Space is a relatively niche area of tech investing in the best of times, but COVID-19 has redrawn the landscape. What do investors who are active in this sector think about what’s changed, what hasn’t and what’s coming in the future?
We caught up with nine top investors in the space market to collect their thoughts on what’s going on right now in the industry, what red flags there are to watch out for and what opportunities they see for new and existing space startups. On the whole, the group sounds fairly optimistic about the sector and its potential, with a particular interest in tapping early into whatever becomes the next GPS (or the evolution of GPS itself), space-based observation, and the analysis, distribution and management of data collected by existing space-based infrastructure. Our respondents include:
- Chad Anderson, Managing Partner, Space Capital
- Ethan Batraski, Partner, Venrock
- Will Porteous, General Partner and COO, RRE Ventures
- Shahin Farshchi, Partner, Lux Capital
- Tess Hatch, Vice President, Bessemer Venture Partners
- Matt Kozlov, Managing Director, Techstars Starburst
- Rayfe Gaspar-Asaoka, Principal, Canaan Partners
- Rob Coneybeer, Managing Director and co-founder, Shasta Ventures
- Dylan Taylor, Chairman and CEO, Voyager Space Holdings
Three key takeaways
Space-based technologies make big, lasting impacts
One oft-cited space-based technology that has generated truly astronomical amounts of revenue, infrastructure development and the development of entire industries is GPS. It’s clear from speaking to many of these investors that VCs hope to predict when the next GPS-type transformational technology will arrive.
Defense spending isn’t going anywhere
While COVID-19 is having an impact and investors are providing sensible advice about doing what you can to minimize burn rates and conserve cash, many also point to continued spending from government and defense sources. As a result, sources of both revenue and prerevenue funding for select space companies are not as likely to feel the full impact of a sustained economic downturn.
Sensors, data access and security offer opportunities
One major development in space over the last decade is the feasibility of launching and operating small satellites. These have brought the cost of access to space way down and equipping them with new and more powerful sensors can open up entirely new lines of business. Likewise, taking all the data collected by existing Earth observation, weather and other types of orbital spacecraft and making that accessible and valuable to all kinds of industries is a huge opportunity. Finally, investors see a lot of upside in the still relatively nascent cybersecurity market for space-based assets, including satellites.
Chad Anderson, Space Capital
What trends are you most excited about in space tech from an investing perspective?
Space-based technologies are the building blocks of innovation. In fact, GPS is a space-based technology that has generated trillions of dollars of economic value and some of the largest venture outcomes in history.
We believe that the history of GPS provides us with a framework for understanding how space-based technology has become a platform for innovation on a global scale. Specifically, the development of technology layers on top of space-based infrastructure and the distribution of data for mass adoption, which unlocks thousands of unique applications. From an investing perspective, we are most excited about unlocking the value in space technology stacks such as GPS, geospatial intelligence and communications.
How much time are you spending on space tech right now? Is the market underheated, overheated or just right?
We are a sector-focused fund, as we have been since our founding. So, I spend 100% of my time focused on the space economy. We are active and well-established, having made 50 investments into 30 space portfolio companies. What I can tell you from our experience is that this market is just getting started.
Participation in the space economy has grown exponentially over the past 15 years, with hundreds of new companies, thousands of new employees and millions of new investors participating. Cumulatively, there has now been $109.2B of equity investment into 822 unique companies in the space economy since 2004.
And now, the FAMGA companies all have existing and/or emerging efforts to get in on the action. For example, Amazon has launched AGS (Amazon Ground Services) and has plans to launch a constellation of thousands of satellites. Google has bought and sold space infrastructure assets in an effort to bolster their Maps offering. With video and images making up the vast majority of internet traffic, and much of that data expected to come from space in the future, cloud providers are eager to get that data piped into their storage and offer add-on services. Their involvement will serve as yet another catalyst for growth in this sector.
But the space economy is broad, so to quickly summarize the sector holistically:
- Infrastructure – overheated (but with emerging opportunities in lunar services, in-space additive manufacturing, satellite servicing and others)
- Distribution – just getting started (particularly with regards to geospatial intelligence)
- Applications – untapped potential particularly with regards to geospatial intelligence; emerging opportunities in precise positioning; and untapped potential in IoT, 5G and cybersecurity
Are there startups that you wish you would see in the industry but don’t?
The last decade has been something of a space renaissance, with $20+ billion of equity investment into 500+ space infrastructure companies. We’ve now seen an oversaturation in market segments like small launch and satellite propulsion. What we would like to see more of now, are founders focused on leveraging that infrastructure to develop new applications that weren’t previously possible.
How has COVID-19 impacted the space tech investing landscape?
While by no means immune from the broader economic downturn, we expect the space economy to fare somewhat better from a demand perspective than the economy-at-large. Many space companies are business-to-business or business-to-government, which are historically more resilient than consumer-focused businesses. In fact, we have already seen government spending levels increase and expect that to continue over the near to intermediate term, providing a lifeline for companies that serve the government market.
In fact, many of our portfolio companies are seeing increased demand as business and governments look to monitor their supply chains, their facilities and the macroeconomic environment from space. Of course, when a crisis hits, it is important to assume a defensive mindset and determine a survival strategy. But defense is not a long-term strategy, particularly in venture. Great companies are not built from slowing down and avoiding risk. Equally, it is wasteful and inefficient to follow the herd by playing safe and then spending more when everyone else comes back online. While important to be prudent and patient in downturns, it is also true that these times of uncertainty create unique opportunities — to spend on the future when few others can and to grow faster and build a wider gap between your competitors. While every situation is unique, the advice for many of our founders is to play to win.
How has COVID-19 impacted space tech startups operationally?
Some have cut back on spending. Others are pushing forward, working to take advantage of increased demand, driven by the current environment. Some have shifted production to manufacture PPE equipment for first responders. It’s a mixed bag.
Ethan Batraski, Venrock
What trends are you most excited about in space tech from an investing perspective?
There are a number of space tech trends we are excited about:
- Access to dedicated launch is going to become much more available, responsive and reliable (e.g., SpaceX, Rocket Lab, ABL Space*) and will be the tipping point for the new space economy.
- Responsiveness and end-to-end missions will emerge as the critical differentiators for defense and commercial customers, across launch, spacecraft manufacturing and mission operations.
- Microsatellites will dominate in capability, cost and responsiveness compared to large legacy satellites, leading to a new generation of communication satellites powering affordable connectivity for the developed and emerging nations as demand for bandwidth greatly outpaces terrestrial capacity (e.g., Astranis* in GEO, Starlink in LEO).
- A new end-to-end satellite architecture will emerge that leverages standardized buses and common interfaces to drive down the cost curve through mass manufacturing and unlock transformational in-orbit capabilities (e.g., in-orbit spacecraft upgrades, repair, refueling, expansions and maneuvering).
- Eventually, access to satellite data and capabilities will be offered through virtualized and time-shared services, replacing the need to launch dedicated spacecraft per use case or customer, with networks covering every inch of our planet (e.g., Planet, Loft Orbital, Umbra Labs).
DoD and NASA priorities are driving unique market dynamics supporting the space tech landscape:
- There is a shift happening across our defense priorities away from bombs and bullets anti-terrorist activities in the Middle East to a geopolitical power and arms race with China — where space is a key focus area.
- The emergence of the Space Force and a need to expand beyond the major primes to satisfy rapid mission needs and resiliency will be key to funding more innovation in the commercial sector.
- Both points above will drift a shift to more dual-use companies and technologies from companies offering breakthrough capabilities, using fixed-fee contract awards, instead of the legacy cost-plus contracts with large defense primes.
- NASA’s renewed focus on human spaceflight to the moon and Mars will funnel a significant amount of funding to new dual-use technologies such as “graze the land” tools for Martian colonization (e.g., in-situ resource utilization, new power sources such as low-power nuclear, MW-class power and higher efficiency PV.
*Venrock is an investor in Astranis and ABL Space.
How has COVID-19 impacted the space tech investing landscape?
COVID-19 has had a broad base effect across the venture landscape on companies specifically that have high capital requirements, who no longer have clear paths to commercialization and/or a path to positive unit economics on efficient capital requirements. This is especially true in space tech investing where it’s common to see companies with very high capital requirements, long timelines to market and limited paths to meaningful cash flow.
Will Porteous, RRE Ventures
What trends are you most excited about in space tech from an investing perspective?
We’ve seen an extraordinary amount of venture money flow into the sector over the past few years — truly it has been a “golden era” for underwriting new innovation in the sector. I am most excited to see those companies that have raised sufficient capital and gotten to scale now turn into great businesses.
How much time are you spending on space tech right now? Is the market underheated, overheated or just right?
I am spending most of my “space tech” time with our existing portfolio. In general I think the market is “just right.”
Are there startups that you wish you would see in the industry but don’t?
Yes, I really wish we had seen more solutions to the power problems in the architecture of communications satellites as well as more software-defined antenna capabilities. We would be interested in both.
How has COVID-19 impacted the space tech investing landscape?
It has accelerated a lot of customer activity, particularly on the government side, which has been a real boost to those companies that have gotten to operational and revenue generating scale. It has also provided a nice opportunity for some of the Earth observation companies to showcase their understanding of unfolding changes in different aspects of life on our planet.
How has COVID-19 impacted space tech startups operationally?
Very little to be honest, as most of our companies operate their space-based assets in a “lights out” mode anyway. But like every other company, they are missing opportunities to meet face-to-face with customers and partners.
What advice do you have for your portfolio companies facing challenges?
Understand your core capabilities and what resources you have — and can obtain — to ensure they make it through this period. Those companies that survive this era will emerge into a world of new opportunities.
Tess Hatch, Bessemer Venture Partners
What trends are you most excited about in space tech from an investing perspective?
Decades of Moore’s law has exponentially decreased the size and increased the power of inexpensive, commercial off-the-shelf sensors which, in turn, allowed for the invention of the CubeSat (a satellite the size of a box of tissues) to proliferate in low-Earth orbit. Before the CubeSat, the only assets that were launched into space were satellites the size of a school bus that would take years if not decades and hundreds of millions of dollars to design, build, test and launch. The invention of the CubeSat allowed engineers, entrepreneurs and students to put assets into space much more quickly and for a small fraction of the cost. As you can imagine, everyone flocked to this new form factor.
At least to date, however, the only two sensors people seem to be putting on a CubeSat are cameras and communication devices. While the data, pictures and connectivity that these CubeSat’s have produced is amazing, and has many important applications, I believe that space has so much more to offer. I encourage and look forward to working with entrepreneurs who push boundaries and come up with different, unique sensors to utilize on CubeSats that will provide new data or services for life on Earth. Please email me at space@bvp.com since I am actively looking to partner with and make investments in space. At Bessemer we really do believe that space is open for business.
Shahin Farshchi, Lux Capital
What trends are you most excited about in space tech from an investing perspective?
We’re proud investors in satellites (Planet), rockets (Relativity), communications (Kymeta and Astranis) and analytics (Cape and Orbital). We expect those companies, and many others, to put eyes and ears in space, make it accessible and bring it down to earth. To use the internet analogy, it feels like we’ve built the switches, servers and laid down the fiber optic cables. We’re now in the early innings of building amazing applications on top of this foundation; similar to the social networking and SaaS companies of the past couple decades. We aim to partner with founding teams aiming to build this next generation of space startups.
How much time are you spending on space tech right now? Is the market underheated, overheated or just right?
The market for basic infrastructure (launch, satellites, earth observation and communications) is overheated. Applications of that infrastructure are scarce. I’m eager to fund companies that have identified needs within specific industries through strong relationships and are building products that can serve those needs, which can become the basis of multibillion dollar businesses.
How has COVID-19 impacted the space tech investing landscape?
In the years prior to COVID-19, early investors felt comfortable underwriting space startups to early technical milestones, after which it was reasonable to expect follow-on investors eager to finance to the next technical milestone. COVID-19 changed that. Investors have raised the bar and are no longer interested in technological progress alone; they want to see real product penetration and underlying business metrics. It is difficult to show business traction early on when you’re trying to build a launch vehicle, supersonic aircraft or satellite constellation. This is why the space tech investing landscape is likely to become challenged moving forward, and the onus is on founders to demonstrate the viability or, preferably, lucrativeness of their business alongside technical development.
What advice do you have for your portfolio companies facing challenges?
Revisit your assumptions for this new normal. Assume that you are starting with a clean slate — repriotize, rebudget and rebuild your pipeline after getting updates from your customers and suppliers as to how they are adjusting post-COVID. I’ve asked companies to go as far as revisiting their products and go-to-markets.
Matt Kozlov, Techstars
What trends are you most excited about in space tech from an investing perspective?
Some of the areas we’re doubling down in include:
- In-space servicing (such as OrbitFab)
- Power/energy systems (such as Zeno Power Systems)
- Propulsion (such as Morpheus Space)
- Synthetic data
- Edge computing
- Dual-use commercial technologies with space applications
- Enterprise VR/AR applications for collaboration and visualization of complex data
How much time are you spending on space tech right now? Is the market underheated, overheated or just right?
Techstars is investing quite heavily in space right now, investing in 20 space and space-adjacent companies a year through our two space accelerators. Obviously COVID has impacted the market, which I expect will slow the industry down with short- and medium-term impact, but I believe long term the market will return to health.
How has COVID-19 impacted the space tech investing landscape?
From what I’ve seen, at least at the seed stage, capital is still there and rounds are still coming together, but the timelines are definitely stretching out. The urgency levels aren’t matched.
How has COVID-19 impacted space tech startups operationally?
Launches are delaying, SBIRs are pushing back, supply chains are disrupted. Access to lab space and testing facilities is limited or gone. Definitely slowing down operations in some cases, but on the flip side, our companies have more time for R & D, QA and business development.
What advice do you have for your portfolio companies facing challenges?
Find every nondilutive source of capital you can. If you have a round open, close it — do multiple closes if you have to. Don’t be precious about terms that in the long run won’t matter. Primary goal is to stay alive and survive through this, however long it takes. Make uncomfortable cuts to your burn across the board.
Rayfe Gaspar-Asaoka, Canaan Partners
What trends are you most excited about in space tech from an investing perspective?
The first wave of space tech was largely around infrastructure — whether that’s small satellites in LEO for imaging, rockets for launching CubeSats or building global comms/connectivity. Now that we have the infrastructure in place to launch, image and downlink that data in near real-time, the next wave of space tech will be focused on applications that leverage that first wave of investment. The market opportunity for this next wave is massive as it is much broader than just space — industries such as automotive, industrial supply chain, energy, as well as consumer, will all leverage space tech.
How has COVID-19 impacted the space tech investing landscape?
We have seen a decrease in the pool of investors that are actively looking at space tech as a sector, mainly from the investors who have not yet made a space investment. But the investors who have been active historically continue to do so. There is more of a focus on total capital needs to get to scale, as well as stress-testing the development timelines and milestones.
How has COVID-19 impacted space tech startups operationally?
Every company has been hit, but we’ve seen large aerospace and defense for the most part continue to be active and engaged with space startups. I think part of that is because space tech generally works on much longer timelines than traditional startups so we haven’t seen the impact from COVID-19 yet.
Rob Coneybeer, Shasta Ventures
What trends are you most excited about in space tech from an investing perspective?
Historically, venture capital investors haven’t been that excited about startups where the primary customer is the U.S. government. The biggest concerns have been around the red tape associated with contract wins and the difficulties of building businesses with strong gross margins when competing with large incumbents willing to enter low-margin, “cost-plus” contracts.
Over the last several years, there has been a clear shift by the U.S. government to move from large legacy satellites to distributed swarms of far smaller spacecraft. As part of that shift, a ton of programs have emerged that are actively offering nondilutive financing in many different forms that are better aligned with the venture capital model than they have been in the past. These include development contracts where the technology development milestones are perfectly aligned with commercial objectives (the technology can be immediately used for commercial products), matching grants (where the government makes grants that match “dollar-for-dollar” new equity investments) and outright nondilutive grants as well. I’m familiar with several companies where the effective impact has been to effectively double, triple or even quadruple equity dollars and this makes many space startups far more capital-efficient than you would expect otherwise.
How much time are you spending on space tech right now? Is the market underheated, overheated or just right?
Currently, I think the market for space startups is overheated. There haven’t been any major financial outcomes, and there are multiple startups in most categories. Operationally, COVID-19 makes development even harder since many of them are building or assembling hardware, and the pandemic is leading to significant launch delays. I think space startups that are “dual-use,” with a strong government customer base in addition to scalable commercial opportunities, are best positioned to thrive over the next few years. In the medium and long term, I think the future for space startups is bright, but I expect a lot of attrition in this sector over the next 12-18 months.
Dylan Taylor, Voyager Space Holdings
What trends are you most excited about in space tech from an investing perspective?
On-orbit serving. In short this helps clean up space debris and allows the extension of hardware life in space.
How much time are you spending on space tech right now? Is the market underheated, overheated or just right?
90% of my time. Just right.
Are there startups that you wish you would see in the industry but don’t?
Would like to see business plans for “down mass.” Getting objects down from space.
How has COVID-19 impacted the space tech investing landscape?
Most investors have frozen their deployment of capital in a “wait and see” mode.
How has COVID-19 impacted space tech startups operationally?
Contract delays from the Federal government.
What advice do you have for your portfolio companies facing challenges?
Get lean quickly and hunker down for a winter storm.
Any other thoughts you want to share with TechCrunch readers?
Some models are built for this, such as Voyager Space Holdings. Since it is not a pure play VC but rather an operating company platform, it can be longer term.
Comment