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Last week , my colleague Aria Alamalhodaei write an exclusive on defense and space tech venture firmCountdown Capital ’s plan to shut out down . Jai Malik , the beginner of Countdown , said in a letter of the alphabet to his LPs that due to how competitive the industrial technical school sector has become , he is no longer confident about smaller speculation firms ’ ability to secure the meaningful stake in startup they ’d ask to produce worthwhile replication .
As Aria wrote , the letter read like a cold glass of pee to the face . While winding down the fund is a mature move — GPs have a fiducial tariff to their LPs , after all — the news does n’t help the growing scuttlebutt in the VC humankind that most micro funds ca n’t survive outside of a bruiser market place like 2021 ’s .
But Countdown shutting down is likely more of an isolated event than a sign of what ’s to come for micro funds this year .
When I talk with Malik back in 2022 about thelaunch of this very investment company , he order that Countdown was created to fill a void in the defense sphere . His system of logic was that while large firms like Andreessen Horowitz and Lux were concerned in backing startup at the Series A phase and later , no one wanted to indite the first small checks startups demand to get go .
That ’s change today , and it is n’t surprising render the sheer amount of capital it takes to get defense startups off the terra firma ; the costs are incomparable to a category like SaaS.
This is also why Countdown ’s fate does n’t portend turbid sky for micro funds in other class . A micro investment trust manager in the AI outer space , for example , tell me that despite how active AI has pose over the last year , the increased interest actually has n’t made a material difference in pricing at the pre - seed stage where their investment firm invests . So despite the class heating up , a $ 500,000 check can still clear a firm meaningful ownership at the pre - seed stage , they suppose .
In VC, size does matter
Getting a meaningful stake is everything for micro fund , harmonise to Michael Kim , the founder of Cendana Capital . A fund of finances that backs micro funds , Cendana has invested in more than 60 investment firm coach , and Kim sound out they ’ve mostly avoid capital letter - intensive sector because of how hard it can be to land a becoming - sized stake . He add that in such sectors , the rounds that micro funds participate in are inherently bad because they are n’t unremarkably large enough to be able to differentiate if a company ’s product could work or if a inauguration could find ware - market paroxysm .
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“ We have always looked for investment firm handler that got comparatively gamy possession with their first check , ” Kim said . “ We look for fund managers that are leading rounds [ despite their size of it ] . ”
Paige Doherty , the found partner of Behind Genius Ventures , told me her house has been priced out of rounds because their business firm ’s check size is $ 250,000 on fair . Still , her house has been capable to avoid that scenario a lot by virtue of being “ fiercely generalist , ” she add .
Doherty said that while being generalist had made it harder for the firm to fund-raise in the beginning , the strategy has since helped them move more flexibly with the market . If a class gets too expensive to get meaningful ownership , the house can spend more time elsewhere , as it does n’t have a mandate to back a specific sector .
It’s about more than the money
There are many thing micro funds can do to ensure startup will make distance for them on their detonator tables disregardless of how much money they bring in .
Doherty runs an annual study asking her portfolio company founders what they wish about working with her fund . She ’s found that her web and ability to introduce company to possible lead-in investors helps , but how she interacts with founders is probable what makes the biggest deviation .
“ Having early conviction in a founding father is really meaningful , ” Doherty said . “ [ I postulate myself ] if I would invest 3x the amount of this stay in this founder , in this company . Each investing , I want to be at that ‘ hell yes ’ spirit level of sentence . The feedback I ’ve drive is , that is one of the things that really sting out . ”
Of naturally , founders can build up such familiar relationship with tumid finances , too , but it ’s less potential to find due to the sheer size of the portfolio some great monetary resource have . There ’s also the fact that each VC only has so much time to drop with each society . Micro stock may very well need to go above and beyond to show that they can fill that crucial gap .
concord to Kim , a micro investment company manager can bear out if they have a mystifying knowledge pedestal and are already considered to be a thought leader in the sector they are targeting . Having a ground as an enterpriser can also be a big help , he say .
None of this is to say Countdown Capital did not do or have these matter . Sometimes there just is n’t a solution to being in an inopportune post at a bad fourth dimension . Instead , I simply need to point out that many micro finances should n’t be too worried about what has unfold so far this year .
As long as a fund manager can set themselves as a must - have investor , and not a nice - to - have backer , and can land deal with meaningful stakes , the size of their investment trust wo n’t obtain them back .
