SpaceX Alumni Gold Rush Draws VC 'Tourists And FOMO'

Van Espahbodi has watched beauty investors rebrand themselves as defense-tech investors. That, says the founder of Generational Partners, is exactly what happens when limited partners start demanding exposure to SpaceX, Palantir and Anduril alumni — venture capital's most reliable engine of "tourists and FOMO."

Espahbodi has spent 25 years in and around aerospace and defense technology. He began as a congressional staffer, joined Raytheon's CEO office working on foreign military sales, and later helped commercialize technology from a U.K. national laboratory. A decade ago he co-founded the aerospace and defense accelerator Starburst Aerospace, opening an El Segundo office near SpaceX on the advice of friends at Founders Fund.

About four years ago he sold his stake, took part of the investment team with him, and launched Generational Partners, which backs companies in industrial infrastructure, manufacturing, energy and water desalination. The firm made its first investment in January 2023 — a North Dakota drone company — and has backed 14 companies since.

Software money meets hardware physics

Espahbodi says he arrived at his thesis early: "I embraced the idea that hardware does not have to be capital-intensive." He draws a sharp line between hard tech and science. "I'm not looking to invest in science. I don't necessarily see opportunities in quantum computing, nuclear fusion or other technologies being spun out of laboratories."

Instead, he looks for alumni of SpaceX, Tesla and Rivian who built their companies' foundations digitally and are now attacking legacy industries with new business models. AI, he argues, has strengthened their advantage while upending the old capital-intensity hierarchy. "Frontier labs have become more expensive and capital-intensive than traditional hardware companies," he says, and the SpaceX IPO is becoming "an enormous wealth-creation event."

One portfolio company, Vital Lyfe, was founded by the team that built and scaled the assembly line for Starlink user terminals. Deploying terminals globally, they saw that poverty often traced back to a lack of clean water — and asked whether the satellite-and-terminal architecture could be replicated for edge desalination. Rather than nation-state-scale plants of the kind Gulf countries build, they mass-produce a vertically integrated stack aimed at a cooler-sized device that cleans water at the point of need.

Espahbodi helped Vital Lyfe win its first customers within the Defense Health Agency and U.S. Special Operations Command, which can use the devices in the field instead of air-freighting pallets of bottled water. "Those are the kinds of unique business models that excite me," he says.

Another example: the team SpaceX recruited — including former Coast Guard personnel and oil-and-gas technicians — to build the autonomous drone ships that catch boosters at sea. They spun out to retrofit legacy tugboats and barges for commercial shipping. Starlink changed the concept of operations, he notes, because the communications link to those ships never previously existed.

The FOMO machine

Espahbodi is blunt about why software investors are piling in without domain knowledge. "The answer is their limited partners." Endowments, foundations, pension funds and family offices are watching alumni of SpaceX, Palantir and Anduril raise extraordinary rounds — many no longer to pursue intellectual property alone but to build war chests for acquisitions. "The lines between private equity and venture capital are blurring," he says.

He calls the feared "SaaS apocalypse" unreal, though he jokes that he sometimes questions Salesforce's stock price "for fun." The result, he says, is classic venture behavior: "tourists and FOMO." Some of the largest Silicon Valley firms missed the dynamism wave and are now "leaning in hard, sometimes at ridiculous valuations for companies that have yet to produce anything."

El Segundo holds the wallet

Espahbodi dismisses the idea that Washington is where the money is. Los Angeles Air Force Base houses Space Systems Command — effectively "Space Force's wallet" — and El Segundo makes purchasing decisions for the fastest-growing portion of the military budget. Portfolio companies backed by influential investors are winning government contracts worth as much as $1 billion at a time. "That's extraordinary," he says.

His advice to founders: "I want everyone to be commercially focused but mission-aware," not mission-focused on the government. The talent war, he argues, is centered in Southern California, with its aerospace base and the largest concentration of mechanical-engineering talent — a model Anduril has already exported to Ohio and Louisiana.

One Generational Partners portfolio company, founded by SpaceX and K2 Space alumni, moved straight to Austin to build a smart factory for raw-material processing — automated cotton mills around Lubbock designed to produce textiles at prices beating China and Vietnam. "If you can prove the model in textiles, you can apply it to copper," Espahbodi says. "From there, it could go in any direction."

As for the risk that hardware repeats software's overfunding problems, his answer is unambiguous: "Bring it on — hard and fast, and as much as possible."