with new business models,' he said. He notes that frontier AI labs have themselves become more capital-intensive than traditional hardware companies, reshaping perceptions of defensibility.

Unique Business Models From SpaceX Alumni

The core of Espahbodi's strategy is backing companies that combine creative software talent with commoditized hardware under a novel business model. He cites portfolio company Vital Lyfe as a prime example. Founded by the team that built the Starlink user terminal factory, the company applied a satellite-network architecture to water desalination.

Instead of building massive infrastructure, Vital Lyfe aims to mass-produce a cooler-sized device for point-of-need water cleaning. Espahbodi helped it secure its first customers within the Defense Health Agency and U.S. Special Operations Command, creating a signal for humanitarian applications.

Another example is a company founded by the team that built SpaceX's autonomous drone ships. That team is now retrofitting legacy commercial boats for automated harbor navigation, leveraging software expertise and Starlink's communications capabilities. 'It’s another example of SpaceX alumni applying the playbook and technologies they learned at SpaceX to a much broader commercial industry,' Espahbodi stated.

Investor Rush And Misunderstandings

Espahbodi reports meeting many software investors who feel they are missing out on hardware but do not understand the sector. He says even beauty investors now claim to be defense-tech investors. Los Angeles, particularly El Segundo, is a key battleground as it is the 'aerospace capital of the world' with a deep pool of mechanical-engineering talent.

'Los Angeles VCs in particular know there is a talent war underway and that many people are leaving established companies to launch new businesses in these categories,' he said. 'But they struggle to underwrite those deals. They don’t know how to distinguish a strong opportunity from fear of missing out or something merely cosmetic.'

He observes that this lack of experience is not deterring investments, driven in part by pressure from limited partners like endowments, foundations, and pension funds. The rush includes Bay Area firms, with Espahbodi noting that Virginia-based Lavrock Ventures was an early investor in hypersonic missile company Castelion before Andreessen Horowitz joined.