# Hardware and Deep Tech Startups Are Making a Comeback

Author:

Peter Walker

Published date:

May 24, 2026

After years of VC preferring software, capital is shifting toward hardware, biotech, and energy startups as investors recognize the limits of bits-only bets.

Bad advice: don't build startups that touch the real world.

Look, hardware is hard. Biotech is hard. Energy are hard.

Maybe hard is better.

There are clear reasons why "choose bits, not atoms" is (was?) a standard line across many VCs who shun physical startups in favor of software ones. More predictable recurring revenue, less capital intensity upfront, etc etc.

But the tide seems to have shifted.

Chart below breaks out capital invested into Carta startups by year and sector. In Q1 2017, the share of capital going to these 4 physical world sectors was 18%.

In Q1 2026, it's 41%.

𝗕𝘂𝘁 𝗪𝗵𝘆?

- A resurgence of interest into deep tech categories, aligning with the American Dynamism narrative, defense+aerospace, etc.
- The idea that moats in software are declining in the age of AI.
- There has been an increase in the number of companies attempting to pull off software + hardware models. AI + a physical product is a massive opportunity.
- The number of VC funds has grown immensely and the need to specialize / differentiate as an investor has never been greater.
- Regulatory concerns play a bigger role in many deep tech sectors than in pure software, but government interaction on state and federal levels is getting fractionally easier over time.

Respect to the founders building in the real world 🙏

Author: [Peter Walker](/content/author/peter-walker/index.html)

Peter Walker runs the Insights team at Carta, focused on discovering key data and narratives across the private capital ecosystem. In a former life, he was a marketing executive for a media analytics startup and led the data visualization team at the Covid Tracking Project.