Eight years ago, Crosscut Ventures, where Brian Garrett is a co-founder and managing partner, noticed a shift happening. They had been investing in early-stage startups in Los Angeles and Southern California, focusing mainly on software companies. However, they started to see promising founders moving towards hardware, especially those coming from established companies like SpaceX.
The founders coming from SpaceX had a different mindset compared to those who kickstarted LA’s startup scene years ago. They were more inclined towards tackling significant global challenges, particularly related to climate problems. This shift led Crosscut Ventures to broaden its investment focus to include energy and power, space and underwater exploration, advanced manufacturing, advanced materials, and security and defense under their new $100 million fund.
Climate technology plays a crucial role in many of these focus areas. For example, advanced nuclear technology, which Crosscut Ventures is particularly interested in, intersects with various verticals within the fund. Transmission and grid technologies are also areas of interest for the firm. While investing in hardware-centric technologies can take longer to mature, the impact potential, especially in addressing climate issues caused by fossil fuels, makes it an attractive investment option.
However, hardware startups face unique challenges, especially in accessing capital during the middle stages of venture capital funding. This phase, often referred to as the “valley of death,” poses a significant hurdle for startups looking to prove the commercial viability of their core technology. To address this gap, Crosscut Ventures plans to bring on a new partner with expertise in growth and project finance to support promising hardware startups.
By building a full-stack platform and offering creative financing solutions, Crosscut Ventures aims to provide long-term support to hardware startups without rushing them through the traditional ten-year venture fund lifecycle. This approach not only benefits the startups but also aligns with the risk-reward profile and time frame of their investors.
While Crosscut Ventures has been gradually shifting towards climate-focused investments, the decision to launch a new seed fund dedicated to this area is driven by the recognition of the significant problems being tackled by top entrepreneurs. The emergence of talented founders from companies like SpaceX, Anduril, Northrop, and Boeing in Southern California, along with the abundance of investment opportunities in frontier tech, solidified the firm’s decision to realign its focus.
In conclusion, Crosscut Ventures’ strategic shift towards investing in climate, space, and frontier technologies reflects a growing trend in the venture capital industry. By adapting to the evolving needs of the startup ecosystem and leveraging expertise in growth and project finance, the firm aims to support innovative solutions to pressing global challenges while delivering value to both founders and investors alike.
