"End users in these hard industries have paid the price, as a lack of innovation funding has left them stuck with incumbent providers that continue to deliver clunky, unintuitive solutions that are difficult to migrate from. However, that perception is now shifting. Investors are responding to new market dynamics within complex industries and the evolving methods startups are using to outperform incumbents."
"Government technology spending more than doubled between 2021 and 2025 , while defence technology more than doubled in 2025 alone, and we see similar trends in robotics, industrial technology, and healthcare. This signals a clear change in investor mindset as AI-first approaches are changing adoption cycles."
"Historically, those sectors had been viewed as incompatible with venture capital norms: slow procurement cycles, strict regulation, heavy operational and capital requirements, as well as deep integration into physical systems. For example, on a global level, public procurement can take years, constrained by budgeting cycles, legislation and accountability frameworks. Energy projects must comply with regulatory regimes and national permitting structures, and infrastructure and hardware deployments require extensive certification and long engineering cycles."
Venture capital historically avoided hard sectors such as government, defence, energy, manufacturing, and hardware due to limited startup scope against incumbents and high regulatory and capital burdens. End users in these industries have endured clunky, unintuitive incumbent solutions that are hard to migrate from because of scarce innovation funding. Recent market dynamics and new startup approaches are prompting investor interest. Government and defence technology spending more than doubled in recent years, with parallel growth in robotics, industrial technology, and healthcare. AI-first approaches are accelerating adoption cycles and shifting investor mindsets despite persistent procurement, regulation, and engineering challenges.
Read at TNW | Investors-Funding
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