In a time when most VCs are acting more cautiously and placing focus on companies with a quick path to profitability, Countdown Capital is instead going all in on hard-to-build, capital-intensive bets. Firm founder Jai Malik told TechCrunch that despite the harder road, these companies may be better bets in the long run.
Countdown Capital raised $15 million for its second fund to back companies looking to "rebuild the American industrial base," Malik said. This includes sectors like supply chain, manufacturing, defense and energy, among others. The firm looks to invest at the pre-seed stage, hoping to get them set up to later garner attention from larger VCs and government funding.
"We are filling in a gap in the ecosystem for really early-stage funding for very hard-to-build businesses," he said. "Because it is very capital-intensive, we aim to be the first partner and help them through the kinks for a larger institutional raise."
Malik got the idea for the strategy back when he was in college. Both a business and a philosophy student, Malik spent a lot of time thinking about what kinds of companies would have a direct hand in making the country better. When he took a job at a defense startup, Accrete, he realized hard tech might be worth a shot.
"I met tons of people, young people, who were starting companies 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 is worth noting, there isn't a consensus that the federal government being the main customer produces a winning outcome. I've had conversations with venture firms that have strong opinions on both sides. That debate is up for future track records to decide. Plus, that isn't needed for Countdown to invest.
But the real key to Malik's strategy, he said, is that he is filling a funding void in a sector that larger firms have proven to be pretty excited about down the line. While it is harder for these companies to get off the ground, firms including Andreessen Horowitz and Lux Capital have proven willing to come in at later rounds.
Filling the gap that Countdown is targeting resonated with potential LPs too. While Malik's $3 million raise for Fund I in 2021 took four months, significantly larger Fund II took just six weeks. The firm raised capital from individuals including Craft Ventures' David Sacks, Banana Capital's Turner Novak and Homebrew VC's Hunter Walk.
New LPs like Justin Lopas, the head of manufacturing at Anduril, said it was a no-brainer to get involved.
"The stuff that he invests in, most VCs shy away," Lopas told TechCrunch. "It's really hard to find funding as an early-stage company. There is not a huge amount of competition for him or Countdown at these stages because there aren't that many VCs. It seems smart to me."
It probably won't stay that way for long, though, as multiple other firms have started cropping up to target early-stage opportunities in many of the sectors Countdown operates in, including Dcode Capital (defense and hard tech), Stellar Ventures (space) and Shield Capital (defense).
There seems to be room for competition, though, as Malik said he still largely invests exclusively alongside angels.
Countdown has backed 11 companies so far. Malik said for this fund the firm is really interested in tapping into macro trends, including supply chain issues, bringing manufacturing back to American soil and new innovations related to defense machinery and weaponry.
Malik said that apart from deploying pre-seed capital, the firm will be focused on helping its portfolio companies hire talent. It also plans to start incubating startups in house, focused on industrial problems Countdown doesn't see a startup actively working to fix.
He acknowledged that now is a tough time to be investing in capital-intensive businesses, and many of the startups that fall under his thesis will have a tougher time raising in these market conditions, but he thinks government money will keep flowing here and the more optimistic outlook for follow-on financing will help.
"I think a big reason why VCs are getting interested in this is not because there is some success metric yet," Malik said. "That makes it really unique. Usually when you see areas like web3 get a lot of interest there was a big exit or money pouring in. What seems really exciting about this is that people have seen the problems and want to just make a difference."