For the last five years, the California vs. Texas narrative has been the most boring cliché in tech. It has been framed as a zero-sum migration from taxes and regulation toward a land of freedom and affordable housing. It was a debate about lifestyle and tech culture, when it should have been a debate about the architecture of progress.

But as the AI revolution moves from demo to industrial scaling, the relationship between Silicon Valley and Texas is undergoing a profound structural shift.

We are witnessing the birth of a new tech bipolarity. It isn’t a competition; it’s a pendulum.

On one side, you have the Intelligence Layer: San Francisco and the Peninsula. This is the world’s greatest concentration of “human compute” talent: the researchers, the model architects, and the product visionaries.

On the other side, you have the Physical Layer: Austin and the Texas triangle. This is the epicenter of surveying and steel: the energy, land, manufacturing, and massive-scale infrastructure required to house the millions of NVIDIA H100s that will run the world’s intelligence.

The next decade won’t be defined by which state wins. I believe it will be defined by the pendulum swings between them. As we scale AI, we will oscillate between two hard constraints: the limit of our ideas and the limit of our physical world.

In a world where we are compute and energy-constrained (or NIMBY), we need more Texas. In a world where GPUs sit idle and we lack the next AI application to drive consumption demand for them, we need more Silicon Valley.

The winners of the next decade won’t be the ones who entrench themselves in one camp. They will be the dual-citizens who bridge the gap between the Presidio and the Permian Basin.

The Intelligence Layer: Why SF is the Unrivaled Lab

Every few years, people try to declare Silicon Valley dead. And every few years, a new “God-model” is released, and the gravity of the world’s talent collapses back onto a five-mile radius in San Francisco.

If you are building the next foundational model, or the application layer that will define how 500 million people interact with AI, you have to be in the room. You need to be where the gossip about the next training run is happening in the Hayes Valley coffee shops. You need the density of the Stanford-to-OpenAI-to-Anthropic pipeline.

Silicon Valley is the epicenter of Algorithmic Efficiency. When compute is expensive, the value of the “better idea” skyrockets. SV is the place that finds a way to get 10x the performance out of the same number of parameters. It is the world’s premier lab for software and model-side scaling.

But labs have limits. You can have the most brilliant researchers in the world, but if they have nowhere to plug in their machines, nor the energy to power them, their brilliance remains theoretical.

The Physical Layer: Why Texas is the Essential Factory

For decades, Northern Virginia (Data Center Alley) was the undisputed king of the physical internet. But we are hitting a wall. Power grids in the Mid-Atlantic are straining under the weight of AI’s insatiable hunger. The “Stargate” era of $100 billion supercomputers requires something Virginia, and certainly California, cannot provide at the necessary scale: an absolute abundance of land and a deregulated, high-capacity energy market.

Enter Texas.

Texas is currently on a trajectory to pass Northern Virginia for the highest data center density in the world. Cheap land isn’t the reason, it’s about Velocity of Infrastructure.

In the AI era, “Time to Power” is the most important metric for a scaling startup. In speaking with an executive at a hyper-scaler recently, he remarked that across every single input from site selection through construction, installation and equipment commissioning, the new most important metric: Time to Power.

If you have

$500M

in venture funding to build a cluster, and California tells you the grid hookup will take four years, you are dead before you even start. Texas and ERCOT have a culture and growing track record of build first, ask for forgiveness later. It is the only place that can keep pace with the exponential growth of GPU clusters.

Texas is the land of Gigawatts. It is the place where the abstract “cloud” becomes a physical reality of concrete, copper, transformers and liquid cooling units . If Silicon Valley is the brain, Texas is the body. And right now, the brain is growing faster than the body can support.

The Scaling Pendulum: A New Cycle of Innovation

To understand the future of tech, you have to watch the pendulum.

Phase 1: The Intelligence Bottleneck (Need more SF).

In this phase, we have plenty of compute, but the models are dumb. We are looking for the next transformative breakthrough. We need more researchers, more vibes, and more experimental AI Agent applications. During this phase, the energy and power of Texas are underutilized. The GPUs sit idle because we don’t know what to train next.

Phase 2: The Physical Bottleneck (Need more Texas).

Once a breakthrough occurs, say Claude Code (or perhaps Mythos one day), we suddenly know exactly what to do. We just need to do it 100x bigger. Suddenly, the bottleneck isn’t the idea or AI application; it’s the physical world. We need 500,000 more GPUs. We need a dozen SMRs worth of power. We need a million square feet of climate-controlled space. We need fast interconnect and permitting. We need local community partnership.

In Phase 2, the center of gravity shifts to Texas. The most important person in the company isn’t the ML researcher, it’s the person who can secure the power purchase agreement (PPA) and oversee the construction of a GW-scale campus.

For the next decade, tech will oscillate between these two bottlenecks. Every time SF solves a consumption problem, it creates a hardware problem for Texas to solve. Every time Texas builds a massive new cluster, it creates a surplus of compute that requires SF to find a more creative use for it.

Elon, as he so often is, was one of the first to this realization. He realized that you could design the world’s most advanced “software on wheels” in California, but when it came time to build the “machine that builds the machines,” he needed the industrial scale of Giga Texas.

It’s no surprise then that Giga Texas, Terafab, SpaceX Bastrop (Starlink user terminals), Boring Company and more (prediction: Colossus 2.0?) are all Austin and central-Texas based.

The Structural Triumph: Texas as the Counter-Weight

The most interesting part of this shift is the cultural shift.

Ever since I began in tech and venture, every city in the world tried to be “The Silicon Valley of [X].” They tried to compete with California on talent, venture capital, and innovation. Nearly all failed because you can’t easily replicate the 70-year compounding head-start of the Stanford ecosystem and Sand Hill Road.

Texas is the first place to credibly position itself as a counter-weight to Silicon Valley, rather than a competitor. It isn’t trying, and doesn’t have to be, more innovative. It solves the physical bottleneck that AI requires.

This is a massive shift in the world’s power structure. For the first time, everyone from the seed stage founder in a Palo Alto dorm to the GP at a multi-stage VC firm in Menlo Park realizes they need the same thing.

They all need Texas.

The Re-Industrialization of Intelligence

We are moving out of the “incremental software” era, the era of apps, commerce and social media, and entering an era of Industrial Intelligence.

This era looks more like the 19th Century oil boom or the mid-20th Century aerospace race than it looks like the Web2 era. It is capital, energy, and land intensive.

The pendulum will continue to swing, creating massive opportunities for those who can navigate the tension between the two.

The “Silicon-Steel” pendulum is the new frontier.

Today, I’m excited to launch a new research series we’re calling We Would Invest. Periodically, we plan to spotlight an overlooked frontier or specific technology that our firm, Space VC, would fund tomorrow if the right founder knocked.

Our first feature: HVDC — The Invisible Bottleneck of the Energy Transition

The U.S. electric grid is undergoing the largest transformation in a century. Surging demand from data centers, EVs and renewable energy is colliding with aging infrastructure and a severe transmission bottleneck.

At the heart of this crisis is HVDC (High-Voltage Direct Current) which enables long-distance, high-capacity power transfer but remains constrained by outdated materials, limited manufacturing, and long lead times. Without innovation here, we believe the energy transition stalls, and along with it, technology progress.

In fact, Bloomberg recently highlighted the HVDC challenge in their report, “There Aren’t Enough Cables to Meet Growing Electricity Demand.”

The next wave of HVDC innovation could be at the intersection of advanced materials, novel thermal management & cooling systems, and automated maintenance. To create cheaper and better HVDC systems, especially for large-scale transmission, the most likely & highest-impact technical innovations will span the following:

⚙️ Advanced Conductors — aluminum composites, graphene-infused or carbon nanotube conductors, and superconducting wires

❄️ Thermal Management — Liquid cooling systems adopted from GPU cooling, self-regulating conductor jackets, and thermal insulation wraps

🏭 Manufacturing Automation — Robotic cable winding & layer stacking, computer vision QA, or even modular fabrication plants

⚡Power Electronics & Converters — Silicon Carbide (SiC) or Gallium Nitride (GaN) power semiconductors, AI-enabled converter control systems

The U.S. grid will need hundreds of GWs of new transmission capacity over the next decade. Globally, demand for power cabling is expected to rise ~60% by 2035. We’re looking at an immediate $10B–30B domestic market for advanced HVDC technologies.

Yes, HVDC solutions exist. But we face a severe manufacturing bottleneck, 2–5+ year lead times, and minimal domestic production. There’s an urgent need for a new entrant with speed, vision, and execution to emerge.

We believe a founding team that understands the complexities of the HVDC market, sees the opportunity to streamline installation and permitting, and prioritizes near-term commercialization could build a generational infrastructure company.

At Space VC, we would invest.

When I launched Space VC, the driving force was impact — the kind that shapes the space and frontier tech industry and has the potential to rewrite the future. Every morning, I wake up knowing that an entrepreneur we meet or a founder we’ve backed could change the course of human history.

Today, I’m excited to share a major milestone that reflects just how far our founders have come on that journey:

We’re thrilled to share that Space VC portfolio companies have collectively raised over $1B in venture capital!

This milestone is a testament to the incredible founders we’ve had the privilege of backing — visionaries who are building the future of frontier technology.

From transforming the way we secure the space domain, leverage AI to defend our nation and allies, harness space technologies to analyze and monitor Earth’s climate to fueling the re-industrialization of America’s manufacturing and energy sectors — these founders are proving that bold ideas, when paired with the right capital and support, can change industries.

To our entrepreneurs: your relentless ambition, resilience, and innovation continue to inspire me. We’re proud to be on this journey with you and can’t wait to see what’s next.

Here’s to the next $10B!

Jonathan Lacoste

General Partner, Space VC

For those of us in the defense tech industry, it has become painfully obvious that massive transformation is needed across the United States Department of Defense and the Pentagon.

The warning signs have been flashing for nearly two decades, but to match the moment we collectively find ourselves in, the urgency and appetite for significant change must be now.

Given the new administration and their stated policy objectives, I would assert that the United States has its best opportunity in a generation for substantial change within the Department of Defense.

If I were the newly appointed DefSec, Pete Hegseth, here are 10 of my top priorities on Day 1:

#1 Change the Culture & Incentives

The Pentagon is too risk averse. Most teams have largely the wrong incentive structure to enact change. We need to encourage, celebrate and incentivize PEOs & Procurement Officers to experiment, award contracts to non-primes and embrace failure when if happens. Before changing policy, we need to change the hearts and minds of our hard-working people.

#2 Pass an Annual Audit by 2027

The Pentagon and no major part of the Department of Defense has ever passed an annual audit since 2018. That needs to change. We cannot optimize and improve our budget, systems & technology if we do not have an orderly understanding of what we are currently spending (or perhaps wasting) money on. We need an aggressive, “break the glass” style approach to force the Pentagon to pass such an audit on all net-new spending by 2027.

#3 Remove New Cost-Plus Contracts

To non-Defense insiders, Cost-Plus contracting is a baffling concept. While there are merits to the practice in certain, limited R&D capacities, Cost-Plus should be a minimally used, exception to the rule. The DoD should not issue any significant new cost-plus contracts, and instead, prioritize defense partners that put their own capital at risk to help build solutions. This helps open the appetite for who can win a contract and helps the DoD not perpetually over-pay for capabilities.

#4 Reduce the Fiscal OODA Loop & Planning Process

Most years, the DoD produces a five-year plan, called the Future Years Defense Program (FYDP). Given the pace of innovation and the rapidly changing geopolitical landscape, many of the requirements or programs thought to be a priority in 2019 are not only out-dated, but largely irrelevant.

Imagine working off a plan that was pre-COVID, pre-Ukraine/Russia War, or pre-Oct 7. In fact, many of the leading companies in Defense Tech today that can offer the DoD better solutions — Castelion, Saronic, True Anomaly — weren’t even founded in 2019! We need to give DoD officials a parallel process that is shorter, more iterative, and can be used to adjust course.

#5 Manufacturing Capacity over System Capability

The most important capability the U.S. Defense Industrial Base needs to develop in the coming years, is not a singular weapons or defensive system. It is the manufacturing capacity itself to produce, at scale. During an active conflict, with the flexibility and agile nature to adapt to the requirements needed. When supply chains are constrained, when personnel is limited. This is the ultimate test of our DIB. As Elon says, this is why the factory is the product.

#6 Pause or Remove Major Out-Dated Programs

These are not my personal judgements to make, however, it certainly is plausible, nay I say likely, that the DoD and various government agencies have major budget expenditures on programs that are no longer needed or relevant. And if the newly created Department of Government Efficiency (DOGE) aim to significantly streamline budgets, one must go to the largest areas of allocation.

Does NASA’s SLS program still need to continue? Should the F-35 Joint Strike Fighter be continued, even as the GAO admits it will cost $2T+ and the Air Force states it will use the system less? Should the U.S. build another Aircraft carrier? Are purchasing Virginia & Ohio class submarines through the 2040s the best approach to maritime detterence? Tough decisions will need to be made about where the largest of defense dollars are allocated today and moving forward.

#7 We Need a Manhattan-Style Project for Ship-Building

As most Defense insiders are aware, the state of our shipbuilding and maritime manufacturing industries should be a national embarrassment. In 2022, the U.S. built only 5 oceangoing commercial ships. That same year, China built 1,794. The U.S. Navy estimates that China’s shipbuilding capacity is 232x greater than ours. If we have any serious thoughts about a potential conflict with China by the end of the decade, we need a heroic reallocation of dollars, resources & talent towards the maritime domain.

#8 The Future is a Space-Enabled One

The commercial industry and our defensive platforms and weapon systems, increasingly rely on Space Technologies to operate and be effective. Without the space segment serving as an infrastructure, connectivity and intelligence layer, many of our personnel and assets are much less impactful.

Yet Space & the Space Force remains the least funded branch of the DoD, with $29.5B of the $824B DoD budget. If our adversaries have leverage over us in a space-based conflict, where they could take down all GPS, missile defense and intelligence gathering systems, it may not matter if we have more advanced maritime or land-based capabilities. As such, we should massively prioritize and accelerate all defense funding and programs to Space.

#9 Make Them Justify the Status-Quo

While creating a culture & incentive structure to encourage new procurement approaches is radically important, and why I listed it as #1 above, we should also require decisions that double-down on the status-quo to be publicly justified. If PEOs award contracts over a certain threshold (perhaps $100M or $250M) and cheaper options were submitted by non-primes (as an example), the PEOs should be required to submit and publish a written reasoning for why. We need accountability and transparency with our tax-payer funded programs.

#10 Give our People the Tools they Need

The DoD needs a massive transformation of the software, IT and AI tooling they can have access to in order to become more productive. We cannot expect massive productivity gains simply through brute force, we must also enable our personnel to be more productive. We should evaluate, bid out and implement new, modern software systems. The end-state here is one where our Government users are leveraging some of the most advanced software & AI tools available before the commercial sector, not several decades behind.

Earlier this summer, I shared the exciting news of Space VC’s Fund II.

Despite the challenges in the broader capital markets, we found LPs to be enthusiastic about our vision, track record and commitment to partnering with world class founders.

Today, I’m excited to reveal some of the bigger updates and details about our Fund II:

💰 Closed additional capital and increased the size of Fund II

🏭 Expanding beyond Space & Defense

💵 Investing significantly more capital per startup

🗒 More concrete details about our strategy moving forward

Closing Additional Capital for Fund II

Amongst venture capitalists, there is a common proverb that “your fund size is your strategy.”

Simply put, the more capital a VC firm raises, they must either (1) invest in more startups, (2) increase their initial investment size or (3) increase the size & frequency of their follow-on investments.

When I started out on the Fund II fundraising journey, I began by sketching out what I felt was a winning strategy in today’s venture landscape. I then backed into the ideal fund size to deploy that strategy. Therefore, it would not automatically make sense to increase your fund size (i.e. from $20M to $50M, as an example) even if capital interest was available. That calls for a completely different strategy, and one in which you may or may not be better suited to follow.

Towards the end of our fundraising journey, we experienced significant inbound interest from top LPs that we wanted to partner with. Unfortunately, we did not have capacity for all of them at their ideal investment size. I worked with our team to model out the most capital we could take with our existing strategy without deviating too far away from it.

Thanks to considerable LP interest, we ended up increasing Fund II to our cap of $22,500,000. Even though we had more capital around the table interested in investing, this was the right level to bring our fund size too. Tactically, this will enable us to support 1 or 2 additional founders and upsize one-follow on investment, without fundamentally changing the core strategy we’re pursuing.

Strategically, our new LPs also bring larger pools of capital for follow-on investing into exceptional founders that begin to “break out” in the early days. We aim to partner with those founders at Seed and Series A. Therefore, we will be pursuing much larger direct, follow-on investments into our existing portfolio than we previously have entertained before.

Expanding Beyond Space & Defense

Since our founding in 2021, Space VC has become known as one of the premier VC firms in Space & Defense Tech investing. We have been fortunate to support many elite startups being built in the category, including True Anomaly, Loft Orbital & Castelion.

We have built an incredible network of entrepreneurs & engineers that are passionate about the opportunities the Space & Defense industries provide.

However, many of the talented entrepreneurs we meet from SpaceX, Anduril and other industry circles have their eyes in adjacent opportunities beyond space & defense tech. Ultimately if you abstract away the specific products being built in space and defense, often times these frontier tech startups have a similar rhythm to them:

🎯 Building & designing initial hardware prototypes

🎯 Transitioning to scaled manufacturing processes & facilities

🎯 Building internal software platforms to provide more holistic value to their customers

🎯 Selling to government or enterprise customers

🎯 Lobbying federal & state governments for additional support

🎯 Recruiting hardware, mechanical, manufacturing, aerospace engineers

🎯 Raising venture capital from a similar pool of VC firms & partners

Over the past 4 years, the more time I have spent with Space & Defense founders in our portfolio, the broader my collective network & knowledge base has also become in these highly adjacent areas. I have learned an incredible amount that we are now leaning into more directly — and truthfully, that’s a core element of what I believe top VCs should always aspire to have; intense levels of intellectual curiosity.

I’m thrilled that our Fund II will be able to support founders across a broader variety of Frontier Tech sectors:

☑ Semiconductor Manufacturing

☑ Industrial Automation & Energy

☑ Cybersecurity

☑ Autonomous Platforms & Systems

☑ Robotics, both hardware platforms & their underlying software systems

☑ Supply Chain, Critical Materials & Domestic Manufacturing

☑ Vertical specific Artificial Intelligence applications

I strongly believe in focus. Therefore, Space VC will still primarily aim to support the best emerging founders in Space & Defense Tech. In fact, nearly 2/3rds of our capital deployed will target these sectors. However, we will also continue to leverage our network of founders who are aiming to solve critical problems in similar industries.

Investing More Capital Per Startup

In Fund II, we’re writing even larger investments, aiming to invest $750k — $1M per startup initially.

Our hope is that these more meaningful investments allow Day Zero founders who are at the very beginning of their journey, to leave their jobs and pursue their entrepreneurial ambitions with more runway and confidence.

We will continue to partner with incredible Tier 1 VC firms, as we have throughout most of Fund I, including but not limited to Sequoia, Andreessen Horowitz, Eclipse Ventures, Lightspeed, and many more.

Beliefs that Drive Our Strategy

🥇 We aim to partner with Founders on Day Zero. If you are thinking about starting a company or raising a Pre-Seed round, please reach out!

👥 Our philosophy remains one of Concentration and Conviction. We will only invest in 15–16 founders over the next 3–4 years. This enables us to maintain an incredibly high bar for who we partner with.

🤝 As a former Founder, I deeply understand the journey our CEOs are on. As a firm, we strive to support, provide guidance, be a strategic sounding board and open useful doors (capital, customers, government) to our portfolio companies to help accelerate.

👨‍💻Solo-GP enables speed — I am the only member of the investing team at Space VC. Therefore, I encourage all founders to reach out and engage with me as early in your company building process as possible. The benefit of being a solo-GP is we can move with incredible speed once we get conviction on a founder and the problem set they are pursuing.

Thank you to everyone for your warm and generous support to date.

Onwards and upwards,

Jonathan Lacoste

18 months ago, I announced on LinkedIn my next professional journey. After co-founding & scaling a software company for a decade since I was 17 years old, my next challenge would be on the “other” side of the table.

The goal was to build a world-class venture capital fund focused on investing in Space Tech startups.

At the time, we had no capital commitments, no team, and had not made any investments yet. However like most endeavors in life, with dedicated persistence and being surrounded with talented individuals who aren’t afraid to debate, you often succeed.

Today I’m thrilled to announce that we have raised & deployed nearly $20M into the world’s most promising Space startups over the last 18 months, across both our Fund I and SPVs.

We believe that Space is deeply misunderstood. A flood of new capital has gone into the space market over the past several years, with many venture capital funds investing in multi-decade moon-shots.

For us at Space.VC, we take a different approach. We strive to invest in startups that use Space technologies to benefit life here on Earth today. For entrepreneurs disrupting massive commercial industries using infrastructure, data, and software from the Space & space-adjacent ecosystems.

Improving connectivity for the hyper-productive urban worker or expanding access to the underserved rural village. Increasing our understanding of climate change by leveraging satellites to collect novel datasets. Launching the next generation of GPS to ensure location services are accurate and encrypted. As well as ensuring that the U.S. remains a safe and free nation thanks to our defense & intelligence communities.

Over the past 18 months, we have invested in 12 incredible Space companies that are all leveraging Space and the Space ecosystem to enhance life on Earth. We have previously announced many of these investments, however, a few new ones we’re ecstatic to include below:

Hubble Network — A satellite network connecting billions of bluetooth devices globally, from space.

Xona Space Systems — Next generation GPS/PNT satellite constellation

Modern Intelligence —Geospatial AI data fusion platform for defense

True Anomaly — Building security and sustainability solutions for Space

Pixxel Space — The largest hyper-spectral satellite constellation, helping us monitor & analyze the health of the planet

Space Forge — In-Space Manufacturing platform for semiconductor & pharmaceuticals industries

Loft Orbital — Builds software & hardware solutions to provide hosted payload as a service

Hawkeye360 — The largest RF & signal collection satellite constellation, helping keep our communities & country safe

SpaceX — The world’s most reliable launch provider and largest satellite communications constellation

Connektica — A software platform to automate RF testing and other manual QA tasks for hardware engineering teams

Array Labs — Building a satellite constellation to bring 3-D imagery of the world’s surface to scale.

Cosmic Shielding Corporation — Radiation Shielding material solutions to protect infrastructure, satellites, and humans in Space

If you are an entrepreneur, investor, member of the space & defense industries, or simply passionate about leveraging the New Space renaissance to make life on Earth better and more prosperous for us all, please reach out to our team. We’d love to connect.

Ad astra,

Jonathan Lacoste