In a sign that national security technology is a safe bet even in tough economic times, defense and security-focused venture capital firm Razor’s Edge Ventures today announced the closing of its third seed investment fund. at just under $340 million. It surpassed the original $250 million goal, the firm notes, and will target companies developing autonomous systems, space technologies, cybersecurity, artificial intelligence and machine learning, digital signal processing and data processing. other aerospace and defense technologies.
Founded in 2010, Razor’s Edge funds multi-stage startups with commercial and government clients, but specializes in companies that “[help] national security community [members] solving difficult technological problems and advancing critical missions,” in his own words. The team’s areas of focus are informed by “strategic national security priorities,” managing partner Mark Spoto told TechCrunch, with the ostensible goal of helping the United States maintain “technological superiority.” .
“While economic conditions in major financial markets are challenging right now, defense spending has increased significantly in the United States and abroad; we face an increasingly complex and growing threat environment,” Spoto said via email. “The limited partners (LPs) of our latest fund appreciated that Razor’s Edge provides an investment opportunity that uniquely participates in a growing market and is uncorrelated to the broad financial, stock or technology trading markets and serves in many ways counter-cyclical hedging these asset classes.We launched our fundraising for the new fund last fall and concluded it in June, exceeding our fundraising target.
Traditional venture capital firms are often reluctant to invest in defense-focused startups, given both the ethical implications and the long road to profitability. In the United States, it typically takes at least 18 months of planning before a government contractor wins their first contract – and most contracts are awarded to incumbents. Any startup that gets a foot in the door has to bridge the gap between the R&D phase and contract award.
Razor’s Edge claims to have an edge in its ties to the national security community and its investment approach. The company operates on a two-pronged strategy, supporting early-stage startups – for example, Series A and B – as well as more established companies.
For example, Razor’s Edge recently invested in Corsha, a Washington, DC-based cybersecurity startup that seeks to bring multi-factor authentication security to machine-to-machine API traffic. Another of the company’s portfolio companies is X-Bow Systems, which is developing a solid rocket engine.
When it comes to seed investments, Razor’s Edge says it focuses on companies it believes can become significant companies in the defense and intelligence markets and then later expand into commercial verticals. . For more established and later-stage prospects, which tend to be companies already working with the US government, Razor’s Edge advises on strategic business investments and “add-on” acquisitions.
“We believe we are one of the first venture capital funds created to have, as their sole investment thesis, a national security objective. The idea for Razor’s Edge grew out of the successes of Blackbird Technologies and Ravenwing, two national security technology companies founded and operated by the firm’s managing partners,” Spoto said. government contracts and revenues to alleviate longer-term capital needs and to create products that markets want and will pay for… [and we offer] an extensive network of talent, in areas such as management, operations, engineering and sales, from which our portfolio companies draw.
Razor’s Edge has a few hits under its belt – two initial public offerings and two “hard” M&A exits – and $600 million in assets under management. However, a perfect balance sheet is elusive, no matter how thorough the due diligence. And when asked about the hype cycles in the defense space, Spoto admitted that it’s a tough trap that VCs shouldn’t fall into.
“There is hype from a valuation and funding perspective … in cybersecurity and also in parts of other areas like drones and border security technology,” he said. “[And] there are other areas where we try to be smarter and take a longer term view, such as quantum computing, alternative power and energy technologies and the impacts of climate change on government and defense operations.
Either way, Razor’s Edge will have to compete against new and established rivals like Booz Allen Hamilton’s recently launched $100 million venture arm, Booz Allen Ventures and Shield Capital – a firm with ties to the Department of defense. Other competitors include Lockheed Martin Ventures and Lockheed Martin’s HorizonX, which spun off from Boeing in August 2021.