A recent declaration by the current federal administration categorizes robot imports as a national security threat, which continues to build on earlier restrictions. The American heartland, with a third of U.S. manufacturing capacity, would have been a significant buyer of this technology. Now though this region is poised to be a massive catalyst for domestic innovation. We are on the precipice of a hard-tech renaissance, and the Midwest is uniquely positioned to lead.
For years, venture capital overwhelmingly favored pure software plays, lured by high margins and quick scalability. But the tide is turning. With software seen as quickly replaceable by new AI-native and AI-created solutions, there is no moat. Investors are finally warming up to hard-tech, recognizing that building the physical infrastructure of the future is where the most durable value lies. The recent import restrictions will only accelerate this trend, spurring U.S. innovation and forcing Midwestern industrial companies to adopt those domestic solutions or build proprietary technologies. As the underlying technology becomes more approachable and cost-effective, we are going to see a historic boom in hard-tech startup activity.
What physical AI means for Midwest manufacturers
The next wave of disruption isn't just about building a stronger robotic arm. It’s how that stronger robotic arm interacts with varied environments and deployment modalities. How it handles the high variability and low volume manufacturing across product lines that is common at Midwest manufacturers. How it learns new tasks and continuously improves.
The real magic happens, the biggest moats are built, and most value created, when you blend software and hardware.
Take Rivian, for example. Manufactured in downstate Illinois, the electric vehicle company is essentially a computer that you drive. The automotive space is the perfect blueprint for this evolution, demonstrating how the true marrying of hardware and software creates unparalleled products. We are going to see this exact model replicated across nearly every traditional industry relevant to the Midwest, from smart manufacturing and aerospace to agriculture and cold-chain logistics.
At TechNexus Venture Collaborative, we’ve been seeing this shift taking place. We’ve been investing at the intersection of hardware and software for over a decade through our corporate partnerships, and what we’ve learned is that the future of artificial intelligence is fundamentally physical. We’ve seen it in startups like our portfolio company Harbinger, which this week raised $240 million to electrify the medium-duty trucking space. It’s helping companies like FedEx electrify their trucking fleets, and works with defense manufacturer American Rheinmetall to develop unmanned support vehicles for the U.S. Army.
Midwest startup funding is following the factory floor
Midwest startups raised $2.06 billion across 82 venture rounds in the third quarter of 2026, up more than 70% from the quarter prior. Some of the largest checks went to companies building for the factory floor.
- $114 million for CADDi's manufacturing data platform at a $1.2 billion valuation.
- $85 million for Go.AI's on-premise AI hardware and software.
- $40 million for Northbrook's Impossible Objects, which makes industrial 3D printers.
- In Bolingbrook, Formic raised a $50 million Series B and has robots running in 150 factories.
- In Cincinnati, 1872 opened an automated steel fabrication factory on a $15 million seed, using welding robots from Ohio's Path Robotics.
The mandate for Midwest industrial companies is clear: the future belongs to those who can master both the physical and the digital. The current political and economic climate is providing the spark, but the fuel is the region's rich industrial heritage combined with a new era of technological accessibility. The merging of hardware and software is no longer a futuristic concept—it is the new standard. And for founders and investors willing to embrace the complexity of hard-tech, the Midwest is the perfect place to build it.
Andrew Loulousis is Vice President of Strategy and Venture at TechNexus Venture Collaborative, where he partners with corporate clients to design and execute innovation strategies backed by early-stage venture investments across a broad range of industries.
