In a sign that national security tech is a safe bet even during troubled economic times, defense- and security-focused VC firm Razer’s Edge Ventures today announced the closure of its third startup investment fund at under $340 million. It surpassed an initial target of $250 million, the firm notes, and will target companies developing autonomous systems, space technologies, cyber security, AI and machine learning, digital signal processing and other aerospace and defense technologies.
Founded in 2010, Razer Edge funds multi-stage startups with both commercial and government clients, but specializes in ventures that “[help] national security community [members] Solving difficult technical problems and advancing critical missions,” in his own words. The organization’s interest areas are informed by “strategic national security priorities,” managing partner Mark Spoto tells TechCrunch, with the clear goal of helping America maintain “technological superiority.”
“While the economic situation in the broader financial markets is challenging at this time, spending for defense has increased significantly both in the US and abroad; we are facing an increasingly complex and growing threat environment,” Spoto said via email. “The Limited Partners (LPs) in our latest fund appreciate that Razor Edge offers an investment opportunity that participates in a growing market in a unique way and is unrelated to the broader financial, stock or commercial technology markets and many more.” Acts as a countercyclical in some ways. hedge for those asset classes. We launched our fundraising for the new fund last fall and wrapped it up in June, exceeding our fundraising goal.
Traditional venture companies are often reluctant to invest in defense-oriented startups, given both the ethical implications and the long road to profitability. In the US, it usually takes at least 18 months of planning before a government contractor can win their first contract – and most contracts are awarded to incumbents. Any startup that sets foot in the door has to bridge the gap between the R&D stage and the contract award.
Razer’s Edge claims to have advantages in its relationship with the national security community and its investment approach. The firm operates under a two-pronged strategy, supporting early-stage startups – eg, Series A and B – as well as more established companies.
For example, Razer’s Edge recently invested in Washington, DC-based cybersecurity startup Corsa, which is looking to bring multi-factor authentication security to machine-to-machine API traffic. One of the firm’s portfolio companies is X-Bow Systems, which is developing a solid rocket motor.
When it comes to early-stage investments, Razer’s Edge says it lists companies it believes can grow into big business in the defense and intelligence markets and then later Can expand into commercial enterprise verticals. For more established and later-stage prospects who already have companies working with the U.S. government, Razer’s Edge offers advice on strategic business investments and “tuck-in” acquisitions.
“We believe we are one of the first venture capital funds created, whose sole investment thesis, was a national security focus. The idea for Razer Edge was born out of the successes of Blackbird Technologies and Ravenwing, both national security technology companies of the firm. are established and operated by managing partners,” said Spoto. “We have a strong bias for management teams that seek revenue quickly, work lean and leverage government contracts and revenue to reduce long-term capital requirements and manufacture products that are designed to reduce long-term capital requirements. Can do whatever the market wants and will pay for it… [and we offer] A vast network of talent in areas such as management, operations, engineering and sales attracts our portfolio companies. ,
Razer’s Edge has a few successes under its belt — two initial public offerings and two “material” M&A exits — and $600 million in assets under management. However, no matter the thoroughness of due diligence, a perfect track record is elusive. And when asked about the campaign cycle in the defence, Spoto admitted that it is a tough trap for VCs not to fall into.
“From a valuation and funding perspective… there is an exaggeration in cyber security and also in some other areas like drones and border security technologies,” he said. ,[And] There are other areas we are trying to get smarter and take a longer view on, such as quantum computing, alternative electricity and energy technologies, and the effects of climate change on government and defense work.
In any case, Razer’s Edge will have to compete with new and established rivals like Booz Allen Hamilton’s recently launched $100 million corporate venture arm, Booz Allen Ventures and Shield Capital — a firm with Defense Department connections. Other competitors include Lockheed Martin’s Lockheed Martin Ventures and HorizonX, which spun off from Boeing in August 2021.