Final week, my colleague Aria Alamalhodaei wrote an unique on protection and house tech enterprise agency Countdown Capital’s plan to shut down. Jai Malik, the founding father of Countdown, mentioned in a letter to his LPs that as a result of how aggressive the economic tech sector has change into, he’s now not assured about smaller enterprise companies’ capability to safe the significant stakes in startups they’d want to supply worthwhile returns.
As Aria wrote, the letter reads like a chilly glass of water to the face. Whereas winding down the fund is a mature transfer — GPs have a fiduciary responsibility to their LPs, in any case — the information doesn’t assist the rising scuttlebutt within the VC world that the majority micro funds can’t survive outdoors of a bull market like 2021’s.
However Countdown shutting down is probably going extra of an remoted occasion than an indication of what’s to come back for micro funds this 12 months.
Once I spoke with Malik again in 2022 concerning the launch of this very fund, he mentioned that Countdown was created to fill a void within the protection sector. His logic was that whereas bigger companies like Andreessen Horowitz and Lux had been all for backing startups on the Sequence A stage and later, nobody wished to jot down the primary small checks startups must get going.
That’s modified at the moment, and it isn’t stunning given the sheer quantity of capital it takes to get protection startups off the bottom; the prices are incomparable to a class like SaaS.
That is additionally why Countdown’s destiny doesn’t portend cloudy skies for micro funds in different classes. A micro fund supervisor within the AI house, for instance, informed me that regardless of how lively AI has gotten over the past 12 months, the elevated curiosity really hasn’t made a cloth distinction in pricing on the pre-seed stage the place their fund invests. So regardless of the class heating up, a $500,000 verify can nonetheless internet a agency significant possession on the pre-seed stage, they mentioned.
