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Investors Watching Dollars, Not Stars in Space

[Via Satellite 03-19-2015] The influx of new capital into the satellite industry is creating an understandable amount of giddiness, but investors and entrepreneurs at the “Silicon Valley, Meet SATELLITE 2015” panel brought a down-to-Earth look at the true motivations for putting money behind space ventures.

“I don’t think there is any investment in space going on,” Peter Platzer, CEO of Spire, whose company received $25 million in Series A funding last year, said outright. “There is investment in data companies and there is investment in applications … I think people get hung up on starry-eyed stuff in space.”

The number of announcements regarding new multi-million dollar investments has experienced a notable uptick across the industry. Just this Monday a geospatial big data startup called Orbital Insight gained $8.7 million in Series A funding from a partnership with Sequoia and participation from Google Ventures and Lux Capital, among others. The week before, Spaceflight Inc. clenched $20 million in Series B funding co-led by RRE Venture Capital and Vulcan Capital, with Razor’s Edge Ventures investing as well. And a mere nine days earlier, Rocket Lab closed a Bessemer Venture Partners (BVP)-led Series B financing round, with Khosla Ventures and K1W1 investment fund supporting, along with a strategic investment from Lockheed Martin.

According to NewSpace Global Co-Founder and CEO Dick David, the reason for this explosive amount of growth can be summed up by one word: exits. Companies such as Climate Corporation, which Monsanto acquired, and Skybox Imaging, which Google purchased, have fueled investor confidence in getting appreciable Returns on Investments (ROIs) for the satellite sector.

“A lot of what’s happening is we are seeing new investors. That is why this is exciting,” he said.

“There are investors looking for financial returns,” added Akshay Patel, VP of Morgan Stanley & Co.’s investment banking division. “It’s going to be a very data-driven decision. That’s not to say the space side is not a great motivation for the business … once they are in, they are all in, but if you take Elon Musk as an example, it’s an incredible motivator for him and his company to go to Mars.”

Space enthusiasts such as Elon Musk, whose company SpaceX has indisputably disrupted the launch sector, are unique in their ability to pair big dreams with big cash. Jeff Bezos’ Blue Origin and Richard Branson’s Virgin Galactic are other examples of potentially disruptive launch companies with wealthy, passionate founders. But as new investors walk the halls of SATELLITE 2015, they are motivated by proof extracted through careful due diligence. Space for space’s sake won’t cut it.

“Venture capitalists (VCs) don’t do things that way. And thank God for people who do, but for the most part the investments in space — Planet Labs, Spire, the Nano-sat guys circling — [those are because] imagery is diligeable [and] the comms industry is diligeable,” said Steve Goldberg a partner at the VC firm Venrock.

Entrepreneurs in the satellite industry today have benefited tremendously by leveraging Commercial Off The Shelf (COTS) technology, often applying Moore’s Law to cram more and more components into ever more capable SmallSats. Cloud computing and devices used for mobile phones can be and are today leveraged by satellite designers to piggyback off billions of dollars worth of Research and Development (R&D) from other fields, reducing the dangers of untested technologies in a notoriously risk-averse industry.

“Until recently you had to spend $200 to $300 million and wait two to three years just to start generating some revenue, and with a single-point launch failure possibility. That made it really hard to get the ROI and your Excel didn’t even close. You couldn’t even get to the other considerations,” said Hoyt Davidson, managing partner at Near Earth.

Now satellite companies can run through new iterations faster and implement business plans with greater confidence. This is critical for satellite startups not only to make it in the space industry but to be able to compete with terrestrial alternatives. David said this industry requires creativity unlike others because it lies at the crossroad of complex hardware and software. He highlighted more efficient electric propulsion and lower launch costs as two top priorities for improvements that would continue to foster investor confidence.

Another pressing concern with new investment activity is the relative lack of industry familiarity among VCs and others. According to Goldberg, 80 percent of the people who invested in tech companies of the 70s, 80s and 90s have left venture capital. Plus Silicon Valley’s most recent obsessions have been social media and clean technology, the latter of which was inhibited by a lack of business acumen among engineers. Goldberg advised learning how to structure a compelling pitch so that investors will not only know the potential of the technology, but also the potential to turn a profit.

“Every deal is compared against every other deal,” he added. “I realize we are investing for 10 years from now when there is an exit, but if there is activity and value creation, that’s where the heads turn.”