The closing of the third fund for investment in startups by defense and security-focused VC company Razor’s Edge Ventures at less than $340 million is a clear sign that national security technology can be a safe bet, even in difficult economic times. The firm noted that it exceeded its initial target of $250,000,000 and will target companies working in autonomous systems, space technologies and cybersecurity.
Razor’s Edge was founded in 2010 and invests in multistage startups for both government and commercial customers. It specializes in ventures that help “[help] the national security community [members]] solve difficult technological problems and advance crucial missions,” according to its own words. According to Mark Spoto, managing partner of Razor’s Edge, the outfit’s interests are informed by “strategic security priorities” with the stated goal of supporting the U.S. “technological superiority”.
Spoto stated via email that, “While the economic environment in broad financial markets is challenging at the moment, spending for defense grew significantly both in the U.S. as well as abroad; we face an increasing complex and growing threat landscape.” “Limited Partners (LPs), in our most recent fund, appreciated Razor’s Edge as an investment opportunity. It participates in a unique market and is not correlated with the broad financial, stock and commercial technology markets. In many ways it serves as a countercyclical hedge for those asset classes. The new fund was launched last fall, and we completed it in June. We exceeded our fundraising goal.
Due to the long path to profitability and ethical implications, traditional venture firms may be reluctant to invest in defense-oriented startups. In the U.S., it Corsha a Washington D.C.-based cybersecurity company that provides multifactor authentication security to machine to machine API traffic. X-Bow Systems is another portfolio company. It is currently developing a solid rocket engine.
Razor’s Edge focuses on early-stage investments. It only invests in companies that it believes can grow to large business in the intelligence and defense markets, and then expand into commercial enterprise verticals. Razor’s Edge offers advice on strategic business investments as well as “tuck-in”, acquisitions for the established and more advanced prospects.
“We are proud to be one of the first venture capital funds that has a national security focus as its sole investment thesis. Spoto stated that Razor’s Edge was inspired by the success of Ravenwing and Blackbird Technologies, national security technology companies that were founded and managed by the firm’s managing partner. We have a strong bias towards management teams that are able to generate revenue quickly and operate leanly to offset longer-term capital needs and build products that the market wants and will pay for…. [and] we offer a vast network of talent in areas such management, engineering, and sales that our portfolio companies use.”
Razor’s Edge is proud to have had a few successes, including two initial public offerings and two M&A exits. It also has $600 million of assets under management. However, despite all the diligence and due diligence, a perfect track record is impossible to find. Spoto also spoke out about the dangers of hype cycles in defense-related industries.
He said that there was overhype in cybersecurity, as well as in other areas such drones and border security technologies. “[And] we’re trying to get smarter and take a longer perspective on other areas, such as quantum computing and alternative power and energy technologies, and the effects of climate change on government operations and government.”
Razor’s Edge will be competing with established competitors like Booz Alle Hamilton’s $100m corporate venture arm, Booz Allan Ventures, and Shield Capital, which are both companies with Defense Department connections. HorizonX and Lockheed Martin Ventures are other competitors. These were spun off from Boeing in august 2021.