Razor’s Edge Ventures closes $340 million fund to invest in defense startups • CableFree TV

Published by
Peter Kavinsky

In a sign that homeland security tech is a safe bet even in tough economic times, the defense and security-focused venture capital firm Razor’s Edge Enterprises today announced the closing of its third startup investment fund, worth just under $340 million. The company notes that it has exceeded its original $250 million target and will target companies developing autonomous systems, space technology, cybersecurity, artificial intelligence and machine learning, digital signal processing, and other aerospace and defense technologies.

Founded in 2010, Razor’s Edge funds multi-stage startups with both commercial and government clients, but focuses on businesses that “[help] national security community [members] solve complex technological problems and advance critical missions,” in his own words. The group’s areas of interest are based on “strategic national security priorities,” managing partner Mark Spoto told TechCrunch, ostensibly to help the U.S. maintain “technological superiority.”

“While economic conditions in broad financial markets are currently challenging, defense spending has risen significantly both in the US and abroad; we are facing an increasingly complex and growing threat environment,” Spoto said via email. “Limited Liability Partners (LPs) in our latest fund have appreciated that Razor’s Edge offers an investment opportunity that uniquely participates in a growing market and is not connected to the broader financial, equity or commercial technology markets and in many ways serves as a countercyclical hedge for these asset classes. . We started fundraising for the new fund last fall and completed it in June, exceeding our fundraising goal.”

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 USA this usually It takes at least 18 months of planning before a government contractor wins its first contract and most contracts concluded with actors. Any startup that enters the door must bridge the gap between the R&D stage and the contract award.

Razor’s Edge claims to have an edge in its connections to the homeland security community and in its investment approach. The firm operates on a two-pronged strategy, supporting early-stage start-ups — such as the A and B series — as well as more established companies.

For example, Razor’s Edge recently invested in Korsha, a Washington, DC-based cybersecurity startup looking to implement multi-factor authentication in machine-to-machine API traffic. Another portfolio company of the firm is X-Bow Systems, which develops a solid-propellant rocket engine.

When it comes to early-stage investments, Razor’s Edge says it’s narrowing down the companies it believes can grow into big business in the defense and intelligence markets and then expand into commercial ventures. For established and more recent prospects, which are typically companies already doing business with the US government, Razor’s Edge advises on strategic business investments and acquisitions.

“We believe we are one of the first venture capital funds created whose sole investment thesis was national security. The idea for Razor’s Edge was born from the success of Blackbird Technologies and Ravenwing, both national security technology companies founded and managed by the firm’s managing partners,” Spoto said. “We strongly lean towards management teams that look for revenue quickly, operate lean, and can use government contracts and revenues to ease long-term capital requirements and build products that the market needs and will pay for… [and we offer] a huge network of talent in areas such as management, operations, engineering and sales from which our portfolio companies draw.”

Razor’s Edge has several successes under its belt — two initial public offerings and two “substantial” M&A exits — and $600 million in assets under management. However, a flawless track record is unattainable, no matter how thorough due diligence is. And when asked about the cycles of hype in the defense industry, Spoto admitted that it’s hard for venture capitalists not to fall into this trap.

“In terms of valuation and funding, there is a lot of hype… in cybersecurity, as well as in some other areas such as drones and border security technologies,” he said. “[And] there are other areas where we are trying to get smarter and look at them longer term, such as quantum computing, alternative energy technologies, and the impact of climate change on government and defense operations.”

Either way, Razor’s Edge will have to compete against new and established rivals such as Booz Allen Hamilton. recently launched $100 million corporate venture arm, Booz Allen Ventures and Shield Capital is a firm with ties to the Department of Defense. Other competitors are Lockheed Martin Ventures and HorizonX, which split from Boeing in August 2021.

Peter Kavinsky

Peter Kavinsky is the Executive Editor at cablefreetv.org

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