The Veteran Fund, a venture capital firm run by GPs with military experience, is raising $50 million for its second fund.
The fundraising effort from the firm, which backs early-stage startups with veteran founders, comes amid VCs’ ongoing investment spree into startups linked to US defense and national security initiatives. Exits are encouraging for the sector, too: Voyager Technologies went public on the New York Stock Exchange with a fully diluted market cap of $1.9 billion in June.
Veteran Fund II will invest in “dual-use” startups, which generate revenue from both government contracts and the private sector.
The firm is targeting $20 million for a first close anticipated around—fittingly—Veterans Day in November. Existing limited partners are investing in the new fund, and new family offices are interested, general partners Ryan Micheletti and Mike Sherbakov told PitchBook.
As the Department of Defense’s growing spending is keeping VCs and startups busy, the Veteran Fund is working to connect portfolio companies with decision-makers in Washington, Sherbakov said. Landing federal government contracts for startups entails a long due diligence process, and the competition is fierce.
“That’s why we really look at the dual-use aspect of the companies and make sure there’s a strong commercial use case as well,” Micheletti said. “We do have to play the game the way that it is structured right now. …Hopefully, there are some changes, and they make it easier for companies to work with the government in the future.”
A wave of enthusiasm for defense tech has been sweeping through venture capital since Andreessen Horowitz popularized its “American Dynamism” investment theme. Even prominent firms like Cerberus Capital Management have joined the national-security investing fray.
But many don’t have veterans among their senior investment ranks—or within the firms at all. The Veteran Fund is emphasizing to prospective LPs that its military veteran leadership is a differentiator. And it’s unique in exclusively backing founders who are veterans, Sherbakov and Micheletti said. The pair sees this as an advantage, even though it significantly limits the pool of startups they can back.
“Everyone’s heard that phrase ‘bet on the jockey and not the horse,’” Sherbakov said. “So, I’m surprised more firms don’t have this mandate around founder archetypes. That’s why we decided, if we’re going to bet on a team, we want someone who’s raised their right hand, who has these values of work ethic and leadership—and, to us, that is a veteran.”
Micheletti is also a partner at Founder Institute, a startup accelerator raising its first venture fund.
The new Veteran Fund vehicle is looking to build on the track record established by the firm’s $20 million inaugural fund. The second fund plans on writing larger checks and pursuing follow-on investments. Existing portfolio companies include Firestorm, contracted by the US Air Force to make 3D-printed weaponry, and HavocAI, which manufactures unmanned maritime vessels.
Featured image by Nicolas Economou/Getty Images
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