Creating designs for use with laser cutters isn't like creating designs for traditional printing. One of the key differences is the need to use vector lines, rather than raster bitmaps, to ensure a rapid and smooth cut. Josh Reuss of design marketplace Ponoko has recently published a public-domain stroke-only typeface specifically designed for laser etch work. Consisting of nothing more than grouped lines - so each letter needs to be positioned by hand - the typeface is readable down to just 1mm, which is great for projects with more compact layouts.
The free file contains the entire alphabet plus punctuations, brackets and a few other randoms. Characters are only 1mm tall. Any smaller and you will start to lose the inside of characters like ‘A’ and ‘B’ using the heavy vector setting.