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It’s election day, so we’ll make this one quick.
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Today’s highlights
Why Crosscut and other firms are moving away from software and towards hardware investing
Tomasz Tunguz files for a massive Fund II
Treating content as a product
TOP
Crosscut 🔄 hardware
Crosscut, an LA-based fund traditionally focused on software startups, is shifting gears with a new $100M fund targeting hardware and climate tech.
As software saturation sets in and top talent from companies like SpaceX gravitates toward big problems like climate change, the venture investment landscape is evolving with it. Crosscut’s latest pivot reflects a larger trend that has been taking place in VC, and that is that hardware and deeptech investments have started to attract equity capital once reserved solely for software.
Why it matters: VCs are having an identity crisis, and investing exclusively in software is no longer appealing to many LPs.
AI has made feature parity a larger problem, and technical moats for software businesses are eroding by the day
AI has also made it easier for many companies to scale quickly without massive headcount, making it easier for companies to raise 1-2 rounds of funding, becoming profitable, and removing their need for more capital from venture investors
The ZIRP-era proved that a lot of venture dollars go towards backing companies not solving real-world problems
SpaceX, Anduril, and others have shown that investing in hardware companies can solve real-world problems and create massive wins for early investors
But as venture dollars move away from software, many of their old frameworks for evaluating businesses no longer apply.
Hardware and climate-focused startups represent a substantial departure from the fast, capital-efficient playbook that software has enabled, requiring both patient capital and creative financing structures. Unlike software, where high scalability and quick returns are often achievable, hardware investments take longer to mature and face unique financial hurdles—especially around Series B or C, the notorious “valley of death.”
What happens next: We should be clear: we don’t expect software investing to disappear or even have a serious decline. But we do expect more funds to diversify into hardware and climate tech, especially as software-only bets become more competitive.
We would also expect this to change some standard fund terms, and given the larger capital requirements, expect an extended fund life to be common with funds that invest in these new areas.
As a parting piece of advice to GPs: stay in your zone of genius. If you don’t know anything about hardware or climate investing, it’s probably best you don’t waste other people’s money investing there.
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LINKS
💲 How to Build a Billion-Dollar Marketplace—Do’s and Don’ts from the Growth Expert Behind Grubhub, Pinterest, and More: Casey Winters, the growth expert behind Grubhub, Pinterest & Eventbrite, shares proven strategies for scaling marketplaces from 0 to $1B
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🌎 VC Job Opportunities: Learning VC lists 28 open offers to join the VC world across the globe
TWEET
HEADLINES
Tomasz Tunguz’s Theory Ventures has raised a $450 million second fund, filings say (Fortune)
Bowery, once a leading indoor farming company valued at $2.3B, shuts down (Pitchbook)
PE playbook zeroes in on operational value creation (Pitchbook)
Robot Brain Startup Physical Intelligence Raises $400M At $2B Valuation (Crunchbase)
VC RECRUITING
In-office DC principal role
We’re helping fill a principal role for a DC-based growth fund focused on cloud infrastructure, supply chain, and AI.
This person should:
Be based in or near the DC area (or willing to relocate)
Have 3-5 years of investing / startup operating experience
Have experience with financial modeling
Be able to work fluidly across multiple internal and external departments
Sound like you?
Reply to this and shoot over your LinkedIn URL, a personal email, and 3-4 sentences on why you could be a good fit.
RECS
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POLL
Where are you spending most of your capital over the next five years?
Thanks for reading this far and giving us a little bit of your attention this week.
Feel free to unsubscribe whenever this stops becoming valuable to you.
- Clay
RESULTS
Here are the results from our poll question in Friday’s piece:
What percentage of funds do you think warrant an evergreen fund structure?
🟩🟩🟩🟩🟩🟩 <1% (5)
🟨🟨⬜️⬜️⬜️⬜️ 1-10% (2)
🟨🟨⬜️⬜️⬜️⬜️ 10-25% (2)
⬜️⬜️⬜️⬜️⬜️⬜️ None of them (0)
🟩🟩🟩🟩🟩🟩 Don't care - just show me results (5)
14 Votes
