How Michael got into investing
I’ve always been drawn to computers—growing up in the early 2000s, it felt like that technology was evolving right alongside me. But when it came time for college, I somehow found myself studying finance instead. During school, I worked my way into tech investment banking internships, spent time at a couple of startups, and ultimately realized that venture was the perfect way to bring together my passion for technology with finance training. That path led me to Insight Partners, where I spent a few years learning the ropes before making the move out west to join Costanoa.
Why Costanoa? A few reasons, but the sector focus really stood out. National security has always been an interest of mine, and Costanoa has been ahead of the curve in investing in this sector. We backed Auterion in 2017 and Vannevar Labs in 2018. I also get to work across fintech, cybersecurity, and general application software—but at the earliest stages, from pre-seed through Series A. Being able to focus on these high-impact industries while rolling up my sleeves to support founders made Costanoa the clear choice.
Key outlooks and predictions
- AI-native startups—those founded in 2022 and after—are changing how companies operate and scale. As engineers, product managers, and even non-technical teams master AI tooling, startups will require significantly less capital. This will widen the gap between top performers and everyone else. The best companies will generate massive shareholder value with lean teams and efficient financing, fostering larger valuation divides between the “haves” and the “have-nots” in venture.
- The next wave of innovation won’t be limited to traditional SaaS and recurring revenue models. Over the past few decades, low software development costs and rapid deployment attracted significant capital to the software industry, with returns more than justifying the influx. But with AI advancements continuing to drive down iteration and deployment costs, barriers to entry will keep lowering. As a result, we’ll have to look beyond pure software plays and break new ground in hardware and frontier tech. The future will be shaped by a fusion of software and novel hardware—whether that’s advanced edge computing, new forms of data collection, or breakthroughs in space and deep-sea technology.
The advantages of working for a small firm
I see venture as an asset class that offers two distinct types of products. At the early stage, small, tight-knit teams excel because they’re focused on helping startups hit specific targets and providing specialized, hands-on guidance. On the other hand, mega funds are built to scale larger, more mature companies—those in Series D or E, where the need for large operational teams becomes essential for their growth into public-market-worthy enterprises and Fortune 500 rankings. Small firms and mega funds are different products suited for different problem sets. Both have their place, and there’s room for both.
Personally, I prefer the smaller firm environment. At Costanoa, we offer that specialized, hands-on approach, and that’s just not something you get in a mega fund. It’s why I’m confident that staying small and agile is the way to maintain the kind of long-term, personal value we provide to founders. I find the autonomy that comes with being part of a smaller team very fulfilling. It allows me to engage directly with founders, get into the weeds with them, and collaboratively work through the challenges they’re facing. I enjoy being a thoughtful, long-term partner in their journey—having the freedom to really understand what they're trying to achieve and figuring out the best way to get there together. That hands-on approach keeps me excited to be part of a small, dedicated team.
How outbound fuels opportunity discovery
We do a lot of network sourcing at Costanoa—as many investors do—but we also focus heavily on outbound efforts. That’s been a huge unlock for us. The associates and partners here spend significant time researching markets, analyzing trends, and identifying companies that may not yet be in our network or who haven’t reached out to us directly. We proactively seek out founders who might not be actively looking for investors. Using data platforms that let us drill down and get granular insights, we’re continuously identifying people and companies that could be a great fit for our portfolio but may have been overlooked or simply haven't come to our attention yet. This effort requires a level of commitment and consistency—whether it’s through Harmonic or our internally developed systems. By doing the groundwork to reach out to these individuals, we open up a whole new world of potential deals that might otherwise be missed.
Costanoa’s ability to execute outbound gives us a real advantage. Sometimes the best opportunities aren’t the ones that come to you, but those at the far edges of your network that you have to go out and find. It would be a shame to miss out on identifying top talent and potential because we weren’t willing to do the work.
What’s next in the national security sector: Emerging trends and challenges
The national security sector is seeing some fascinating shifts, especially with the companies targeting Department of Defense (DoD) opportunities. Over the last decade, we’ve witnessed a massive wave of companies making their mark in this space. Iconic names like Palantir, Anduril, SpaceX, and Blue Origin have set the stage for what’s to come. These firms, driven by engineering-first, design-oriented principles, built innovative solutions that captured significant attention. Now, we’re seeing many of their talented employees spin off to create new national security-focused companies—companies working on novel problems and bringing fresh solutions to market.
The companies that are emerging today are often building on lessons learned from those trailblazers. Take Palantir, for example, which popularized the forward-deployed engineer model. Newer firms in national security are replicating this approach, as they tackle problems in areas like satellite constellations, launch vehicles, undersea monitoring in a defense context, and even counter-UAS systems. These spin-offs are poised to be the next generation of success stories. It’s one of the reasons I use Harmonic—it helps me track the people who spin out of these firms in order to build new companies.
But while I’m a strong advocate for the national security industry, I do believe we’re in for some challenges in the near future. Many companies in this space are receiving significant investment, but many will struggle. A key issue is that the DoD and the broader government sector are very different buyers than the commercial industry is. Companies can build innovative products, but if those products don’t align with the government’s needs or procurement processes, they may struggle to gain traction.
The next few years will reveal which companies are truly positioned to succeed. Procurement processes in government are long and complex, and it often takes years to go from product development to contract awards. Moreover, even well-designed products won’t be purchased if they don’t meet specific requirements or integrate seamlessly with existing DoD systems. Companies may not realize these edge cases until it’s too late—and understandably so; a lot of them are hard to see. That’s where the challenges will lie. Understanding these nuances will be key to identifying the startups that can succeed in this space.
My hypothetical startup: Making use of space data
If I were ever going to launch a startup, I’d focus on the space intelligence field. There’s so much potential there—particularly in the realm of space data processing. In the same way one of our portfolio companies, Vannevar Labs, works on digital intelligence for the intelligence community, I think there’s a lot of value in applying a similar approach to the space domain. As space becomes more crowded and complex, the demand for gathering and analyzing data is going to grow significantly over the next decade. A solution could involve tracking assets, monitoring movements, and could eventually evolve into opportunities like space mining, akin to deep-sea mining. The ability to turn space data into actionable insights could be a game-changer for both national security and commercial sectors.
There have been some swings and misses in this space so far, largely because it’s a market still in its infancy. Plus, building a thriving company in this space isn’t just about technological advancements—it requires extensive market research and in-depth understanding of the end user’s needs. For national security and defense-focused ventures, that means going directly to the program offices and potential users of the product to understand whether the solution provides real value and whether there’s a demonstrated willingness to pay. It’s a market still in its early stages, and being early is sometimes the same as being wrong. But the potential to shape this sector is enormous.
The advice I’d give to a new investor
Looking back, one of the key lessons I’ve learned is how long the feedback cycle can be in venture capital. It takes time to truly understand whether you’re good at it or not. That delay can work against you in two ways: You can do it for a long time and be bad at it, or you can do it for a long time without knowing you’re any good at it. Both scenarios have their downsides. However, there’s a way to speed up that knowledge process—by constantly pushing yourself to learn and explore new areas.
For example, two years ago, I thought my focus was purely on application software and national security. While I had some interest in fintech and cybersecurity, I never expected to be as engaged in those sectors as I am now. The key takeaway is to keep an open mind, take more chances, and expand your scope. It’s not about doing more deals; it’s about getting as many “reps” as possible in new areas, learning new things, taking more shots. By doing that, you’ll accelerate your growth, shorten the feedback cycle, and quickly figure out whether this is something you want to keep pursuing—and whether or not you’re good at it. Many people entering venture get stuck in that uncertainty, so pushing through that phase is crucial for growth.
