At a time when most VCs are trading more cautiously and targeting companies with a fast path to profitability, Countdown Capital is instead going all in on hard-to-build, capital-intensive bets. Company founder Jai Malik told businesskinda.com that despite the more difficult road, these companies may be better bets in the long run.
Countdown Capital Raised $15 million for its second fund to support companies looking to “rebuild America’s industrial base,” Malik said. This includes sectors such as supply chain, manufacturing, defense and energy. The company appears to be investing in the pre-seed phase, hoping to get them to attract the attention of bigger VCs and government funding later on.
“We’re filling a gap in the ecosystem with early stage funding for very hard-to-build companies,” he said. “Because it’s very capital intensive, we want to be the first partner and help them through the twists and turns for a bigger institutional raise.”
Malik got the idea for the strategy when he was in college. Malik, both a business and philosophy student, spent a lot of time thinking about what kind of businesses would have a direct hand in making the country better. When he took a job at a defense startup, Accrete, he realized that hard technology could be worth trying.
“I met tons of people, young people, who started businesses that I thought were underserved by VCs,” he said. “They don’t understand how” [these companies] can sell to the federal government as their main customer.”
It’s worth noting that there’s no consensus that the federal government as the main customer is delivering a winning outcome. I’ve had conversations with risk companies who have strong opinions on both sides. That debate is up to future track records to decide. Plus, that’s not necessary for Countdown to invest.
But the real key to Malik’s strategy, he said, is that it fills a funding gap in an industry that larger companies have proven to be quite excited about over time. While it’s harder for these companies to get off the ground, companies like Andreessen Horowitz and Lux Capital have shown a willingness to get in on later rounds.
Filling the gap Countdown focuses on also resonated with potential LPs. While Malik’s $3 million fundraising for Fund I took four months in 2021, the significantly larger Fund II only took six weeks. The company raised capital from individuals including David Sacks of Craft Ventures, Turner Novak of Banana Capital and Hunter Walk of Homebrew VC.
New LPs like Justin Lopas, the head of production at Anduril, said it was a good idea to get involved.
“The things he invests in scare most VCs back,” Lopas told businesskinda.com. “As a starting company it is very difficult to find financing. There isn’t much competition for him or Countdown in these stages because there aren’t that many VCs. It seems smart to me.”
But that probably won’t stay that way for long as multiple other companies have started popping up to target early stage opportunities in many of the industries Countdown operates, including Dcode Capital (defense and hard tech), Stellar Ventures (aerospace) and Shield Capital (defense).
There seems to be room for competition, though, as Malik said he still largely invests exclusively alongside angels.
Countdown has supported 11 companies so far. Malik said for this fund that the company is really interested in tapping into macro trends, including supply chain issues, returning production to U.S. soil, and new innovations related to defense machinery and weapons.
Malik said the company will focus not only on deploying pre-seed capital, but also helping its portfolio companies hire talent. It also plans to incubate startups in-house, targeting industry problems Countdown doesn’t see a startup actively trying to solve it.
He acknowledged that now is a difficult time to invest in capital-intensive companies, and many of the startups covered by his thesis will have a harder time raising money in these market conditions, but he thinks that the public money is here and all the more more will continue to flow. optimistic prospects for follow-up financing will help.
“I think a major reason why VCs are getting interested in this isn’t because there’s another success metric out there,” Malik said. “That makes it really unique. Usually when you see areas like web3 getting a lot of interest, there was a big exit or the money was pouring in. What seems really exciting about this is that people have seen the problems and just want to make a difference.”
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