📶 Countdown counts down

Takeaways from the Countdown shutdown, the challenges of investing in hard tech and competing as a small fund, plus the ten best things we read last week

January 09, 2024 • Estimated Reading Time: 8 minutes

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Good morning 👋

The VC world had more bad news last week when Countdown Capital announced it would be shutting down.

Countdown was early to the hardware gold rush, so this news was a bit of a surprise for us.

We break down why in this week’s piece.

P.S. In case you missed it …

We’re starting to share our deal flow + thoughts on the companies we like.

Check out the first iteration here, and let us know what you think.

TL;DR:

NEWS
Countdown shuts down 📉

SpaceX Falcon 9 Launch

Countdown Capital (an early-stage hard tech fund started by Jai Malik) announced last week that it would not be raising another fund.

Everybody seems to love Jai, and I’m sure he will land on his feet.

The shutdown was a little surprising for us. Here’s why.

Why it matters:

Countdown was early to see the opportunity in hard tech, and it launched in 2020 before firms like a16z and others had built out a dedicated practice and thesis towards American Dynamism.

That was then, and this is now.

In his annual letter to LPs, Jai mentioned two reasons for the shutdown:

  1. “Funding industrial startups is not inefficient enough to justify our existence”

  2. “Larger, multi-stage venture firms are best positioned to generate strong returns on the most valuable industrial startups”

In other words, competition from deeper pockets has made it impossible for first-time funds to compete.

In the past, VCs didn’t want to touch hardware because of the perceived complexity, lack of recurring revenue, and the R&D risk required to build some of these products.

Fast forward to today, and more and more VCs have entered the space. More competition equals higher valuations, and higher valuations unfortunately are not feasible for smaller AUM funds.

What happens next:

There are only so many ways that smaller funds can compete.

We’ve seen managers try the incubation model; we’ve seen some managers compete by acting as a media company and distributing awareness of the fund and portfolio companies through their audience; we’ve seen others carve up their calendars so that they spend all day with their founders.

There’s a place for all of that.

But in areas like hardware and deep tech (where the capital commitments become higher than that of traditional software), it becomes borderline impossible to compete without deeper pockets.

We’re rooting for Jai and know he will land on his feet with a ton of wisdom coming out of this. Give him a shout if you’re looking to see where you can be helpful.

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Enough internet for today.

Thanks for reading this far and giving us a little bit of your attention this week.

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P.S. Here are the results from our 2024 predictions poll:


Which of our predictions do you NOT agree with?

🟨⬜️⬜️⬜️⬜️⬜️ AI application layer wars (7)

⬜️⬜️⬜️⬜️⬜️⬜️ More brand name funds will shut their doors: (4)

🟩🟩🟩🟩🟩🟩 Co-pilots will 10x individual’s output (31)

🟨🟨⬜️⬜️⬜️⬜️ Distribution-as-a-service (11)

🟨⬜️⬜️⬜️⬜️⬜️ Alts go mainstream (9)

🟨⬜️⬜️⬜️⬜️⬜️ The newsletter bubble will start to pop (5)

🟨⬜️⬜️⬜️⬜️⬜️ People turn to religion (10)

77 Votes

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