Hardware high on the radar: why investors are increasingly looking into hardware startups
For years, software ate the world. Low startup costs, fast MVPs, and easy scaling were the ultimate startup playbook. But that era is changing. Today, founders and investors are turning their attention more to physical technology, moving beyond just building apps and digital platforms.
This shift is driven by the AI-boom - which needs more infrastructure - and the growth of Embodied AI: artificial intelligence built directly into physical objects. Think robots, autonomous machines, smart sensors and industrial automation. The digital "brain" of AI is finally getting a real-world body, and that transformation is changing where investment money is going.
VC money is moving to hardware
There’s a few clear trends that highlight this shift:
- Long-term bets: Investors are putting more capital into custom microchips, robotics and autonomous systems. These are ambitious and long-term plays rather than quick software bets.
- A growing share: Deeptech and physical tech now account for a substantial, growing share of total global venture capital, moving out of its old niche corner.
- Rebuilding the full stack: Within embodied AI, the largest funding rounds go to the "brain" layer (the AI software), but the highest number of individual deals happens in components and sensors. The entire physical and digital stack is being rebuilt at once.
However, Europe still represents a smaller part of this global picture, since most deals are happening in Asia-Pacific and North America. That is precisely why it is so notable that VCs are actively shifting their focus toward hardware and deeptech. Where the local market is still developing, there is massive room to build.
Why now? Three reasons behind the shift
1. AI is changing software businesses at high speed. Today, every founder has access to the same powerful AI tools. However, so do their prospective customers. Companies are increasingly experimenting with AI tools like Claude in-house to solve their own problems.
This creates new hurdles for traditional software startups: customer development is tougher, buyers are experiencing "AI fatigue," and software pricing is under constant pressure. As our Business Coach and Chief Matchmaker Dirk Lievens notes:
"Software startups that build real traction today do so by relentlessly tackling complex or niche problems, backed by elite expert teams and proprietary data or workflows."
In short, a thin AI wrapper no longer cuts it. The software startups that still win are tackling hard problems, leveraging non-public data, and selling directly through technical founders. One consequence: more and more founders are now setting their sights on hardware.
2. There simply aren't enough workers. Belgium is facing a severe labor shortage across logistics, healthcare, manufacturing, and engineering, with roughly 7 out of 10 employers struggling to fill open roles according to SDWorx. In this environment, robots and smart sensors aren't replacing human workers; they are filling essential jobs that companies simply cannot staff, from factory floors to warehouse aisles and beyond.
Using an example from within our own community, this is exactly the problem Virenti is solving. As a Brussels-based greentech startup and winner of the 2025 Innovative Starters Award, Virenti is developing a bio-based, wood-derived alternative to FR4: the fossil-based substrate used in the printed circuit boards of virtually every electronic device. The most notable part? Conventional FR4 production generates more than 8 billion kilograms of CO₂e per year and leaves Europe heavily dependent on Asian imports for a material at the heart of its electronics supply chain. Virenti's solution matches the mechanical, electrical and thermal performance industry demands, while cutting that carbon footprint and reducing reliance on imports. Hardware innovation isn't an abstract future concept, but actively solving practical, structural challenges right now.
3. Geopolitics favors physical products. The global economy is moving from pure globalization toward regionalization, driven by supply chain reshoring, local manufacturing and the desire for sovereign technology. Physical products are inherently harder to copy than software. A distant competitor can reverse-engineer a SaaS app in a few months, but replicating a physical supply chain, manufacturing process, and hardware integration takes years. That grants hardware founders a structural defense they didn't have a decade ago.
What this means for the future
Building hardware is still challenging. It demands more upfront capital, longer development cycles and deep technical expertise. However, the gap between software and hardware startups has narrowed significantly. Pure software startups face tougher sales cycles and fiercer competition, while hardware founders gain defensibility, strategic timing, and investors who are willing to support longer-term growth.
Expect to see more founders choose deeptech and physical products in the coming years, and more European investors building the expertise needed to support them. Embodied AI will show up wherever a labor shortage meets a physical bottleneck: on a factory floor, in a distribution center or even within the doors of your local hospital. Examples from Start it @KBC Hardware - powered by Leuven MindGate - include Virenti, Eforto Health, Cellavie, Parkeet, Ambiorix and many more.
Hardware is back, and the next wave of category-defining startups won't just live on screens. The capital, the market, and the technology are aligning. The real question is, will your startup be the one to shape it?
Curious how this plays out in the Belgian startup landscape? Check the latest Start it Barometer here.