Brian Garrett cofounded Santa Monica-based Crosscut Ventures at a time when the startup community in Los Angeles was still in its infancy. Since it began, the company evolved from a generalist firm to one specializing in frontier technology, utilizing the region’s ports, manufacturing hub and proximity to aerospace and military agencies to experiment with new ways of harnessing energy.
Why have you chosen to set your sights on seed-stage and early-stage companies?
I believe that seed and series A are the greatest for value creation arbitrage. You help a company hit their first milestones and you can achieve a three-to-five-times step-up in value if you get it right with sector and revenue momentum.
Can you explain how factors like location, risk appetite and sector preference played into your decision?
VC is about proprietary deal flow and Crosscut is advantaged by being the first seed fund of SoCal. We have chosen to focus our efforts on the frontier tech sector because we believe it to have the largest potential outcomes for this next cycle of venture. The techno-industrial paradigm shift enabled by AI and machine learning is a once in a lifetime opportunity to create the next industrial giants.
Do you feel like the standard for what is classified as “seed” or “early-stage” has changed over the years in the venture community?
Absolutely. In bad markets, VCs want more of everything. In good markets, they have FOMO (fear of missing out) and drop their underwriting requirements and pricing discipline. That’s why we have these ongoing cycles of venture, of which I’ve navigated/survived three-to-four in my career.
Investing in nascent companies that don’t have the reputation or revenue of developed startups is rather risky. How do you go about determining what investments are the right ones?
The honest answer is you never know. You do the work – market research, customer feedback, founder references, etc. to make your best estimate of what you think will transpire over the next 18-24 months. You are wrong a lot and the thesis you bet on is rarely the exact one that brought the home run success.
What is the riskiest investment you’ve ever made? How did it play out?
My first space investment in Umbra Space. I didn’t know anything about SAR (synthetic aperture radar) and satellite constellations but got comfortable with the idea that lower cost design and better unit economics would win the market. Umbra is now one of the first profitable space tech investments and growing at an unprecedented rate.
What late-stage or exited company are you proud to say you’ve invested in early? What about that company made it worth the investment?
Pearl. Any time an entrepreneur comes back to you to fund his next idea is a good sign that you’ve done something right, that you are additive to their success and that they value the relationship. Crosscut was Ophir’s (Tanz, founder and chief executive of Pearl) first check for GumGum and the only investor on the cap table that he approached to be a part of his new venture – Pearl.
What role do seed-stage and early-stage firms play in the larger startup community?
We are a critical part of the venture ecosystem. We take the most risk and without seed funds, the larger firms wouldn’t have a lot less deals to chase and pursue. We are willing to roll up our sleeves and do the heavy lifting with young entrepreneurs that need guidance, customer intros, help in recruiting, etc.
Have you ever made an investment you regretted? Can you explain what happened?
Too many to mention. We are seed-stage investors and have been wrong many, many times.
As the startup community in Los Angeles has gotten more developed, and as startups globally blurred geographic lines since the pandemic, how has your brand as a Los Angeles venture firm evolved?
Crosscut started as a generalist fund, backing the best entrepreneurs with the best ideas across all of SoCal and beyond. Over our 16 years, the market has changed, our interests have changed and the opportunity set has diversified dramatically. Our evolution to pure frontier tech is a result of all of these changing dynamics. All products need to evolve, and this was a natural evolution for Crosscut. We love the current portfolio of advanced nuclear, advanced manufacturing and space and defense companies tackling big problems. Lots of momentum in this category for SoCal and other non-Silicon Valley markets.
