Following the debut of ChatGPT in 2022, the venture capital industry rapidly shifted attention toward artificial intelligence start-ups, seeking to capitalize on the technology’s advancement. However, Wen Hsieh, a longtime hardware investor, identified a different opportunity: the growing demand for the physical technologies required to support AI development.
In 2023, Hsieh founded Matter Venture Partners, a firm dedicated to early-stage investments in hardware-focused companies. The firm’s timing proved timely, as hardware is increasingly viewed as a key area of growth within Silicon Valley’s evolving investment landscape.
Investment in so-called deep tech—encompassing robotics, space exploration, quantum computing, and other hardware sectors—has surged in recent years. According to Pitchbook data, venture capital funding for these areas reached $23 billion in 2020 and has since climbed to $90 billion in 2023.
Matter Venture Partners recently announced the closing of $450 million for its second fund, drawing capital from prominent investors tied to the AI boom. These include ASML, a Netherlands-based semiconductor equipment manufacturer planning to establish its own venture arm; Taiwan Semiconductor Manufacturing Company; and venture capital firm Kleiner Perkins, where Hsieh previously served as a general partner.
The firm focuses on six main sectors: semiconductors, AI infrastructure, energy, robotics, advanced manufacturing, and quantum computing. Traditionally, these fields have been viewed as challenging due to their high upfront capital requirements and longer development timelines. However, the rise of AI is reshaping this outlook. AI-driven models have helped reduce research and development costs and timelines, while also raising doubts about the sustainability of software-only ventures. This sentiment contributed to significant declines in software-as-a-service stock valuations earlier this year.
Major venture capital players are adjusting accordingly. Andreessen Horowitz, once a staunch proponent of a software-centric approach—famously captured in a 2011 essay by co-founder Marc Andreessen stating “software is eating the world”—is expanding its emphasis on physical infrastructure startups.
The success of capital-intensive companies such as SpaceX further underscores hardware’s growing importance. Ian Samuels, founder of New System Ventures, highlighted that investing in hardware startups not only brings potential returns but also provides strategic insight into the AI ecosystem.
Matter’s portfolio illustrates this trend. Its company Q.ai was acquired by Apple in January for $1.6 billion, signaling technology giants’ willingness to pay premium prices for hardware innovation. This environment marks a departure from previous hardware investment cycles. In the 2000s, venture funding heavily targeted clean technology but many companies failed to achieve lasting success. More recently, 2020 and 2021 saw waves of special purpose acquisition companies (SPACs) and high-profile initial public offerings that eventually cooled amid valuation declines.
Hsieh emphasized the complexity of successful hardware investing, noting that experience and technical expertise are crucial. “If you’ve been doing it long enough, you know that it’s not easy to do,” he said, underscoring the long-term commitment needed to navigate the sector’s challenges.