What Investors Think About the Space Industry: Do’s & Don’ts for NewSpace Startups

The space industry is going through some distinct developments across the value chain, especially with multiple new players entering the market. Yes, Covid-19 is a crisis for now and yes it is impacting the space industry. However, given the existing systemic ambiguities the space industry faces in normal times (pre-covid), the ongoing crisis is only causing a delay in revenues and list of winners and losers are not changing as a consequence. Yes, some startups are winding up their operations but they are largely because of their primary investors walking out of their investment commitment. It is either the investor facing financial issues owing to the consequence of other non-space investments (covid impact included) or a restructuring of their management ending up in the re-prioritization of their investment decisions. Irrespective of the causation, investors’ presence means a lot for the survival of any startup, especially NewSpace startups. Apart from the Covid-19 crisis, it is now absolutely imperative that NewSpace startups better understand the investor mentality to take things forward in a post-Covid scenario.

In an attempt to get what investors really think about NewSpace and their existing and ongoing investment decision making process, I reached out to my friend Samir Chokshi who is part of Starbridge Venture Capital LLC to get his views on the topic and thanks to him, we had a great discussion with the investors in Starbridge Venture Capital LLC. Below is a brief set of takeaways from the discussion which I believe will be valuable to those in the space industry:

Starbridge Team:

Lindsey Yee

Michael Mealling

Steven Jorgenson [Founder]

Samir Chokshi

Richard Godwin [CEO of space tech holdings, an incubator]

 Brief History

Headquartered in New York, US, Starbridge Venture Capital was founded in early 2017. By 2018, the firm had created its first investment fund and began its investment journey and as of now the firm has existing investments in 8 startups covering the Tech/NewSpace segments. Of these 8 startups, 6 of them were already in the market or close to launch their product/service when Starbridge invested in them. The other 2 have been supported from their seed stage. Starbridge also plays the role of Advisor on company boards and for new and existing investors across markets.

 Challenges & Lessons Learned:

Lack of understanding of customer need and the opportunity:

Engineering oriented start-up founders often do not deeply understand the customer’s needs. Many founders are also inexperienced enough that they confuse politeness on the part of a potential customer with a commitment to purchase the product/service. This often drives them to be too optimistic about the amount of revenue or how quickly it may show up.

 Extended wait times:

As with many hardware or deep-tech start-ups, it can take longer than expected for a start-up to mature into a full-fledged, revenue generating company. Investors should pay close attention to timelines and the ability of the company to raise subsequent rounds based on concrete milestones.

 Silent & diligent companies succeed more than the vocal ones:

Those who focus more on media hype and promotions often do not succeed as expected. However, those that focus on the product and the relationships with their customers have a higher probability of success.

 Steady leadership drives sustainable success:

Successful startups have steady leadership and that helps them navigate their initial stage struggles without much hassle as they remain insulated from the ambiguities of a changing leadership.

Having a professional management team helps:

With many start-up founders being engineers there can be a tendency to downplay important management skills which are crucial for the company to deliver its value effectively to the customer while also ensuring the essential commercial/legal requirements of the enterprise. Successful startups have a good mix of technical and professional management teams leading the organization.

 Expectations from Start-up Founders:

• A good mix of technical and management experience in the leadership team
• A clear understanding of how their value proposition creates value for the entire downstream customer network
• Clear customer acquisition strategy for any further consideration
• Healthy respect for how hard space engineering is
• A clear indication that the team has not fallen in love with the product or become resistant to change
• Clearly defined and customer-relevant differentiators with respect to the competition
• Relevant experience in the field along with a strong network in the industry
• Ability to protect margins (controllable cost/price-structure)
• Holding an IP based on a unique differentiating factor
• Ability to find new customers than changing the habit of existing users

What is not expected from Start-up Founders:

• Presenting an inflated version of customer intent and market opportunity
• Inability to receive and process feedback/critique
• Inability to educate the investor
• Inability to be taught (learning and unlearning capabilities)
• Disregarding or underestimating the competition
• Lack of familiarity and/or experience with Customer Discovery & Acquisition
• Inability to say NO to the investors who are not ready to invest in the business

Impact of Covid-19:

The global pandemic has definitely brought multiple operations to a halt, barring those related to essential services. This however does not have any impact on the criteria for deciding on investing in any start-up. The delay in the markets will trickle down into consequent delays in investment decisions and the subsequent execution of the decisions. Covid-19, from a Tech/NewSpace standpoint is not going to define any new criteria for start-up founders to meet. The delay in decisions and their executions are, at this point in time, more relevant.

 Ongoing Efforts:

Starbridge Venture Capital is currently engaged in creating its next investment fund and is in discussion with multiple investors across markets. The firm has spotted a handful of interesting Tech/NewSpace start-ups to invest in and is also open to considering other start-ups looking for relevant VC support. As part of its expansion strategy, Starbridge is looking forward to discussing with existing potential venture capitalists who might be interested in a collaborative effort aiming at supporting the Next-Gen capabilities that can disrupt the existing markets and also help create new markets.

 Conclusion

 Overall, I believe the space industry has so much going on that there is going to be enough opportunities for many moving forward. The NewSpace markets will remain a strong growth opportunity area with many new players already entering with new products and services. Small-satellite based applications dominate these new markets and they are not only enhancing existing capabilities but are also enabling new solutions. Small-satellites and LEO-based applications are more complimentary that competitive to existing GEO based systems. Yes, there is an overlap but it is not really taking away anything from the established incumbents. In fact, we are observing more working relationships being created between LEO and GEO based players. It is about these new players bringing in new customers which make the ongoing NewSpace developments more interesting in my view.

I believe, now is a better time to be investing in the NewSpace markets. Yes, Covid-19 is causing a delay but the demand for downstream services across the earth observation and connectivity domains is rising. So is the demand for dedicated launch services for small-satellites. Post Covid-19, this demand is not going away and is only expected to grow further. Any established incumbent considering an expansion of portfolio to include low-priced services (based on small-satellites) can get a better deal if the focus is on Merger/Acquisition right now. Similarly, if someone is interested in investing in NewSpace, now is a good time to start the research and reaching out to the relevant stakeholders. Investing in space, especially for those who are not from the space industry can be a tricky thing to crack early on as the space markets behave very differently and they come with their wait times and returns on investments. All the cases of investors walking out of NewSpace investments are those who do not have space markets as their primary markets. It is therefore very important for the investment community to better understand the space markets of their choice before committing to such investments. While startup founders have to carry the responsibility of educating their investors, I believe the investors themselves have to get their research done so they remain prepared for investing when the right time comes.

 Thanks to Starbridge Venture Capital LLC for their time and insights. I believe these will help the NewSpace startup founders. I do know that Starbridge Venture Capital is looking to proceed further with their next round of investing focusing on NewSpace/Tech startups and this means, if anyone is looking for investment or more importantly looking for investment partnerships, Starbridge Venture Capital LLC is good place to start the journey with. They have a strong space industry experience backing their 9 investments given below:

AirMap connects airspace authorities with the drone ecosystem to unlock safe, efficient, and scalable drone operations.

Alumapower is developing a new aluminum-air battery providing high powered, carbon free energy.

Axiom Space's vision is to make living and working in space commonplace as a means to sustained deep space exploration and to improve the quality of life here on Earth. The Axiom Space Station is home base for professional astronauts and private explorers. It is the microgravity laboratory where educators, scientists and researchers conduct life-improving research.

BridgeComm INC. is developing an optical communications network that offers secure delivery of big data from low Earth orbit (LEO) satellites at faster speeds and a lower cost than traditional radio frequency solutions.

Enterprise class mission control and spacecraft flight software using enterprise-tested open source software and standards.

Lynk is building a world-wide, last-mile connectivity solution for narrowband communications using nanosatellites in an innovative way. 

Made In Space is a space-based manufacturing company developing in-space 3d printing solutions and extremely high performance optical fibers.

From their spacecraft to their APIs, Planet engineers their hardware and software to service the largest fleet of Earth-imaging satellites in orbit and scale their 7+ petabyte imagery archive, growing daily.

American space-based radar for your defense, intelligence and analytics solutions. Umbra Lab is developing synthetic aperture radar (SAR) microsatellites to deliver sub-meter imagery as a service. Our space-based radar can capture images day and night regardless of weather conditions, for delivery via an integrated web platform.

Anyone interested in learning more about Starbridge Venture Capital, feel free to connect with Samir Chokshi, Email: [email protected].

 I hope this post helped you in one way or the other. Please share this with your colleagues in the space industry. Feel free to share your views in the comments section below.

Thanks for your time.

Stay safe!

Best regards,

Arun

Image/Content Credits: Starbridge Venture Capital LLC