VCs are backing AI-native startups in defense, energy, robotics and government sectors historically seen as too difficult to disrupt

Software giants like IBM, SAP, ServiceNow and Schneider Electric have shifted from 'safe bets' to being subject to investor scrutiny following an AI-driven sell-off, as founders build AI-native challengers tailored to these legacy industries.

Incumbents face structural disadvantages: their sprawling pre-AI product architecture and processes make pivoting to AI-native systems a massive undertaking, while new startups are being launched with those systems from day one. Migration cycles have also shrunk from weeks to days as embedded automation cuts friction.

Geopolitical instability, supply chain pressure and energy security concerns have placed industrial resilience at the center of national policy, prompting policymakers to prioritize investment in grid upgrades, transportation networks and public sector infrastructure—opening doors for new software providers.

Some of the fastest-growing startups in these sectors are led by founders who came directly from the same industries they are transforming, giving them an advantage over general software providers that lack the same specialism and experience.