Countdown Capital winding down is not a bad omen for micro funds

Last week, my colleague Aria Alamalhodaei wrote an exclusive on defense and space tech venture firm Countdown Capital’s plan to shut down. Jai Malik, the founder of Countdown, said in a letter to his LPs that due to how competitive the industrial tech sector has become, he is no longer confident about smaller venture firms’ ability to secure the meaningful stakes in startups they’d need to produce worthwhile returns.

As Aria wrote, the letter reads like a cold glass of water to the face. While winding down the fund is a mature move — GPs have a fiduciary duty to their LPs, after all — the news doesn’t help the growing scuttlebutt in the VC world that most micro funds can’t survive outside of a bull market like 2021’s.

But Countdown shutting down is likely more of an isolated event than a sign of what’s to come for micro funds this year.

When I spoke with Malik back in 2022 about the launch of this very fund, he said that Countdown was created to fill a void in the defense sector. His logic was that while larger firms like Andreessen Horowitz and Lux were interested in backing startups at the Series A stage and later, no one had wanted to write the first small checks startups need to get going.

That’s changed today, and it isn’t surprising given the sheer amount of capital it takes to get defense startups off the ground; the costs are incomparable to a category like SaaS.

This is also why Countdown’s fate doesn’t portend cloudy skies for micro funds in other categories. A micro fund manager in the AI space, for example, told me that despite how active AI has gotten over the last year, the increased interest actually hasn’t made a material difference in pricing at the pre-seed stage where their fund invests. So despite the category heating up, a $500,000 check can still net a firm meaningful ownership at the pre-seed stage, they said.

In VC, size does matter