Technology

For decades, venture capital firms largely avoided sectors like defense, energy, manufacturing and heavy industry, deeming them too complex, too heavily regulated, and too slow to generate the rapid returns favored by the VC model. But a significant shift is underway. Investors are increasingly pouring capital into these “hard” sectors, driven by geopolitical pressures, technological advancements, and a reassessment of long-term value. This change signals a fundamental recalibration of what’s considered investable, potentially unlocking a modern wave of innovation in foundational industries.

The perception of these industries as unviable for venture backing stemmed from lengthy procurement cycles, stringent regulations, and the dominance of established players. However, recent trends suggest Here’s changing. Government technology spending more than doubled between 2021 and 2025, and investment in defense technology more than doubled in 2025 alone, indicating a growing appetite for innovation in these areas. This influx of capital is fueled by a recognition that these sectors are ripe for disruption, particularly with the advent of new technologies.

The Rise of AI and the Changing Investment Landscape

Artificial intelligence is arguably the biggest catalyst for this shift. By lowering the cost of building sophisticated software and accelerating development cycles, AI allows startups to compete with incumbents in sectors previously considered impenetrable. As software becomes more easily replicated, competitive advantage is shifting towards operational expertise, user experience, and seamless integration with existing systems. This is particularly true in industries like construction, mining, and logistics, where AI-powered solutions can deliver immediate performance gains.

Historically, the barriers to entry in these sectors were substantial. Public procurement processes can take years, constrained by budgetary cycles and regulatory frameworks. Energy projects face complex permitting structures, and infrastructure deployments require extensive certification. However, these very challenges are now being viewed as potential advantages. Regulation, once seen as a deterrent, is increasingly understood as a “moat,” protecting startups that successfully navigate the compliance landscape from new entrants.

Macroeconomic Factors and Geopolitical Pressures

Beyond technological advancements, broader macroeconomic and geopolitical forces are driving investment into these sectors. Supply chain disruptions, energy insecurity, and infrastructure fragility have elevated industrial resilience to a national priority. Governments are investing heavily in grid modernization, logistics networks, and critical infrastructure, creating a structurally supportive environment for startups offering innovative solutions. This is coupled with increasing pressure on public institutions to digitize procurement, compliance, and workflow systems, further expanding the market opportunity.

The saturation of the horizontal SaaS market is likewise playing a role. Investors, seeking differentiated returns, are looking beyond crowded software categories threatened by the rapid innovation of companies like OpenAI and Anthropic. Regulated and infrastructure-heavy sectors offer less competition, stronger pricing power, and significantly larger total addressable markets (TAMs). Companies like SAP, Caterpillar, and Siemens, with market capitalizations in the billions, demonstrate the potential scale of these opportunities.

Founders with Domain Expertise Lead the Charge

A key factor in this shift is the emergence of founders with deep industry expertise. Many startups in defense, energy, healthcare, and government procurement are led by individuals who come directly from these sectors, possessing unique insights into their challenges and opportunities. Unlike legacy players burdened by established workflows and organizational inertia, these founders are able to innovate with speed and agility.

Even established companies are recognizing the need to adapt. Salesforce, for example, is increasingly relying on acquisitions to stay competitive, highlighting the difficulty for incumbents to preserve pace with the rapid innovation occurring in these sectors. This demonstrates that the cost of switching away from legacy solutions is decreasing, making it easier for startups to gain market share.

As investor playbooks evolve, we can expect to see more $100 billion companies emerge from this cycle. The focus is no longer solely on building better software, but on rebuilding the foundational sectors of the global economy. This represents a significant opportunity for startups to disrupt established industries and drive innovation on a massive scale.

The coming years will likely see continued investment in these traditionally “uninvestable” sectors, as investors recognize the potential for both financial returns and positive societal impact. The convergence of AI, geopolitical pressures, and a new generation of industry-focused founders is creating a fertile ground for innovation and disruption.

What are your thoughts on the changing investment landscape? Share your insights in the comments below.

A landmark lawsuit in California is challenging the core design principles of social media giants Instagram and YouTube, alleging they intentionally engineered their platforms to be addictive, causing significant psychological harm to users. The case, brought by a 20-year-old plaintiff known as KTM, is gaining attention as a potential turning point in the debate over tech accountability and the mental health impacts of social media.

KTM alleges that prolonged use of YouTube, beginning at age six, and Instagram, starting at age nine, contributed to her anxiety, body dysmorphia, and even suicidal thoughts. According to the lawsuit, she spent six to seven hours daily on one platform and several hours on the other, despite her mother’s attempts to limit her access. This case differs from previous legal challenges by directly accusing the platforms of deliberately creating addictive features, rather than simply hosting harmful content posted by others.

The legal strategy behind the suit is novel, according to Tanja Eder of SRF Digital, as reported by SRF.ch. Traditionally, Section 230 of the Communications Decency Act has shielded platforms from liability for content posted by third parties. However, KTM’s legal team argues that Instagram and YouTube actively contributed to her problems through their design and algorithms, which prioritize engagement over user well-being. The claim centers on the idea that the platforms’ design intentionally fosters addiction and promotes problematic content.

Social media companies are defending themselves by arguing that KTM’s psychological issues stem from a difficult childhood, and highlighting the safety mechanisms they offer on their platforms. However, the core question before the court is whether these safeguards are sufficient to counteract the addictive nature of the platforms themselves. The debate hinges on whether social media companies can be held responsible for the psychological consequences of prolonged use.

TikTok and Snapchat Settlements Signal Shifting Landscape

This isn’t the first legal battle involving social media and mental health. KTM has already reached out-of-court settlements with TikTok and Snapchat, though the terms of those agreements remain undisclosed. According to Eder, these settlements, while confidential, suggest a growing willingness among social media companies to address concerns about their platforms’ impact on young users. However, she emphasizes that these settlements do not absolve the companies of responsibility.

The Science of Addiction and Platform Design

The lawsuit taps into a growing body of research examining the psychological effects of social media. Experts note that platforms are intentionally designed to maximize user engagement, employing techniques like infinite scrolling, push notifications, and personalized algorithms. These features trigger dopamine release in the brain, creating a feedback loop that can lead to compulsive use. While establishing a direct causal link between social media use and clinical addiction remains complex, the European Union recently concluded that TikTok is clinically addictive, a finding that lends weight to KTM’s claims.

The addictive potential of these platforms is driven by their business model: maximizing advertising revenue through increased user engagement. As Eder explains, platforms are engineered to keep users opening the app and staying online for as long as possible, directly correlating to increased advertising exposure.

A “Landmark Trial” with Far-Reaching Implications

Legal observers are closely watching the case, labeling it a “landmark trial” with the potential to trigger a wave of similar lawsuits against social media companies. If KTM prevails, it could establish a precedent for holding platforms accountable for the psychological harm caused by their addictive designs. This could lead to significant changes in how social media platforms are designed, and regulated.

The outcome of this case could reshape the relationship between social media companies and their users, forcing them to prioritize user well-being over engagement metrics. It also raises broader questions about the responsibility of tech companies to mitigate the potential harms of their products. The case is being closely followed by industry analysts and legal experts alike, as it could set a new standard for tech accountability.

As the trial progresses, the focus will be on establishing a clear link between the platforms’ design choices and KTM’s psychological distress. The court will need to weigh the evidence and determine whether Instagram and YouTube acted responsibly in designing their platforms, or whether they prioritized profit over the mental health of their users. The outcome will undoubtedly have significant implications for the future of social media regulation and the well-being of millions of users worldwide.

What comes next will depend on the court’s decision. Regardless of the outcome, this case has already sparked a crucial conversation about the ethical responsibilities of social media companies and the need for greater transparency and accountability in the tech industry. Share your thoughts in the comments below.