Final week, my colleague Aria Alamalhodaei wrote an unique on protection and area tech enterprise agency Countdown Capital’s plan to close down. Jai Malik, the founding father of Countdown, mentioned in a letter to his LPs that on account of how aggressive the economic tech sector has change into, he’s now not assured about smaller enterprise corporations’ potential 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 almost all 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 return for micro funds this yr.
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 corporations like Andreessen Horowitz and Lux had been excited by backing startups on the Collection A stage and later, nobody wished to write down the primary small checks startups have to get going.
That’s modified at the moment, and it isn’t shocking 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 area, for instance, advised me that regardless of how energetic AI has gotten during the last yr, the elevated curiosity truly hasn’t made a fabric distinction in pricing on the pre-seed stage the place their fund invests. So regardless of the class heating up, a $500,000 test can nonetheless web a agency significant possession on the pre-seed stage, they mentioned.