Last week, my colleague Aria Alamalhodaei writes an exclusive story about the planned closure of defense and space technology venture capital firm Countdown Capital. Countdown founder Jai Malik said in a letter to limited partners that he is no longer confident in the ability of small venture capital firms to obtain meaningful stakes in new startups due to increasing competition in the industrial technology field. Generate valuable returns.
As Alia writes, the letter reads like a glass of cold water splashed in the face. While closing the fund is a mature move—general partners have fiduciary responsibilities to their limited partners, after all—the news does not help the growing chatter in the venture capital community that most micro funds cannot Survive outside a bull market like 2021.
But the closing of Countdown may be more of an isolated incident than a sign of what’s to come for small funds this year.
When I spoke with Malik about the launch of the fund in 2022, he said Countdown was created to fill a gap in the defense sector. His logic was that while big companies like Andreessen Horowitz and Lux were interested in backing startups through the Series A funding stage and beyond, no one was willing to write the first small check a startup needed to get off the ground.
That has changed, which is not surprising given the huge amounts of capital required for defense startups to get off the ground. The cost is unmatched by categories like SaaS.
That’s why Countdown’s fate doesn’t bode well for other categories of micro-funds. For example, one micro-fund manager in the AI space told me that although AI has become very active over the past year, the increased interest has not actually had a significant impact on the pricing of the pre-seed stages in which their funds invest. So while the category is heating up, a $500,000 check can still secure firm and meaningful ownership in the pre-seed stage, they say.
