Razor's Edge Ventures Closes Record $340 Million Fund for Defense Startups Investments

In a sign that national security tech is a safe bet even during troubled economic times, defense- and security-focused VC firm Razor’s Edge Ventures today announced the closing of its third startup investment fund at just under $340 million. This amount exceeds the initial target of $250 million, with the firm noting it will target companies developing autonomous systems, space technologies, cybersecurity, AI and machine learning, digital signal processing, and other aerospace and defense technologies.

Table of Contents

Founding History and Focus

Founded in 2010, Razor’s Edge funds multistage startups with both commercial and government customers but specializes in ventures that ‘[help] national security community [members] solve difficult technology problems and advance critical missions,’ in its own words. The outfit’s interest areas are informed by ‘strategic national security priorities,’ managing partner Mark Spoto tells TechCrunch, with the ostensible goal of helping the U.S. maintain ‘technological superiority.’

Growing Market and Investment Opportunity

While economic conditions in the broad financial markets are challenging at this time, spending for defense has grown significantly both in the U.S. and abroad; we face an increasingly complex and growing threat environment,’ Spoto said via email. ‘Limited partners (LPs) in our latest fund appreciated that Razor’s Edge offers an investment opportunity that participates in a unique way in a growing market and is not correlated to the broad financial, stock or commercial technology markets and in many ways serves as a countercyclical hedge to those asset classes.’

Competitive Advantage

Traditional venture firms are often reluctant to invest in defense-oriented startups given both the ethical implications and long pathway to profitability. In the U.S., it typically takes at least 18 months of planning before a government contractor wins its first contract — and most contracts are awarded to incumbents. Any startup that gets a foot in the door has to bridge the gap between the R&D phase and the contract award.

Razor’s Edge Advantage

The firm claims to have an advantage in this space due to their expertise and network within the defense industry. This, combined with their ability to invest in early-stage companies, allows them to identify promising technologies before they become widely known.

Competitors and Market Expansion

Other competitors include Lockheed Martin’s Lockheed Martin Ventures, HorizonX (which spun off from Boeing in August 2021), and Boeing’s Venture arm. These firms also focus on investing in companies with potential for growth in the defense industry.

AI, Cybersecurity, and Autonomous Systems

The new fund will focus on investing in AI, cybersecurity, and autonomous systems, which are all areas of growing importance to the U.S. military. By investing in these technologies, Razor’s Edge Ventures aims to support companies that can help improve national security and drive innovation in the defense industry.