Countdown Cash, an early-stage enterprise funds firm focused on difficult tech industrial startups, will shut down by the stop of March and return uninvested money, agency founder and solo normal spouse Jai Malik said in an once-a-year letter.
In the letter, which was viewed by TechCrunch, Malik states he made a decision to shut the fund immediately after coming to two main conclusions on the economics of early-phase tricky tech investing: that “funding industrial startups is not inefficient ample to justify our existence” and that “larger, multi-phase venture firms are most effective positioned to make strong returns on the most important industrial startups.”
In other phrases, that the company would be unlikely to realize excess returns constantly centered on money limits and inflammation levels of competition from substantial incumbents.
The a few-calendar year-old firm’s unexpected closure implies that there are more powerful headwinds for early-phase difficult tech funds than the overtly optimistic narratives about “building for America” may well suggest. The incisively-published letter reads like a chilly glass of drinking water to the facial area.
“Despite our general performance to date, I’ve concluded that new investments are unlikely to produce potent returns,” Malik states. “As a final result, I no longer believe that that Countdown’s existence is justified, for both our LPs and Countdown management.” Malik declined to comment on this story.
The firm has backed some of the far better-identified names in the aerospace and defense sector, which includes significant satellite bus developer K2 House, machining startup Hadrian, and cybersecurity corporation Galvanick. A whole of twelve investments are listed on the firm’s internet site. Among Countdown’s LPs involved Craft Ventures’ David Sacks, Banana Capital’s Turner Novak and Homebrew VC’s Hunter Wander.
Notably, Countdown was comparatively early to the American difficult tech Renaissance the company closed its very first fund effectively prior to Andreessen Horowitz launched its American Dynamism observe, most likely the greatest and finest-regarded U.S. fund centered on shoring up “the countrywide interest” across sectors like manufacturing, aviation and other individuals.
TechCrunch included Countdown’s second $15 million fund in September 2022at the time, Malik said that the firm was filling a void at the incredibly early levels for money-intensive companies. A calendar year and a little bit on, however, it is distinct that the early-stage prospects Malik was targeting have not shaken out as expected. Countdown’s 1st fund was $three million.
The letter posits greater narratives about early-stage tricky tech industrials investing that throw into question the skill of little, professional resources to compete in opposition to multi-stage incumbents.
Malik explicitly touches on this actuality toward the stop of the letter, when he writes: “To be crystal clear, we’re not bearish on undertaking money or the potential success of enterprise-scale challenging tech providers at massive. We’re bearish on the means of smaller, early-stage resources — significantly sectionally concentrated kinds — to keep on exploiting these opportunities profitably.”
In the letter, Malik connects huge multi-stage firms investing in tough tech industrial startups to the slowdown in progress in software program-as-a-services (SaaS) businesses. But he states that the rate of total price development for industrial startups will not outpace the amount of investment decision from big firms. “Consequently, we feel early obtain to the best companies for a specialized, early-stage enterprise business like Countdown will become extra minimal,” he states. “The most effective early-stage, expert companies might basically resemble less-rewarding ‘derivatives’ of top-performing multi-phase firms, like Founders Fund.”
Malik goes on to say that he believed Countdown experienced or could create aggressive advantages to outcompete in opposition to other firms, multi-phase or early-stage, but that these “are not likely to prevail.” These positive aspects could be points like incubation or other techniques that involve more time and revenue than the modest-AUM firm could afford to pay for.
He reported that this deficiency of aggressive benefit was already obvious: In three instances, Countdown arrived shut to investing in a company’s initial spherical, only for the agency to be priced out by a larger sized multi-phase agency: “A fifty-a hundred% price variation at the pre-seed and seed stage is immaterial to a multi-phase agency managing billions of bucks, but can and should really be the change among a certainly and no for a company of our dimensions.”
An additional challenge, Malik says, is that the top-executing industrial startups are inaccessible to early-stage companies simply because they are priced effectively early on. For illustration, Malik estimates that Anduril, The Tedious Enterprise and Redwood Resources have been priced at roughly $60 million, $one billion and $200 million, respectively, in their first outdoors rounds Countdown would’ve had to commit an huge part of its fund to receive even just three% of each individual firm.
By the conclude of March, the business will entire all pending investments, return capital, terminate all uncalled commitments and forever cease procedure apart from present asset administration, Malik reported.
