Crosscut Ventures Shifts Focus to Hardware-Centric Technologies with New $100 Million Fund
Eight years ago, Brian Garrett and his partners sensed the ground shifting. At the time, Crosscut Ventures, where Garrett is co-founder and managing partner, had been investing in early-stage startups in Los Angeles and Southern California for nearly a decade. It focused mostly on software companies, but it started shifting its attention to hardware, too, as promising founders gravitated toward it.
"At that point, SpaceX was very established," he told TechCrunch. "Mostly, people started to spin out of SpaceX because they had rung the bell and sent stuff up [into space] and back." But the founders who came from SpaceX weren’t quite the same as those who helped kickstart LA’s startup scene nearly 20 years ago.
"Those entrepreneurs — you know, I sort of joke, but it’s true — when they think about starting a company, they don’t come with small ideas," Garrett said. "They just sent a rocket up and back and landed it on a dime. They’re not thinking about a D2C e-commerce apparel brand as their next startup. They’re thinking about big, hairy problems that humanity is facing, and those seem to really be centering around climate problems."
The Rise of Frontier Tech
The focus of the new $100 million fund, Crosscut’s sixth, will include energy and power, space and underwater exploration, advanced manufacturing, advanced materials, and security and defense. That’s a broad range, but Garrett said the uniting theme is "frontier tech." Climate is a through line in several of those verticals.
One technology, advanced nuclear, which the firm has a "pretty significant thesis around," Garrett said, arguably fits in each of them. The same is true of transmission and grid technologies, another Crosscut interest.
Given the focus on hardware-centric technologies, Garrett said the fund is realistic about how long those investments can take to mature. "They can’t all be big hardware swings that are going to take a billion dollars to build," he said. "We have to build portfolios smartly and blend them with some software."
The Valley of Death
Despite the costs, hardware remains alluring to investors for several reasons: The opportunity to have an impact can be bigger when hardware is involved, especially in something like climate where the problem is driven by the burning of fossil fuels, something no amount of software can completely eliminate.
But hardware startups face challenges that their software cousins do not, particularly accessing capital to prove the commercial viability of the core technology. The problem is most acute in the middle stages of the venture capital stack, typically around Series B or C. It’s known as "the valley of death," where companies often struggle to secure funding and scale.
Crosscut’s New Strategy
To address this challenge, Crosscut Ventures has developed a new strategy for investing in hardware startups. The firm will focus on providing early-stage funding to entrepreneurs working on cutting-edge technologies that have the potential to transform industries.
"We’re not looking for just any old hardware startup," Garrett said. "We’re looking for companies that are tackling some of the biggest challenges facing humanity, and doing it with a unique combination of technology and business acumen."
The Role of Government Support
To help bridge the funding gap in the valley of death, governments around the world have begun to offer support to hardware startups. In the United States, programs like the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) initiatives provide funding for early-stage companies working on cutting-edge technologies.
Garrett believes that government support is crucial in helping hardware startups overcome the financial hurdles they face. "It’s not just about providing funding," he said. "It’s also about creating an ecosystem of support that helps entrepreneurs navigate the challenges of developing and commercializing their technologies."
The Future of Hardware Investing
As Crosscut Ventures continues to invest in hardware-centric technologies, it’s clear that the firm is committed to playing a key role in shaping the future of these emerging industries.
With its new $100 million fund, Crosscut is well-positioned to support entrepreneurs working on some of the most exciting and challenging projects of our time. As Garrett said, "We’re not just investing in companies – we’re investing in the people who are going to change the world."
Timeline:
- 2015: Crosscut Ventures begins shifting its focus from software to hardware investments
- 2020: Crosscut launches its sixth fund with a $100 million commitment to hardware-centric technologies
- 2022: Crosscut invests in several prominent hardware startups, including those working on advanced nuclear and transmission grid technologies
Key Players:
- Brian Garrett, Co-founder and Managing Partner of Crosscut Ventures
- SpaceX, leading space technology company
- Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR), government initiatives providing funding for early-stage companies
Industry Trends:
- Growing demand for hardware-centric technologies to address climate change and other global challenges
- Increasing importance of government support in bridging the funding gap for hardware startups
- Rise of frontier tech as a key theme in Crosscut’s new fund
