Last week, mate Aria Alamalhodaei wrote an exclusive report on the plan to wind up defense and aerospace company Countdown Capital. Jai Malik, the founder of Countdown, said in a letter to his LPs that because of how competitive the industrial technology sector has become, he is no longer confident in the ability of smaller venture firms to secure significant stakes in startups which would be needed to generate appreciable returns.
As Aria wrote, the letter feels like a cold glass of water to the face. While liquidating the fund is a mature move — GPs have a fiduciary duty to their LPs, after all — the news doesn’t help the growing doom in the VC world that most small caps can’t survive outside of a bull market like that of 2021.
But the close of the countdown is likely more of an isolated event than a sign of what’s to come for very small caps this year.
When I spoke to Malik in 2022 about the launch of this fund, he said that the countdown was created to fill a gap in the defense sector. His reasoning was that while larger firms like Andreessen Horowitz and Lux were interested in backing startups at the Series A stage and beyond, no one wanted to write the first small checks that startups need to get off the ground.
That has changed today, and it’s no surprise given the huge capital required to start defense businesses. the cost is incomparable to a category like SaaS.
It’s also why Countdown’s fate doesn’t bode well for small caps in other categories. One microcap manager in the AI space, for example, told me that despite how active AI has become over the past year, increased interest hasn’t really made a material difference to pricing at the pre-seed stage where the fund invests their. So despite the class increase, a $500,000 check can still secure a solid substantial property in the pre-seed stage, they said.
