Sep 2, 2026 · 1h 20m
Venture capital surges into physical AI and defense technology
VC experts on why Physical AI funding is heating up | E2333
As venture capital pivots from pure software to physical AI and defense, the strategies for funding, scaling, and regulating hard tech are being completely rewritten.
- 1Top-tier software engineers are rapidly migrating from ad tech to hard tech, defense, and physical AI startups.
- 2Sovereign AI demands are driving a massive shift back to on-premise hardware and localized LLM deployments.
- 3Investing in hardware-heavy physical AI requires specialized fund strategies to combat heavy equity dilution.
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The brief
A massive funding wave is sweeping through physical AI, robotics, and defense tech as top engineering talent migrates from traditional ad tech to hard tech. Venture capitalists Paige Doherty and Katelin Holloway join the show to break down this shifting landscape.
The rise of physical AI is forcing investors to rethink traditional software models. Startups are tackling high-capital hardware challenges, from automated metal servicing with Nox Metals to building sovereign AI infrastructure that keeps data secure on-premise.
Taking non-consensus bets is becoming crucial for high-yield returns. Holloway shares the story of backing StarCloud, a space data center company, illustrating how venture firms must embrace highly unconventional, capital-intensive risks to find massive winners.
Navigating this new era requires strategic fund management. The panel discusses how early-stage funds can manage dilution in hardware-heavy sectors, leverage pro rata rights, and use special purpose vehicles to maximize their ownership in breakout companies.
What was said on this episode
14 statements · 12 positive · 1 negative · 1 mixed
Physical AI companies have raised nearly $50 billion in venture funding.
“Physical AI companies now have raised almost $50 billion in venture funding.”
Listen at 0:00
Knox Metals is among the fastest-growing companies in Paige Doherty’s portfolio.
“Knox Metals is one of the companies in our portfolio that's growing the fastest.”
Listen at 3:22
Knox Metals operates in a $200 billion market.
“And it's a $200 billion market”
Listen at 4:04
Government-contracting bottlenecks have shifted from winning contracts to surviving them.
“I think that the bottleneck used to be winning the contract, but now it's really just surviving one”
Listen at 13:55
Startups accepting extensive EU compliance can capture market opportunity.
“I do think there is an opportunity for companies who are willing to eat the frog like that.”
Listen at 28:47
Launch costs per kilogram are projected to fall to $1,500 and possibly $273 by 2030–2040.
“And, you know, projection is in 2030 and then 2040 going down to $1,500 and maybe even $273.”
Listen at 39:55
Perplexity will be acquired.
“I'm going to predict right here, Perplexity is getting bought.”
Listen at 44:47
Edge AI will become the dominant future direction.
“I believe edge AI is really the future”
Listen at 47:03
Local edge models can handle specific sensitive-data and compute-constrained tasks.
“having those local models run on the edge on very specific tasks”
Listen at 47:12
Space companies can succeed without matching SpaceX’s capabilities.
“nobody has to catch SpaceX for another company to win”
Listen at 54:14
Verticalized physical-AI applications face less massive dilution than general-purpose companies.
“we focus mainly on verticalized applications of physical AI, and I think there you see less of the issues around massive dilution”
Listen at 59:15
Verticalized physical-AI companies reach revenue and commercialization faster.
“you see companies getting to revenue faster, to commercialization faster”
Listen at 59:24
Enterprise buyers now have enough leverage to change frontier AI-lab policies.
“enterprise buyers really now have enough leverage to sincerely change like a Frontier Labs policy”
Listen at 1:13:02
Financial pressure may lead frontier labs to launch competing vertical applications.
“when they get under pressure, this whole like, I'm going to be courteous and I'm not going to create an ElevenLabs competitor, I'm not going to create, you know, a lovable competitor— it's like, that's out the window”
Listen at 1:17:35
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.
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