However, I think there’s a risk that doesn’t get its due attention, but is having a moment right now. One that is particularly relevant in today’s shifting financial markets. I’m talking about valuation risk, which I would describe as the risk that the company isn’t priced appropriately. While I would concede that this is less critical than some of the other factors I mentioned, there’s ways in which mis-pricing a company can have painful implications. This article will focus on that risk, those implications, and why this is more relevant today than any time in the last decade.

Lets dig in!

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How do companies get mispriced?

There is a pervasive perspective among founders that when you raise capital, you should reach for the highest possible valuation you can get. That’s understandable, when executives go out to raise funding, they typically optimize to reduce dilution as much as possible. After all, they want to maintain ownership of the company they’re making so many sacrifices to will into existence.

However, some founders are so effective at fundraising and the hype surrounding a funding round or industry can get so intense, that a company’s valuation in that round can balloon to something that might be extremely distanced from what would likely be considered more reasonable.

In itself, this isn’t an issue, after all that’s what markets are for, to find the price at which a buyer and seller agree that an asset is worth, the asset in this case being a company’s shares. However, a company that is valued far higher than other businesses in its “class" or “stage” has made strong assertions that it is much more mature or financially successful than those other organizations. If those implications turn out to not be true or even if there are hints that the company isn’t quite as exceptional as it has portrayed itself, then the return to reality can be particularly painful. That “return to reality” is also happening more frequently today due to the downward market correction we’ve experienced over the last two years.

Why have company valuations changed so much?

The short answer is rising interest rates. Feel free to skip this section if it sounds familiar to you.

The most basic and fundamental way to describe a company is as an entity that generates cash for its owners both today and in the future. But how do you determine the present value of a company based on cash that will be generated two, five, or even ten years from now?

What’s typically used in finance is a discounted cash flow formula, where the value of future dollars are discounted by some amount, which is driven by a discount rate.

A result of this formula is that a dollar in the future is always worth less than a dollar today. Furthermore, as interest rates change, so does the amount by which a dollar tomorrow is worth compared to a dollar today. Without going into too much math and economics, the dominating impact of interest rates is that when interest rates increase, so typically does the discount rate. Consequently, when interest rates are high, a dollar in the future is worth less today than in an environment where interest rates are low.

Over the last two years, we’ve experienced a historically rapid increase in interest rates, which is having massive implications to how companies are valued. For many years while interest rates were essentially zero, a dollar tomorrow was worth almost the same as a dollar today. Therefore, a company that made no money today but promised investors that it would make tons of money tomorrow (or 5 years from now), could still be considered very valuable. However, in today’s environment with much higher interest rates, a company that provides profit today is worth waaay more than a company that has no current profit but promises a lot of profit in the future 

What we have experienced in the past two years of interest rates rising is a massive transition from a period in which companies promising future profits were previously considered valuable but are now considered much less so. This transition has been most felt in industries where companies were very unprofitable, but made promises to be highly profitable in the future. The space industry happens to fit that depiction very well, which why we’ve seen such a shift in valuations for publicly traded space companies from late 2021 to the present day.

Unfortunately, all of this was really out of the control of the companies themselves and the ground simply shifted beneath them. There was little any company executive could do to moderate this significant reduction in their companies’ valuations. Today, they simply run companies that are valued typically 50-80% less than two years ago.

So now that we understand why valuations have changed so massively, we can discuss how this plays out for a startups stakeholders, specifically the founders, investors, and employees.

What Happens in a Down Round?

A down round is defined as a funding round in which a company is priced at a lower valuation than it was in the most recent funding round. Given that company valuations have dropped so drastically due to interest rate changes over the last two years, down rounds are an inevitability for many mid to late-stage space companies.

In itself, that doesn’t sound that terrible, I mean publicly traded companies on the stock market have their valuations go up and down every minute. In private companies that have chosen to take venture capital funding and therefore have implicitly or explicitly made assertions that they are growing very quickly, having a downround is a painful process that impacts prior investors, employees, and founders.

What Happens to Employees?

Employees working at startups typically do not receive equity in exchange for their employment. What they instead receive are stock options, which is the opportunity to purchase that equity at a future time, while paying a previously established price. That price is equal to the most recent price at which the company was valued before the employee joined. And if the company’s current value is less than it was when the employee joined, then that employee is better off not exercising/buying the options and so the options are worthless.

This video from the startup accelerator Y Combinator I think best articulates the downside of being at an overpriced late-stage startup when they say “Most likely if you joined a unicorn that is late stage, the strike price of your options is going to be tied to the valuation that the company raised at. So if the company is sold for less or is overvalued, your options are likely underwater.” Here’s the whole video if you’re interested, and the part I’ve quoted is at 2:16.

What Happens to Investors

The most direct impact on previous investors is dilution. With a down round, the company's valuation decreases, leading to a larger issuance of new shares to accommodate the new investment. As a result, existing investors see their ownership percentage in the company reduced. That significant dilution can mean that the investor’s ownership can no longer provide fund-returning performance for the investor’s portfolio. That can make the investor’s ownership in that company so insubstantial that they’re no longer likely to support the company with their time or future funding.

Is There Anything A Company Can Do to Limit These Risks?

So we’ve established that experiencing a down round is particularly painful for an organization. Then how does a company, today, raise capital with confidence that they are doing so at an appropriate valuation, especially when there is continued uncertainty in company pricing, as well as ongoing hype in particular venture industries?

In a funding environment where it sometimes feels like no one knows what the “right” valuation is for a Series A, B, C, or later-stage funding round, I would argue that private investors can look to more liquid marketplaces where there is moment-to-moment repricing of company equity. In the tech world, that marketplace is most typically the NASDAQ stock exchange.

If you’re a private company valued at tens of millions, hundreds of millions, or even billions of dollars, if you want to know what you’d be valued at by public markets, just look at a public company with comparable revenue, profitability, and growth rates. One benefit of the recent SPAC craze is that it has provided us with about a dozen public space companies of varying levels of revenue, income, and growth. If there’s a big difference between where you are and where you’d be if you were publicly traded, then something is likely out of whack.

Let’s take for example a startup that maybe did $20M in revenue (annualized to $80M) in Q3 2023, and even grew in revenue by about 25% year-over-year. What do you think that startup would be valued at? Well, if they were a public company, they would be valued at $177M. How do I know? Because that company is Blacksky Technologies, a space company that went public through a SPAC in late 2021.

So if you’re a space startup that is doing less revenue, growing less quickly, is less profitable, but yet is valued at more than $177M, you may have a painful “return to reality” in your future as you seek to raise capital from late-stage growth investors or even go public. And it’s reasonable for your employees and investors to be concerned about that.

Of course, there’s always the possibility that interest rates decrease in the near future and we return to company valuations that are more generous than where they stand today. In that case, this post will retrospectively look more “doom and gloom” than was necessary. But for those of us without a crystal ball, this seems to be the world we’re living in and all we can hope to do is adapt.

Payam Banazadeh

Payam received his BS in Aerospace Engineering from the University of Texas at Austin before spending two year’s at NASA’s Jet Propulsion Laboratory in Pasadena, California. As a Project Systems Engineer at JPL, he led early mission formulations for two interplanetary deep space missions, Lunar Flashlight and NEA Scout. He then went back to school to pursue an MS in Business & Management at Stanford, where he also conducted research in the Aerospace Department’s Space Rendezvous Lab.

At Stanford, while taking a course titled “Hacking for Defense”, which tasks students to uncover defense needs while interviewing military stakeholders, he started Capella Space and raised the company’s first capital before graduating.

In this interview, we chatted about a ton of topics including:

• The role Capella has played in the Russian invasion of Ukraine

• What he would do differently if he started Capella today

• How they’re innovating on remote sensing distribution

• What customers they’ve decided to focus on and why

• SAR price elasticity and how demand changes with price

• How changes in launch have impacted Capella

• His thoughts on partnerships and sub-contracting in space industry

• His opinion on how public markets are pricing remote sensing companies

How is Capella differentiated from other major SAR providers, such as ICEYE or Umbra?

So first of all, I am no longer the CEO of Capella, and I'm doing this interview in my capacity as an entrepreneur, and therefore my answers should be sort of treated as a view of Payam as an individual and not of Capella's position on these topics. Having said that, Capella is the Rolls Royce of commercial SAR. The services that Capella provides are premium and tailored to high-end and sophisticated customers that require the finest service. I would say unlike others, Capella is not trying to be everything to everyone. And we made that decision to be laser focused on the government customers a long time ago, and it's worked out for us really well.

Capella’s next generation “Acadia” satellites

One of the major themes in remote sensing over the last year has been in the role that companies played in bringing transparency to the Russian invasion of Ukraine. Capella has been one of the major organizations in that discussion. Can you talk about Capella’s impact there?

Capella was one of the first Earth Observation companies that stood up a dedicated team to work on this mission before the invasion. We took a pretty intentional decision to release imagery publicly of that region, and our imagery was actually used to predict an imminent invasion. Since then our imagery has been used by the US government, Ukrainian allies, and partners to literally save lives and fight for preserving democracy.

In a lot of ways, commercial SAR really got lucky to have been at a point of maturity where its applicability could be demonstrated in a very public way. The weather in Ukraine, when the invasion happened, was bad, it was really cloudy. It was wintertime and since SAR can see through clouds, it was pretty much one of the most effective ways of monitoring the situation from space. Nothing else was really available. Specifically commercial SAR was particularly impactful because it could be released publicly without any of the government’s classifications and restrictions. We had a significant impact and continue to have that impact. I'm immensely proud of what we've done and accomplished there, and we're doing, not just in Ukraine, but in other places around the world we can't really talk about.

Unfortunately, I think those instances are only going to increase in frequency and I'm really happy we have this tool in our toolkit called “commercial SAR” that we can utilize to solve critical problems.

The above Capella imagery taken on February 24th, 2022, showed Russian vehicles amassed 5km from the Ukrainian border

You’ve recently stepped away from your role as CEO of Capella and are now a board member but not involved in the day-to-day operations. Looking back on your time at Capella, what would you tell your younger self if you were starting Capella today?

Building Capella has been a very humbling experience. Those who met me during the first two, or three years of Capella between 2016 to 2018 will probably remember me as someone with a big head and an even bigger ego. And even though my conviction was extremely beneficial in getting Capella off the ground, I think I could have done it without being as cocky as I was. And I think that's just maturity.

What would you do differently?

I don't want to sound cliche, but I think there are literally too many things to count that I would do differently. In fact, I've written extensively in my personal journal on all I would do differently for my next company, but I'll share one that I think is very applicable these days to founders starting new companies. I think raising venture capital is extremely delicate. It needs to be treated with a lot of thoughtfulness from day one, especially the amount you raise and the timing of your very first raise. I don't think you'll find many entrepreneurs who have perfectly timed their fundraising as it's really, really difficult to do that. I personally have lots of bruises and cuts that are going to remind me of all the mistakes I've made for the next one. Don't raise until you truly are ready, raise small amounts, but enough to achieve a significant milestone and raise at valuations that set you up for success. It's easier said than done, but it's such a huge factor in the success of you as an entrepreneur and therefore the company.

Well, I think the other added factor of this is when you were starting Capella in 2016, what was an appropriate early funding round size? I think that question remains even now, but it was more unclear at the time. What is an appropriate valuation and timing between rounds too? So I think it is just very hard for a founder. Especially if the market dynamics are changing in real-time, which they always are, but especially now.

They’re especially changing in the last two years. I started Capella in 2016 and in a lot of ways, because there weren't enough space companies out there, the valuation discussion was a lot more wishy-washy. Now there are public comp multiples and there are other companies where you can look at their history. And so I think maybe it's a little easier now to project forward, and to think through different rounds because there's just a lot more data points than what we had back in 2016.

A frequently emphasized topic in the remote sensing world is the split between government and commercial markets and how companies choose to navigate those customers. What has been Capella’s path and why have you chosen that path?

So when I first started Capella, I wanted Capella to be a commercially focused company. In fact, it was incredibly difficult to get interest from investors when I presented Capella as a defense tech company back then. That was 2016, American Dynamism was not a thing like how it is today, but a couple years after I started it, I realized that governments have substantial demand for solutions with existential problems that require urgency and frankly, a perfect product-market fit for what we have. So we decided to have that laser-sharp focus on the government market. I think it's really, really difficult to split your focus between government and commercial. There's this term that people use dual-use technology, and I think as much as people love talking about it, the reality is that you can't really half-ass your productization and go to market and be truly successful in the government market.

Government can't be an afterthought as a customer. You need to pick one and focus on it. We picked government as our initial market. I think that's the right answer for Earth Observation in the short term. It doesn't mean that Capella is not interested in commercial. This is simply an order of business and a strategy to help get Capella to profitability faster with less capital than if we had either split our focus between government and commercial, or worse if we put more focus on commercial as a strategy. And the nice thing now is that we're sort of outsourcing the market development on the commercial side to our competitors because they seem to be very eager to go after commercial. So our competitors can use their very expensive equity dollars to chase new markets, develop use cases, try risky business models, and guess what? All of their success and failures will be played out in public, and we'll just learn from that and do the right thing. So I am a strong believer of focusing on the market as opposed to splitting your focus between two very difficult and very different markets.

With regards to focusing on the defense market, given that historically pretty much all Earth Observation companies have ultimately focused on the defense market, it sounds like it’s more contrarian to target a commercial market. Even a company like Planet that initially focused on commercial eventually seems to have moved primarily to defense. So in that way I see where you’re coming from.

I think Planet is a good example. They started the company wanting to focus on commercial and then they realized later on that that was the wrong strategy and they pivoted back to focusing on defense. And I did a little bit of that myself too. For the first couple years, we wanted to be more focused on commercial, but when you realize the reality is different than what you hope, you must adjust and do what the market wishes you to do.

When I talked with Dan Berkenstock of Skybox, he discussed about how they had wanted to innovate not only the imagery they could generate, but in how that imagery is “piped” or distributed. Has Capella focused on changes to the distribution of data as well, or primarily on innovation around the data generation in the form of your satellites and sensor technology?

Yeah, I would say half of our focus actually was put on distribution of data and building the right pipeline for it. We developed and released many firsts in the industry in that segment, our entire pipeline from ordering to delivery was fully automated and has been automated since 2019 with full API integration. Even to this day, Capella wins on contracts because ordering from others is still slow and painful, often ordering over email, and it's not fully automated. We've had that sort of simple ordering system. We pioneered real-time tasking by partnering with Inmarsat in 2018, and we've been providing that service since then.

We've practically laid the groundwork for what is now becoming a gold standard for what a 21st-century satellite tasking delivery needs to look like, and customers now have that expectation. And so I smile when I see others in 2023 and 2024 release a limited version of what has been an operation for Capella since 2019 and claim first in the market.

It's not to be underestimated, by the way, how much time it takes to build everything except the satellite. The satellite is hard, but everything else is, I would say, equally as hard and important as the satellite.

That's interesting to hear you say, since I also see discussion around integrations with APIs, and I was not aware that that's something that Capella had fully automated, I guess four years ago at this point.

Yeah, it's been fully operational since the first launch of our satellite in 2019. Part of the reason, and I'm a little biased here, that everyone else has accelerated their plans to build APIs and exaggerated their capabilities is because they lose contracts once customers get to see our platform and how easy it is. Customers expect and demand Capella-level of service from our competition.

Do you think that suppliers of remote sensing data can take action that can effectively mature or grow the addressable market for commercial EO imagery or do you generally see that as outside of their control?

Data providers have some impact in growing the market but not as much as they think they do. There is no single factor that can grow the market. It’s a complex multivariable problem with dependencies that are outside of a single data provider’s domain. As an example, there is a lot of talk about pricing being a significant variable in expanding the SAR market. Pricing is a single factor that sometimes is important but not always. I do not believe the SAR market grows linearly with reduction in price. In fact, I believe the SAR market of today shrinks at some multiple of price, meaning that if you drop the price of SAR by half, the consumption, in total dollars, by those who represent the largest share of the market today wouldn't double, but rather actually goes down with some proportion to the pricing. I hope over time that changes, where when you drop the price by half, the consumption would quadruple so that the market would double in size. But that's just simply not the case today. It's an unpopular opinion to have publicly but one that I am not afraid to vocalize.

Why do you think Capella has succeeded when others failed. For example, Terran Orbital discontinued their SAR mission, Orbital Effect closed, Alpha Insight closed, Urthcast failed.

For each of those companies you mentioned, there's been something specific and unique, but I think executing despite all odds that were against us is probably the biggest factor for us to have been able to get to where we are today. There were just too many times that we were faced with lots of existential threats and decisions, but we really never considered giving up as an option. It wasn't in the trade space, and there's been too many to count, frankly. And so I think that's the main reason. You’ve got to make the right decisions at the end of the day, but not giving up is really important when you're trying to do something really hard.

What do customers of SAR care most about?

What our target customers in the DoD care about most are really trust, confidentiality, quality, speed, accessibility, stability and assurance.

How do you think about owning the relationship directly with the end user of your data? Particularly as new aggregators or marketplaces for remote sensing data enter the market. Do you have a preference of selling directly to users or are you agnostic to how your data reaches the final user?

It depends. It's important to maintain some form of relationship with your end customers so that you can continue to understand their pain points, evolve your product set, and build the right solution for them. What you end up building in space, especially these days, is not static. You're not building something that's just going to be there for 20 years to come up with the requirements and forget it. So it's hard to solely rely on the middle markets and sort of those aggregators as your only way of getting inputs on what people want and what's working and what's not working.

I think this is especially true for government customers. Oftentimes they have very sophisticated problems that require some level of white glove service and some level of customization that often only the satellite operator can build around because it's about the concept of operations. It's about fine-tuning the latency and delivering it in a very specific way. So I think it's really important to have a relationship with the end customers. I think it's equally important to work with partners of all sorts in the industry, and I've got a lot of thoughts on that as well. So it's not either/or. You have got to do both.

Over the course of Capella’s seven year history, the launch market has evolved significantly. What changes in launch have led to the biggest impact for Capella, such as rideshare, small launch, orbital transfer vehicles, or anything else?

I think the mass and volume of satellites have become less relevant relative to when we started the company in 2016. What is important today is to deliver the performance that customers need. And so optimizing performance per satellite is a lot more important than kilogram per satellite. You can even see this trend with mega-constellations. The demo satellite is typically small, but then the production satellite gets bigger. And Starlink is a good example of this. If you look at what Capella is launching now, we had the same trends. Our demo satellite that we launched was 48 kilograms. Our first operational satellite was about a hundred kilograms. And then our latest generation that we recently launched a few months ago was 150 kilograms. It turns out the price of building these larger satellites has grown marginally, but the capability we're able to provide to our customers grows asymmetrically and much, much more than the marginal cost of going from 50 kilograms to 100, to 150. The customer ends up winning, they get more performance for less.

Capella satellites on a Rocket Lab Electron small launch vehicle

On the topic of partners, a question that constantly exists in my mind is on the dynamic of leveraging partners in the form of sub-contracting with a prime vs being the prime yourself. What are your thoughts on that?

Sometimes it makes sense to be the prime and sometimes it makes sense to be the sub. Either way, partnerships are a must to solve complex problems and expand the market size for Earth Observation data. More often customers’ problems need data from a variety of different sensors, sometimes even from non-space sources that need to be fused with their own internal data that no one has access to. Sometimes even the data collection needs to be orchestrated in a very unique way to solve very specific problems. Earth Observation companies need to realize that they're a single piece of a very complicated puzzle, and often they're not the most valuable or important piece. And that's okay. So partnerships are critical in expanding the market. 

However, I think there is an unstable dynamic in the Earth Observation market regarding partnerships. A lot of the data companies don't have correct long-term incentives with their partners or worse have conflicting incentives for those partnerships to be successful. Unfortunately, there are too many companies in the Earth Observation ecosystem that have a zero-sum view on value creation. Until we realize that value creation is not a zero-sum game our ability to grow the market will be limited.  I think one of the reasons Earth Observation has not truly taken off for the commercial market is this unstable partnership dynamic that exists amongst the data providers and solution providers.

The DoD has introduced a number of programs over the last 10 years with the goal of improving its ability to acquire innovative services, technologies, and software from early-stage companies. The programs typically discussed are those like AFWERX, SPACEWERX, the Defense Innovation Unit, and most recently the Office of Strategic Capital. Have you seen such efforts move the needle towards a capacity for more innovative acquisitions over the last decade?

Look, I have experience with every single one of those programs, and I've generally found them helpful. They have their problems and challenges, and I have my share of frustrations on how they can be better. But if you're trying to build hard businesses that require significant capital, then these programs, as long as you navigate them thoughtfully, are a fantastic way of getting non-dilutive capital to build your tech without raising venture capital. I think the problem arises when entrepreneurs use these programs to define requirements for what they build, only to find out that the program manager behind the program was sort of treating it as a low-priority R&D project. So as long as you're not getting trapped in that problem, then they're fantastic. I think the government is still trying to figure out how to transition programs from R&D, to a pilot, to a fully operational capability. That’s where a lot of these programs fail, but if you use them strategically to get initial funding to go build the tech, I think they can be a game changer for you.

Knowing what you know now, would you do it again

Absolutely! I think there's no pleasure greater than building a team that accomplishes what many think is impossible.

What is your opinion on the way publicly traded satellite imagery companies (Planet, BlackSky, and Satellogic in particular) are being valued by the market?

It's simply brutal. There's no denying that what has happened to these SPAC space companies has had a negative impact on the space industry as a whole. I mean, not a single one of these companies have met their SPAC forecasts and as a result have on average lost 80% of their value since going public. And they've set a public comp for imagery companies and those multiples are ridiculously low. So I think that every entrepreneur that's starting a new company needs to be super keenly aware of the dynamic that creates in the market. The way to differentiate and sort of demand a higher multiple in the private market is by showing higher profit margins, higher growths, differentiated products, and a significant moat. Capella has all of those, but it's still really, really difficult because one is a liquid market, another one is not. So I think it has created a really difficult dynamic for a lot of space companies.

Do you think that startups should be structuring their fundraising rounds with those public comps in mind? Should they be thinking “I will be public and those will be my multiples, so I need to create a trajectory where I’m going up and to the right on every round.” Is that the right way to think about leveraging public comps as an early-stage company?

You can't avoid it, but I think you want to tell a story of your future multiple on valuation for why your company is going to be better than just a few players that are in a specific niche that you're in. The way bankers do this, and they're really good at building stories on why you should be worth more, is that you include the relevant Earth Observation market with comps like Black Sky and Planet, but you also end up adding a bunch of other areas where your company will be involved, so markets with companies like Palantir and Databricks. You build a story on why the product and the company you're building is going to be relevant and needs to be then comped accordingly to an area that's bigger than the niche that people think you should be fitting in.

I think if you're building a launch company or a communication company, your job is a little easier because people are looking at SpaceX and others. You still have to deal with Astra and other ones, but it's easy to differentiate yourself because they haven't been successful. They don't have a product, whereas in Earth imaging, Black Sky is successful, they do have products, they do have revenue, they are growing. And so I think in some ways you can't avoid it. You have to build a story around it and just be really thoughtful on the dynamics that investors both in the private market and the public market are looking at when they want to give you a dollar.

What are you most excited about for the future of the space industry?

When I graduated with my aerospace degree in 2012, there were very limited options to work in the space industry. You had the defense contractors, you had NASA, and then you had SpaceX. For the most part, when I started Capella in 2016, there were more startups, but it was still a very new and sort of unexpected and unaccepted path with maybe only a handful of space startups. When you look around now in 2024, there are so many startups, and more importantly, there are so many people who have gone through other startups, have an entrepreneurial spirit, and are so driven to build. I think that energy and talent density just weren’t there even five years ago. So that makes me so excited for the future of the industry because we have matured at least a little bit relative to what it was back when I graduated college in 2012.

That’s it for my interview with Payam, I hope you enjoyed it. Don’t forget to subscribe to SpaceDotBiz for more insights and interviews like these!

In this newsletter we talk about other ways to bootstrap a deep tech startup, getting to market later than competitors, contrarian approaches to the Earth observation market, and more.

Gabe (right) and his Umbra co-founder David Langan, standing behind their satellite’s proprietary antenna

Now let’s dive into part 2.

Sponsored by…

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So you said there are kind of three ways to build slowly and grind it out on government contracts. You mentioned the SBIR way. Were there two other ways you had in mind?

You can be a subcontractor to a prime. And the prime doesn't have to be Lockheed Martin. It could be like Deep Space Systems or some other small contractor. And you just go and work hourly, and then you develop your own product or your own dime. So you build your business the way that every successful aerospace company has. Every widget, every little screw, everything on anything. Blue Canyon was bootstrapped this way, all of these companies before this craze of Silicon Valley. I mean, we landed people on the Moon without venture capital.

So to take the other side of that argument, what do you think are the appropriate conditions for a startup raising a large funding round within the first couple years, let's say? What would it take to ever make that make sense?

Growth. Look, obviously I didn't bootstrap the whole company. We did grind it out for two years. We did ultimately raise money, but in an ideal world, I would've raised no money and would've been General Atomics. So the answer is “How much of the company do you want to own?” So if you are doing a widget, which many of these space companies are like whatever, a component company, do you need VC money for that? You should have the ability to see if a customer will buy that product without fundraising.

If you want to go and scale some huge constellation, you definitely need outside capital. But if you're doing a widget, you don't need to go to space. You don't have to pay for launches. You can go and get customer money from DoD and then DoD can help you support commercial customers with more money. The thing is, it just has to be slow. So the alternative is how much of the company do you want to own? And if it's like, I need an exit so I can get a million dollars and buy a Porsche, great. Then take as much money as possible, SPAC, and have a great time, but at that point you are not building a business over long periods of time.

How do you think about being last to market when you take that slower route?

We’re the last. Look I’ve had all these companies who’ve been warming up the market with hundreds of millions of cash spent in educating customers. Then we came in and we undercut everybody’s prices and sold a better product.

It’s not software. With software, first mover advantage with a bunch of early adopters and network effects is a huge advantage. If you have a billion people using Facebook, they’re probably not going to switch over.

If you’re in a market with a thousand customers who all hate each other and they’re competing, and one of those customers suddenly is like “I’ve got a competitive advantage by paying one-tenth the price for a ten times better product”, first mover advantage does not matter because everyone wants to save 90% of their money and will switch to that product.

Earlier you mentioned partnering with a prime. Umbra is partnering with Maxar. First of all, I want to make sure I understand that relationship correctly. Does Umbra provide satellite data to DoD through the Maxar platform? How does that work?

So Maxar is able to sell our data to almost anyone, except of course some bad actors, neither Maxar or Umbra sell to or will do business with bad actors. But really there’s more to this question. So we've worked with a prime in some way for almost our entire life of the company. And those relationships are not public, but Maxar is our most public partnership.

Our relationship with Maxar is like dating. So we've been talking for a long time. We have really, really clear communication. We have a ton of mutual respect. The way that I saw the partnership is that it was inevitable because we modeled our unit economics off things that Walter Scott [Maxar CTO] said.

Walter Scott did a remarkable video on Worldview Legion [included below] which clearly explains optical satellite unit economics

So we really learned a lot from Maxar and had a tremendous amount of respect for them. They also realized that we have a capability that essentially no one else has been able to prove and they have the best capability, so we're kind of stuck with each other, but it's okay, we are in love.

Singapore National Stadium is shown in an Umbra Synthetic Aperture Radar (SAR) image on the left and a Maxar WorldView-3 satellite image on the right. (Credit: Maxar Technologies and Umbra)

So you don't have a concern that Maxar is going to say at some point, “We just want to do this ourselves”

I'm sure they could, but they are too smart to do it. I would not wish building a synthetic aperture radar satellite on my worst enemy. It is really, really, really difficult. And then on top of that, competing with Umbra technology is so difficult literally no one has done it.

With Maxar, it works way better to complement each other than to compete. I want them to win, now they have their gigantic sales force selling our data. They're making money. We’re making money. There are no losers, there's no gotcha. I think there's a lot of perception that the primes will just come in and crush you and try and do it.

But also, when we did the deal with Maxar, our valuations were not that different. This was before their acquisition by Advent. At the time, they were worth under two billion dollars. And we had just closed our financing at over close to a billion. So it wasn’t like there was a totally lopsided power dynamic. Plus we also like each other.

How do you think about the fact that you don't necessarily own that relationship to the DoD customer because it's through a prime?

So obviously, Maxar does not own our relationship with DoD. We still have our own relationship with DoD and with the Intelligence Community. DoD/IC and Umbra need to have our own special relationship and direct clear communication. So they have to understand that Umbra is trustworthy and reliable. So the important stuff, we do prime with the US government.

But if Maxar has had a relationship with a USG program manager or some copper mine for 12 years and wants to sell some of our data to supplement their cloudy data, great. Remember, I'm selling Nike's, I don't care. It's a unit that produces money. Distributors sell Nike's. Fabulous.

So your team has placed a large emphasis on commercial customers. But in a recent TechCrunch article, you stated that 70% of your revenue comes from government customers, and I've heard for years people saying that the use case for remote sensing data is ready to break out. Why do you think that you're able to unlock a commercial customer that has been so difficult for other remote sensing companies to unlock over the last 10 or 15 years?

I was quoting the overall market, not Umbra’s sales. Joe Morrison [Umbra VP of Commercial Experience] and I were going back and forth on what the actual overall market breakdown of commercial customers actually is. My belief is that it’s like 75% defense/government, but I don’t actually know.

The largest customer is the US government because the data cost is so high. The next biggest is foreign governments, obviously allied governments. Then you have oil and gas, which is gigantic. That industry is the size of many countries. Then you have insurance, and then you have things like critical infrastructure. But to get below that, there's essentially no customer that has any money. So the real key is the barrier to entry.

I mean, we took Airbus's public pricing, which is $7,500 for a one-meter image, and we said we’d sell a 50 centimeter resolution image for $750. So a hundred percent improvement in quality at one-tenth the cost. And guess what. It’s still too fucking expensive. We need to be 90% lower than our current price in order to start making the commercial market bigger.

Umbra image of one of the Spratly Islands, which is a disputed archipelago in the South China Sea

How do you know? How do you know you won’t get there and it’ll still be too expensive or there really isn’t any demand waiting? Do you have buyers saying, “at this price, I would purchase that data”?

Oh, sure. But we have buyers at any price, right? If you go on and just start selling a 50 centimeter image for $75, you increase demand. You have all these people not in these gigantic industries who are trying to solve a problem where their current best solution is to send a guy in a pickup truck to go look at a bridge to understand the length of a bridge. This costs $200 an hour. It turns out I can buy all the data I need for $75 and then just literally download it from space and run the code that gives me that answer. I just reduced some dude's cost by 90%. That price reduction will not happen overnight. The industry and data providers, including Umbra, need to grow, learn, and evolve.

In Umbra’s distribution, you had strong conviction around two fairly contrarian approaches in the industry. They were 1) Don’t build an analytics platform that competes with your customers, and 2) Provide abundant, free, archival data. Where did that conviction come from?

If you want to have a business that cares about your customers, you can’t compete with your customers and create channel conflicts. Especially when your customers are Google, Amazon, and Oracle who have the best AI/ML in the world. I mean, as a satellite company, you’ve got to solve a super difficult problem launching a satellite into space. And ideally, you want to be the best one doing that. And then to be competitive with Google for AI engineers to then go analyze the data is really expensive. If you do, you’re probably not going to be the best in all those products.

But maybe we’re the dumb ones. Almost every single other company who takes a picture from space, also analyzes it. Almost every single one.  If I’m “wrong” and make money and everyone else is “right” but loses money, I’m fine being wrong.

I would guess they’re doing that because they want to expand their market size, right?

But I'm not trying to grow my market or grow revenue. I'm trying to produce free cash flow. So until you can show me anyone who makes money doing the analytics on their data, I’m not convinced that’s the way to go. You know a liquor store produces more cash flow than every single publicly traded Earth observation company. A liquor store. What are we doing? So people have to change their mindset, and as my wife always says, “just make more money.”

If there's one thing you can emphasize to an individual founding a space startup, what would it be?

So I said this earlier, and I'll say it again because it's important. I would not wish starting a space company on my worst enemy. It is really difficult. But what I would say is, if you have to raise money, understand investors' incentives.

My co-founder, David Langan, is much smarter than me. When we started to talk to investors, he sent me an IRR calculator. I was like “What? Why do we need to calculate their returns over 10 years? We are going to make billions!?” And he was like “No one's going to give us money if they can't actually show a high enough return for their fund.” Which I didn't intrinsically understand until I got older.

And obviously, we've had some crazy years in the stock market. As an anecdote from being an LP in some funds, not a lot of VCs offer huge returns over long periods of time. Oftentimes, returns are lower relative to individual stocks or an index.

So if you talk to me about your business, and the response is that its capital intensity and time to market cannot produce sufficient returns to make investors a great IRR, and guess what, a 10X return over the full fund life is not a good IRR. If you can't produce a product, get it to market quickly, and 100x, you probably should not take venture capital. That said, if you don't have VC, great, build a great company and take as long as you want.

That’s a wrap on my discussion with Gabe! I hope you enjoyed it. Don’t forget to subscribe to SpaceDotBiz or follow me on Twitter for more insights and interviews like these!

Gabe is the type of entrepreneur that we probably need a lot more of in the space industry, one that never wanted to start a space company. He isn’t clouded by childhood aspirations to see the Earth from orbit or to walk on the Moon. He co-founded Umbra because he thought it would be a great cash-flow-generating business with attractive unit economics. When he talks about Umbra, he doesn’t benchmark it to rocket companies or lunar lander businesses. He compares the company to liquor stores or fast-food franchises (one particular food chain he talks about a lot), businesses that don’t have the luxury of burning tens of millions of venture capital dollars based on the promise of distant future profits.

Gabe Dominocielo, Co-Founder of Umbra Space

In an industry where sometimes revenue projections can seem hallucinatory, this type of sobering practicality is refreshing. Gabe is also just a fun guy. Hopefully you’ll enjoy reading this newsletter half as much as I did writing it. Lets dig in!

How does Umbra differentiate itself from other SAR data providers in the technology and in the approach you take to customers in distribution?

We have the highest quality data at the lowest price. But it turns out that doesn't actually matter. Being able to take pictures from space at the highest resolution is a great marketing thing. What really matters though is how many pictures you can take from space at high resolution over high-demand areas.

There's a real distinction here that people don't understand. They think that all the radar providers are essentially the same, but the reality is that Umbra takes 10 to 15 times more pictures over a high-demand area than anyone else. That’s what directly translates to making more money. So we can make 15 times the amount of money as anyone else. Which is great.

Help me understand what you mean by “high-demand area”, why would taking pictures of the same port or parking lot 20 times be better?

No, by high-demand area, I mean like an entire region. Like the Middle East or the South China Sea. At the speed your satellite is orbiting, it’s passing over that region for only a few minutes. Any satellite can take a certain number of images during that pass, so you image some fraction of that region. Our satellites can take 10 to 20 times as many pictures of that area as other SAR providers. But there is essentially infinite demand for imagery of that region. So every incremental image we take, we sell at the same price as the previous image. So we can generate more revenue per satellite pass.

Having an abundance of imagery doesn’t just make our business better, it also lets us behave differently. If I fly over North Korea and can only take two pictures, I'm going to be an asshole about those two pictures. I’m gonna charge people tens of thousands per picture because I need that to make my business close. But when Umbra flies over a high-demand area, we're taking 20 to 30. So I don't care. I'm like, “Let’s take the picture and put it on the internet. Let's look at the pompoms in the North Korean parade. Let's have fun. I don't care if you share it with your mom. Do you want to know the price of it? Here's the price. Do you want to task it directly through the computer? That's fine. Just do it through our website. No biggie, do it through our API”

Umbra photo of North Korean military parade in June 2023, courtesy of the twitter account of Umbra’s COO, Todd Master

So you’re saying that because the supply is so low for the traditional players, they have to charge an insane amount for every picture.

Essentially you're going to charge 10 or 20 grand per image to close a business case. It's a premium product. Whereas we may have the best product, but we sell it like it's a taco and we’re a Taco Bell. It's a commodity.

You didn't start your career in the space industry. You had an entrepreneurial career in legal services prior to that, and then you confounded Umbra. Why go into the space business?

It's probably because I have a low IQ. Really though it had to do with the economics of the spacecraft. I understood in my gut that if we could take large volumes of better pictures and sell them for a reasonable price over the internet, it was probably going to be a good opportunity. Being in the space industry to me is not a thing I aspired to. Though, I love the space industry and I even love the weirdos who are mean to me on Twitter. I would feel differently if Umbra did not have such great unit economics.

It seems to me that not having an affinity for “space” is actually kind of an advantage in that it guards you from falling in love with your technology.

I always say that I'm not in love with the technology or “space”. I don't want to go to space. I don't care. I love my job, the people I work with, and the positive impact we have on our customers. The satellites are units that produce money. I'm not like, “Oh, oh, the radar waves are so great.” It's a very, very sober way to look at your business. If you are in love with your technology, then you might try and force something to work that doesn't make money, which is super dangerous.

Rendering of an Umbra satellite in orbit

You were quoted in a recent TechCrunch article saying something that I really enjoyed. You said, “I talked to founders all the time. I tell them, if you can do this on your own or you can just grind it out on government contracts, you're going to be so much better off, understand the need and demand from the government and you'll also be able to build to that and continue to get money without diluting.” Can you talk more about that? Because we don't have a ton of data points on how to build a “successful space company” and I think this diversity of perspective is interesting.

We do have a million data points, but none of them are funded by Silicon Valley. Think about it. Every rich person who has a successful aerospace and defense company has taken zero dollars from Silicon Valley. I'm from Santa Barbara, which has a massive aerospace and defense ecosystem. Where I’m from, everyone’s like “Oh yeah, I'm Joe Schmo at ‘insert weird aerospace name’” and they’re a small defense contractor, but the dude has a $20 million house and throws off $5M is free cash flow on an annual basis to his single member LLC. That’s not sexy in Silicon Valley. There is a world of defense and intelligence, which is these small prime contractors of very smart people who have contracts with the government and are just normal people who drive nice cars and have nice houses and have 12 SBIR’s [Small Business Innovation Research awards]. It’s the people who are like “I’m gonna change the world” who make no money.

I would love to better understand that, because I don’t know those stories and those companies

Why would you ever hear about them? There's a taco chain where I live in Austin that makes great tacos. The owner of it lives in my neighborhood. His house is gigantic. He easily does more revenue than most publicly traded EO companies. More power to him, because he doesn't care. He just makes $10 million a year, has a Ferrari, and makes huge charitable contributions to the causes he cares about. He doesn't need an article in Space News. You know what I mean? He's fine.

So can you elaborate more on that path? What does it look like “grinding it out on government contracts”? What are those contracts? Are they SBIR’s? Are there other contracting mechanisms you have in mind?

I think that there's probably three ways to do it. One is, you can grind it out on SBIR’s (Small Business Innovation Research contracts) and try and win them. It's hard, but you can probably do it as a few guys in the garage. I mean, submarines get built on SBIR’s. General Atomics was started on small grants and still doesn't really have outside investors. That's a great example.

And General Atomics just acquired one of my friend’s companies. I have no idea what it was acquired for, but probably not like single-digit millions. They do analysis on radar, 3D modeling on radar data or something. No one would ever know who that founder is or what he's doing. But he had a great outcome for himself and his family. So there's a gigantic ecosystem that has nothing to do with the Valley or any of this startup ecosystem.

Summer 2023 imagery of the Kakhovka Dam collapse in Ukraine, taken by Umbra satellites. Source: https://ursaspace.com/blog/ukr-dam-collapse/

Yeah, I don’t know if this resonates with you, but it seems to me that with hardware the unit economics are almost baked into the product the first couple years of the company when you're grinding away, and people think that you can fundamentally change that at a later date. But historically that seems really hard or even impossible.

Everyone knew what we were doing. It was not a secret. Our FCC license was public, 1200 megahertz of bandwidth. We had a public license for 25 centimeters. We can do below that now obviously, but this is eight years ago. There's no excuse for all the other guys to not be pursuing that. None. Now the writing's kind of on the wall, others must meet our level of service, cost and data quality at a minimum and Umbra must also continue to improve our products and continue to treat customers with respect. Data buyers are being hammered with just tons of super low-cost, or even sometimes free, high-resolution data that we’re dropping on the market.

There's a Warren Buffet quote, it was like, “All your trades are public, why are you one of the richest people in the world? Why doesn't everyone else just copy you?” And his response was, “No one wants to get rich slowly.” The thing is, we got to space last of all the SAR companies and we've raised the least amount of money. Every single path we have taken has been the hard one. Do you think my wife is happy that we spent eight years grinding away? She’s not.

But I mean, we took the hard path. Do you know how difficult it is to build a 1200 megahertz radar? A 12 foot antenna? It is much easier to buy a 300 megahertz radar or an antenna. But if you tell an investor, “No, Umbra is going to do the thing that just doesn't exist, treat customers like partners, sell data in a different way than it has been traditionally sold. It's going to be 10x harder, will take longer, but the unit economics are incredible. Most investors said, “I'll go with the people who are using proven technology and are going to save the world.”

That wraps up part one of this two-part interview, part two will hit your inbox next week and it will include Gabe’s answers to questions like

• Why do you think you’ll be able to unlock a commercial market that has been so historically challenging to grow?

• How do you think about being last amongst the SAR companies to get to market?

• Do you have concerns regarding your partnership with Maxar?

Subscribe to SpaceDotBiz to see that interview and more!

The problem I’m referring to is the “spaceport bottleneck”, or more specifically the painful lack of launchpads and spaceports in the United States.

Why Is There a Bottleneck?

Over the last decade, we’ve seen a rapid rise in the number of satellites in space.

Source: https://www.statista.com/statistics/897719/number-of-active-satellites-by-year/

This growth has created a drastic increase in demand for launch. That has translated to an increase of new rocket companies and launch vehicles seeking to meet that demand. A key part of the value chain that has been painfully stagnant though is the physical locations from which you can launch those rockets to space, AKA spaceports.

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The limited expansion of new spaceports has not been for lack of trying. There have been over a dozen attempts to add new orbital spaceports in the United States, including Spaceport Camden, the Colorado Air and Spaceport, Spaceport Michigan, a spaceport on the Big Island of Hawaii, Shiloh Spaceport, and others. However, none have overcome the infrastructure, community, and regulatory hurdles required to offer orbital launch. This was a theoretical problem for some time, but in the last twelve months, we’ve seen with increasing urgency the Space Force express how spaceport congestion is becoming a burden.

In a March 23rd SpaceNews article, Colonel James Horne, the deputy director of launch and range operations for the Space Force’s Space Systems Command was quoted as saying “I’ve been in the launch business for 18 years and I’ve never seen this kind of activity. Congestion is becoming a huge challenge for us. All of our mechanisms that we use to manage this business area are starting to show strains.”

View of Cape Canaveral in 1964. Source: NASA

Even more recently, Major General Purdy stated “The Eastern Range is almost done doing everything it can do. We’re not prepared or manned to support launch rates of 90,” which is the current estimated launch numbers in 2023 for spaceports on the east coast of the US. He added, “I project we’re going to be in the multiple hundreds here on a couple years.”

So, launch rates are expected to double or triple in the next few years, but spaceports are already tapped out in capacity. In addition, as far as I can tell no one has a viable plan for building more spaceports. Well, now you know why I’ve become convinced that this could be a significant long-term pain point for the industry.

This article will dive deeper into this problem, covering the below topics:

• What constitutes a spaceport?

• Why is it so hard to build a new one?

• Who has tried to build spaceports

• What other options do we have?

Now lets get started…

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What Constitutes a Spaceport

A spaceport is a site for launching or receiving spacecraft, meaning its value is not in just in supporting launch services, but reentry services as well. The primary regulatory body for governing spaceports is the Federal Aviation Authority (FAA), which in the United States is responsible for awarding Spaceport Licenses under the Part 420 regulation, titled Launch Site Operator License. The Part 420 regulation can be found here.

For clarification, this regulation is entirely separate from that which covers the launch vehicles themselves, which is addressed in the Part 450 regulation for receiving a Launch Vehicle Operator License.

As of the time of this writing, there are five spaceports in the United States (four if you group together the two sites located on Cape Canaveral) from which there are regular launch operations to orbit. These are:

• Cape Canaveral Space Force Station (CCSFS)- operated by the US Space Force

• Kennedy Space Center- operated by NASA and located adjacent to CCSFS

• Vandenberg Space Force Base- operated by the US Space Force

• Mid-Atlantic Regional Spaceport (MARS)- operated by the state of Virginia on land owned by NASA)

• Pacific Spaceport Complex (PCS)-operated by the state of Alaska

Why Is It So Hard To Build A New Spaceport In the US?

Knowing that the United States has a lack of supply for spaceports, the simple conclusion is then that we should just build more. So what does that involve? Well, first it’s important to understand that, due to the risk of a launch vehicle failure, the FAA has historically not approved launch flight trajectories that travel above populated land for at least a couple thousand miles downrange of the launch site. That is why, for example, SpaceX’s test launch site out of Boca Chica in the Gulf of Mexico is limited to a single launch azimuth that threads the needle between Florida and Cuba. Which is why SpaceX is building a second Starship launch site at Cape Canaveral. As a result, any US orbital launch site that expects to launch repeatedly and cost-effectively must be on the Pacific or Atlantic coasts

Beyond that, noise impacts and risks of damage from vehicle failure mean that any spaceport would likely need to include not only the launch pad itself, but at least 1,000 acres of land (approximately 1.5 square miles) surrounding the actual launch pad to provide ample buffer to other property owners. For example, the smallest of the existing US spaceports, MARS and PCS, are approximately 6,500 acres and 3,700 acres respectively. So just to kick things off, you’re talking about acquiring a massive amount of US coastal land, some of the world’s most valuable real estate. That purchase alone would likely cost over $250M given that the cost for coastal land in the US can easily run you $200,000-$500,000 per acre.

In addition, even having acquired the land, the US is a highly litigious nation and there is ample opportunity for nearby homeowners or environmental groups to sue spaceport developers under claims of safety hazards, property value impacts, or environmental impacts. The legal costs of fighting that battle would likely be in the tens of millions of dollars. This has been the case in the past few years for SpaceX at Boca Chica.

Failed Attempts to Build Spaceports

Despite the uphill nature of the challenge, many have tried to develop new orbital-capable spaceports in the United States. In my opinion, the best chance of the last two decades and the most exemplary of the challenges is Spaceport Camden in Camden County, Georgia.

The effort to develop Spaceport Camden began in November 2012, when the Camden County Joint Development Authority voted to "explore developing an aero-spaceport facility" at an Atlantic coastal site to support both horizontal and vertical launch operations.

In 2021, the FAA issued a launch site operator license for Spaceport Camden that enabled launches only at a 100-degree azimuth trajectory. However, in a 2022 referendum by Camden County voters, the project was rejected. The county made an appeal to the Georgia Supreme Court, arguing that voters did not have the right to override the county’s decisions to develop the spaceport. However, the state supreme court sided with county residents and the county was unable to move forward with an effort to purchase the land. It was reported that the county had spent approximately $12M in its efforts to develop the spaceport, which had not yet included what it would have cost to acquire the land if the project had moved forward.

Projected Zoning for Camden Spaceport. Source: Spaceport Camden Launch Site Operator Application with FAA

When you look at the example of Spaceport Camden and other attempts to develop coastal orbital spaceports, it becomes apparent just how difficult the prospect appears. That is not merely my own opinion, here are the perspectives of others that are close to the problem:

An additional option might be US launch companies using overseas spaceports. However, those options are limited and seemingly less attractive than existing US options. There are a number of spaceport projects in early development in the United Kingdom, including Spaceport Cornwall, Spaceport Shetland, and Sutherland Spaceport. While these may be useful for a domestic European small launch provider, shipping an entire launch vehicle across the Atlantic from manufacturing facilities in the US adds significant costs to the launch process. With launch margins already being tight, additional costs can force launch costs to be unprofitable.

Furthermore, it’s unclear if those spaceports would overcome any of the regulatory challenges that are already impacting US launch sites. When Virgin Orbit launched out of Spaceport Cornwall in January 2023, many of the delays in getting to first launch were regulatory in nature. Both Virgin Orbit and Virgin Orbit’s satellite payloads expressed this frustration openly. A director at Space Forge, a satellite on the Virgin Orbit launch discussed the experience with the UK’s Civil Aviation Authority, saying "The CAA is taking a different approach to risk, and a bit to process and timing as well… I think unless there is, without wanting to be too dramatic, a seismic change in that approach, the UK is not going to be competitive from a launch perspective." Space Forge’s CEO Joshua Western further stated "Quite frankly it costs us more to license our satellite for launch than it did to launch it."

What Other Options Do US Launchers Have?

So what does that leave? Well if you believe that there’s no path to increasing land-based spaceports in the US, then an alternative option is to explore launching offshore.

Sea-based launch has been leveraged previously and is in active use today. In 1995 a company named Sea Launch was formed to offer offshore launch pad platforms. The organization was a consortium of four companies based in Norway, Russia, Ukraine, and the United States, being primarily managed by Boeing. Between 1999 and 2014, 36 launches were conducted from Sea Launch platforms. Due to high platform costs and geopolitical challenges resulting from the Russian invasion of Crimea in 2014, the consortium became untenable and Sea Launch is no longer in operation.

Sea Launch platform. Image courtesy: spacenews.com

China is experiencing its own spaceport bottleneck with the proliferation of domestic rocket companies and has begun leveraging offshore launch as well. China currently operates three offshore launch vessels.

Launch of a Long March-11 on an offshore platform. Source: CCTV/Inside Outer Space screengrab

In addition, South Korea has conducted suborbital launches from offshore launch platforms.

Offshore launch of a South Korean suborbital rocket Source:

SpaceX has also repeatedly expressed plans for eventually moving Starship launches offshore, including Elon Musk stating so in a 2019 tweet:

The company purchased two oil rigs as Starship launch platforms. However, SpaceX eventually sold them, stating that they were the wrong types of platforms but that they would eventually return to offshore launch once the Starship vehicle was flying regularly.

So is offshore launch the answer to the US’s spaceport needs? I don’t know for sure, but I struggle to see another option unless there is a radical change to the regulation around land-based spaceports. Given the historical rate of regulatory change, as well as the Space Force expectation of at least 200 launches in just a couple more years, I don’t see how you avoid a painful bottleneck without moving some portion of launches offshore. Looking even further to the future, if the industry hopes to scale to upwards of 500 or even 1,000 launches per year in the next decade or two, it seems impossible for the existing spaceports, already at capacity, to support continued long-term launch growth.

A Need for A Domestic Commercial Spaceport

Beyond even this practical necessity for scaled spaceports, I think there is also an ideological argument for the United States having its own commercial spaceport. All of the current orbital-capable US spaceports are run by governments and governments have different incentives and priorities than that commercial industry.

We’re already seeing that play out in the spaceport world. There is only one US launch company that actually gets to choose between using a commercial spaceport and a government spaceport. Rocket Lab operates its own private, commercial spaceport in Mahia, New Zealand while now also having access to a pad at MARS in Virginia. In January 2023, Rocket Lab conducted its first launch out of MARS and a second one from that site in March 2023. Since then, Rocket Lab has conducted six more launches, all out of Mahia, and has over 10 more upcoming launches, all scheduled out of Mahia. That suggests to me a strong preference to using their own commercial spaceport, despite having initiated access to a government spaceport as well.

The CEO of Rocket Lab, Peter Beck, himself has emphasized this preference. In speaking about their experience at Mahia, he has said “We can turn stuff around quickly and be very commercial.” During delays from range issues leading up to their first launch at MARS, Beck stated that the issues, “make you appreciate owning your own range where you’re in control of all of this and you’re dealing with one regulator directly.”

That’s great for Rocket Lab, but all the other US launchers are unlikely to have an international government offer exclusive use of coastal land, which the New Zealand government did for Rocket Lab. US rocket companies are stuck with the five government-run spaceports we’ve got. Unless we figure out some way of adding a commercial spaceport in the US, that’s going to remain the case.

Taking It Back to the Top

This brings me back to the very beginning of this newsletter, where I said that I was biased on this topic. The reason is that a friend of mine, Tom Marotta, has been working on this issue since February 2022. I met Tom in 2021, when he was the Launch Licensing Lead at the rocket company Astra Space. At Astra, he had the role of standing up their launch pad at Cape Canaveral, which he did in record time of 8 months. That was possible because, prior to Astra, Tom worked in the FAA’s office of Commercial Space Transportation, where he wrote the Part 450 regulation that covers launch vehicle licensing. All this is to say that I respect Tom’s opinion on this topic.

In February 2022, Tom started The Spaceport Company in an effort to address this pain point. After trying in vain to find any US coastal land that could be converted to a new commercial spaceport, he turned to offshore launch. I’m not going to turn this article into a full marketing piece for The Spaceport Company, I think that’d be a bit shameless of me. Instead, I’ll just say that I don’t really see a scalable solution to the spaceport bottleneck other than offshore launch (besides significant regulatory change). If you want to learn more about The Spaceport Company you can bug Tom yourself at tom@thespaceportcompany.com and here’s a recent offshore demo showing what they’re up to.

The Spaceport Company- Full Length Launch ProRes HQ 4

Wrapping It Up

The rumblings regarding spaceport congestion have been rising for the last 12 months, which is increasing the discussion around the topic. Payload Space recently published an Op-Ed on the topic, in which the author, Space Force Captain Nicholas Francoeur, emphasized the national security vulnerabilities of limited spaceport supply. In the piece, Francoeur asks “What happens if the largest US-based launch centers are indefinitely disrupted?”

I really don’t know what the solution to spaceport congestion is going to look like, there are currently no silver bullets as far as I can tell. Ultimately, we’re all in this boat together, range delays and rising launch costs due to congestion impact every stakeholder in this industry. You can’t get to space without going through a spaceport. Hopefully, we figure something out, because if we’re lucky and the industry continues to grow, this issue isn’t going away anytime soon,m

Former NASA Deputy Administrator Lori Garver in 2012 during her time at NASA

It’s not a huge stretch to say that without Garver in her role at NASA, there would not be anything like the commercial space industry that we know today.

She was maybe the key player in the survival and sustainment of NASA’s commercial cargo and commercial crew programs. Without her, those programs would likely have been defunded in their infancy, through efforts orchestrated by legacy space stakeholders. Furthermore, without the sustained support of those programs from NASA and the opportunities they provided, SpaceX would likely have run out of capital, ending the company’s efforts before its first Falcon 9 flight.

Consequently, without Garver in the NASA Deputy Administrator role, it’s probable that the US would not be flying human-rated launch vehicles or capsules since the retirement of the Space Shuttle in 2011. That would have meant, amongst many other consequences, that the US would currently be dependent on Russian rockets for sending astronauts to the International Space Station.

If this story is at all interesting to you, I can’t recommend enough her book Escaping Gravity, published in 2022, which is part autobiography, part tell-all of her time in the space industry and at NASA.

Lori is a role model to many whose careers involve the opportunity to work on commercial space-related projects, including myself.

Your career has focused largely on the transition of the government from building its own launch vehicles toward purchasing launch services. What other key space products or services do you think make the most sense for the government to start purchasing commercially rather than building internally?

I love this question because it sort of gets at the issue that not every program needs the same type of procurement mechanism. In my entire career, launch vehicles had been something that we were working on to get the costs down. There were other customers for launch besides NASA, like commercial customers and other governments. So that diverse customer base made that transition for launch ripe for at least a decade.

We had been doing that in other areas and still are, where I think it's very helpful. For example, buying communications data for the military has been a huge benefit. Same with remote sensing data. Those are areas where I would expect to grow as companies can develop things that have markets beyond the government. Beyond that, even where it's repeatable and there's a technology that you can scope because it's mature, those make sense.

When I was at NASA, on the International Space Station we purchased drinkable water as a service. We didn’t pay to have the water purification recycling system set up because we had an agreement to buy the drinkable fluids. That wasn’t talked about much, but I’m sure it still exists on the ISS. And you could certainly imagine that as the Low Earth Orbit (LEO) economy grows, there’s a continued market for the purification and recycling of water. So we felt that we could help incentivize that development by saying, “We'll, purchase that first.”

I guess I still am a bit questioning some of the lunar activities that we are thinking are commercial, when we at NASA are the only customer in the foreseeable future.

I am more bullish on the commercial LEO market. I think for the LEO commercial destinations that will come after the end of the Space Station, that is where I would like to see NASA leverage more money. Because we know that there are not only tourists but also researchers who want to use those facilities as the costs come down. That will be very exciting when that happens. I think that NASA is on a great path towards that. However, because Artemis is taking so much focus, the LEO commercial destinations are maybe not getting the funding that they will need to not have a gap in human space flight.

Charles Bolden, nominee for administrator of NASA, left, and Lori Garver, nominee for deputy administrator of NASA, testify at their confirmation hearing before the Senate Commerce in 2009

Sometimes it feels like there’s a movement to purchase everything in space “as a service” and completely eliminate cost-plus contracting. Is there still a role for cost-plus contracting in the aerospace industry? If so, what conditions of a program would be appropriate to mature with a cost-plus contract?

It's very ironic to me that Administrator, Senator Nelson called cost plus contracting a plague. I do not agree. I think there are things at NASA that still will require cost-plus contracting for missions that are one-offs and there's not another customer and we don't have the technology to go and procure it in another way. For example, we look at things like Gateway that decided to go fixed cost, but they're still costing hundreds of millions more because they can argue that NASA changed requirements, which is true. So I think each program really requires NASA to consider the whole landscape about what tools are available to them and decide based on what's going to be the best value to the taxpayer.

Now, personally, I'll just add that if your goal is partly to develop an industrial base, which ours was in the Obama administration, and you know there is a competitive commercial environment, it’s possible to select things that are well suited to fixed price or service contracts. When you're developing policy at going to the Moon and Mars, we don’t necessarily have that competitive commercial environment. So we're now trying to jam those efforts into our new services way of doing things. It might work out where there is this mixed approach where you have some programs that are cost-plus and others that aren't. It’s an experiment.

In reading the book, it seemed to me that there is a trend for organizations over time to increasingly leverage the political process for winning contracts as opposed to what is supposed to be a more openly competitive process. How do we as an industry or how do organizations resist that trend?

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In terms of companies avoiding too heavily on using the political process, I think there are efforts companies can make to go too far down that route. I like the question because it gets at the heart of one of the reasons I felt so strongly about championing the transition to a more entrepreneurial type of competitive process. Ideally getting out of that government system which has the wrong types of incentives. So I would encourage entrepreneurial companies to be smart about it in that sense.

I really do think SpaceX has done a terrific job of that. They did get criticism at times because they started participating more in the political process and lobbying more heavily. But it never has led them to develop the kind of standing armies of lobbyists that the major aerospace companies have. We're even seeing now Blue Origin behaving in what feels to me from the outside as some very heavy-handed directed lobbying. The kind that used to happen in the good old days and the Shelby days and so forth. They seemed to have used that for getting a second lunar lander.

I think it's pretty shameless what members will go ahead and do that is so obviously just directly for their constituents, but we have to recognize that their job is to deliver for constituents. So if we as a public and as an aerospace community don't have some sort of correcting behavior, why would they not pursue that route? Companies are also incentivized to do things that way. That is why I felt strongly and say in the book a few times, I really think it’s the administrations who have to stand up.

I know that's hard. It was hard for us in the Obama administration and we didn't always do it. You can call them out for what they are. I think over time it's more positive to have a competitive environment and that you're not focused on Washington. We interact with who we're comfortable with and it's all about incentives. So companies, new companies especially, can set policies that disincentivize this kind of thing versus what the natural tendencies are.

Garver receiving a tour of SpaceX from Elon Musk in 2010

I think in the space industry there can be a glorification of individuals with “technical” backgrounds I have often bought into myself as someone with an engineering background. And yet, throughout the book, you’re often fighting to enable innovation, opposed by those leveraging their “technical” backgrounds to discredit your perspective. How do you think about those challenges?

I think glorifying technical excellence is positive and we should absolutely do it. We just shouldn't translate their technical achievements into achievements in other areas such as management or politics or really even leadership. Technical people just like all of us, aren't good at everything. And sometimes those skills, as I point out in the book, do cause a problem when you get in a leadership position because, when you're a hammer, all you see is a nail. You are a planetary geologist, so all you want to do is landers. Well, if you're working on behalf of the public and maybe orbiters are the next thing, then that should be your focus, but if you have a particular interest in another arena where your friends also happen to work, then that can get problematic. These are wonderful skills to have and I do not have them. And I had no issue with giving major awards and props to the people that are really delivering on the technical stuff, it's incredible. Does that mean they're good at making policy? Not necessarily. We have to be able to separate that.

In your book, it was often illustrated how challenging it can be as a woman in aerospace. As a founder of the Brooke Owens fellowship, you’re facing head-on the aerospace industry’s lack of representation of female and non-binary talent. What actions or behaviors have you seen leadership in organizations take to make the organizations conducive to a more diverse set of talent?

I think the key is to be intentional and not pretend these differences don't exist. To recognize that these, often unconscious, biases are built in all of us and to try to offer programs where people do feel like they're welcome and want to belong. That's the goal of the Brooke Owens and Patty Grace Smith Fellowships. For both of those programs, I see the companies where they work and those that have the better experiences being the ones who hire a more diverse group of folks. So people don't feel that there isn't anyone there that they can really relate to. The organizations most successful at creating that environment are those that have specific programs for it and whose leadership is willing to address it when there are problems head-on.

Garver (far right) with Brooke Owens Fellows

In contrast, what actions have you seen companies attempt, maybe with positive intentions, that have been less effective or even detrimental toward making an organization more inclusive?

Well, I think in general the companies that struggle are those who believe this is something that'll take care of itself if they're just “selecting the best people”. Yes, we all fully believe we should be selecting the best people. But it is, again, often unintended biases that creep in.

Beyond that, I think when you have someone report something and nothing happens, that is a huge signal to people. We all ought to be aware that people communicate today, and people are aware of when these things happen. Yes, it can be very uncomfortable. I have had to make calls to companies on behalf of fellows who've experienced some of this. It's not an easy conversation, but I'll tell you, when you do and something changes, it can make all the difference. So companies who get into trouble because someone on their team did something, they really need to address it openly and directly as much as possible.

Is there anything else you’d like to add on this topic?

Yeah, I guess I'd say two things. For one, we’ve made a ton of progress. The reception for the Brooke Owens and Patty Grace Fellowships by the aerospace industry has been phenomenal. We have wait lists for companies that want to participate and hire people with these backgrounds. But also, we have some work to do to make sure that when we have early career people, their careers advance in a way that is equal to those who all look like the current industry leadership. So, valuing us for our differences is important to me. I frankly, did feel quite included in the industry. Women in Aerospace started within my first couple years. It was only when I got to more senior positions where my decisions had an impact on people, and that those who disagreed would use my background to say, “Oh, she's not a serious person.” In this country, and really throughout civilization, men have been seen as “the leaders”. So it's something to overcome within our industry as we grow in our careers.

At a time where the prevailing industry wisdom was that only governments could handle big challenges like putting humans in space, you had a conviction and a risk posture around what private industry could accomplish. Where do you think that conviction came from?

I think that conviction of mine grew out of decades of learning in the 1980’s from people who worked at the National Space Society, we were the product of a merger with the L5 Society. I look at testimony I made on the organization's behalf in the late 80’s and early 90’s, and it was very much aligned with this conviction. The head of NASA for 10 years, from 1992 to 2002, Dan Golden, also had this conviction. I was at NASA for six years during that period of time and it just seemed so obviously correct. The only way we were going to address the issue of cost, and the only way to really develop space is to lower the transportation costs. So it was a pretty strongly held belief. It was just challenging to implement, for a variety of reasons that I outlined in the book, because of vested interests in which we were challenging cost-plus contracts. Which is understandable that those interests would resist.

A common criticism of traditional prime contractors is of the “revolving door” in which retiring government leadership joins industry and leverages their experience or relationships to benefit a private company. More recently some New Space companies are starting to recruit former government leadership, with some prominent examples being SpaceX’s recruitment of former NASA Human Spaceflight Chief Kathey Lueders and prior to that, Bill Gerstenmaier. Do you think that transition is a natural consequence of how our nation’s public-private partnerships are structured or is it something to be pushed back against? Is there a more “right” or “wrong” way for that transition to take place?

Yeah, I believe that the revolving door is something you try to work against with policy. You have a year-long waiting period after folks leave their government positions and before they can represent a company where they were involved with acquisitions. Those are somewhat meaningless though because you can get around talking directly to your former agency when you're in your waiting period. However, I don't really know that aerospace is taking that much criticism for it.

I was surprised both at Bill Gerstenmaier and Kathy's going to such senior positions at SpaceX. But this has happened historically. Look at even someone like Tom Young who was quite senior at NASA and went to Lockheed and was president of Lockheed for many years. He never took any criticism. I don't know that Gerst has ever taken any criticism for going there. He's really in a technical role it seems, and I think he had such a positive impact on the technical side, that this was seen as a really great move by SpaceX. I think Kathy Lueders moving to SpaceX was also seen as really positive for SpaceX.

Where I found it unseemly, and I’ve named those people previously so I won’t now, is where someone was within NASA and they lobbied within the agency and on Capitol Hill for a cost-plus program to be awarded to someone. And then as soon as they got that program through, they left NASA and went to that company. It's ironic that Bill Gerstenmaier went to SpaceX because he was going to select Boeing. He wasn't someone who leaned in on SpaceX, at least during the time that I was at NASA.

Kathy was very supportive of SpaceX’s concepts and in fact was the source selection official, I believe, on the lunar lander. So that one was a little more surprising, but it doesn't have to be negative. I think the issue is if, in your government role, you are advocating for something that is directed to that company, you should really recuse yourself for probably longer than a year.

You know, there can be a really positive aspect to going in and out of the government. I have worked in industry and in government, including two tours at NASA, and I felt like my second tour, because I had worked for industry prior, I had a lot more knowledge. I was better at the job. So I would hate to say that someone has to stay in the same type of job for their whole career. It can be very beneficial. You just really have to watch what it is you're overseeing and have to be fully transparent.

Thinking about space policy: If you had a magic wand and could instantly change any law or regulation affecting NASA, what would you do?

This is tough. One thing that would be really powerful would be the ability to guarantee multi-year funding. That would be great, because these are long-term programs. That being said, I’m not critical of changes that result from elections or new administrations, since that's democracy and that's part of the process. But for multi-year programs, it can be very difficult to plan using only annual appropriations. We do things that are not smart or efficient based on annual appropriations.

Beyond that, I mean NASA's not a regulatory agency. I do believe that overall the regulatory environment needs a lot of work. I think the sharing of airspace and the issue of orbital space debris need to be addressed. I saw recently that the FCC was deemed out of order in their attempts to do something about space debris, it was considered not under their purview. My response would be, “Well then who?”. I think we all agree it needs to be done.

So some sort of process, it doesn't really matter to me where it lives, that can impact space sustainability would be important. Both that and air traffic deconfliction for launches would be really important to address.

Is there anything you would have done differently during your career?

Haha, I am so openly willing to say yes when I know others will say that they wouldn’t change a thing. I would absolutely, if I knew what I knew today, I would go back and do things differently. I love my career and I still think there are things I could have done better to advance the goals that I felt strongly about. I do get the sentiment that things worked out pretty well, so maybe, you know, it's the butterfly effect. If I changed something, I don’t know the effect that would result.

But there were a couple specific things like during the transition between Bush and Obama, when I was leading that team, I was working with Democrats on the Hill House and Senate appropriators about them initiating a review of Constellation. What I was hearing were these incredible stories of cost overruns and delays and technical problems. They were hearing them too, and they were interested in a review. I, for instance, wish I would've pursued that with them more strongly instead of what we did very quickly into the administration, which was put in the Augustine committee for review.

Because that did pit us as an administration sort of, against Congress. I think if they were responsible for reviewing things themselves and came up with the same results, we could have had a more smooth transition. That's just one example.

What are you most excited about the future of the space industry?

There are a few things I remain enthused about, including the space industry's ability to help address what is a major challenge for all humanity on this planet, climate change. I think we have a lot to offer. We already provide an unbelievable amount of data focusing on that. I think the Pew Institute just did a survey that came out on the public's interest in what NASA's priorities should be. The top two consistently have been addressing climate change and asteroid deflection. Those are still the top two. Asteroids beat out climate this year. The very bottom of these are sending people to the Moon and Mars. I mean, it's literally a huge difference of like, 60% of people think that priorities should be climate and asteroid and less than 10% believe they should be sending people to Moon and Mars. No one talks about it because the NASA people and the Hill are driving forward with their Moon and Mars efforts, but I'm really excited about helping and having the space program that I know and love, play a role in something that's going to be so impactful.

Then like a lot of people, I just can't help but be excited about Starship. If Starship works, it's going to change a lot of things. We will be able to do things in space that I have not really been thinking for a long time that we could do in my lifetime. So that is very exciting as well.

Source: Air Force Research Labs

I know, it sounds crazy. The idea of sending a package halfway around the world by loading it into a rocket's cargo hull seems technically farfetched and exorbitantly expensive. More terrifying is the idea of watching a loved-one climb into the passenger seat of one of those vehicles. However, trends and signals over the past couple of years suggest to me that we should be taking the subject just a little more seriously. I would argue that as the industry works towards full rocket reusability, it is simultaneously building the underlying technology for point-to-point delivery. Furthermore, real dollars are starting to be spent on the technology, both from those innovating the capability and those looking to purchase it.

This newsletter will discuss where we stand currently in the domain of point-to-point rocket travel, who's spending money to mature the technology, and why it would be so impactful if it comes to fruition.

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How We Got Here

Point-to-point rocket travel most recently entered public awareness in 2017, when Elon Musk and SpaceX released a video of their next-generation rocket (which at the time had just been renamed from BFR to Starship) taking passengers from New York to Shanghai in 39 minutes.

Nearly six years after that video was published, and only one week ago, we witnessed the first Starship orbital launch attempt. A key to Starship is full reusability of both the first and second stages. Full reusability for orbital launches also happens to be the enabling technology of point-to-point rocket travel. The technology to precisely land a high-speed second stage after deploying payload into orbit could instead be repurposed to hold onto that cargo (rather than dropping it in orbit) and deliver it to wherever the second stage touches down on Earth's surface. As a result, an orbital Starship with second-stage recovery would inherently de-risk much of the most challenging technology needed to make point-to-point rocket launch a reality.

Starship orbital launch attempt on April 20th. Source: SpaceX

Furthermore, SpaceX isn't the only organization building towards reusability. Rocket Lab's next-generation Neutron vehicle is also planned to have first-stage reusable and it has been over a year since the company broke ground on the Neutron production facility in Virginia. Additionally, Relativity is regularly conducting engine testing for its Terran R vehicle which is built for first-stage reusability and ultimately second-stage reuse down the road.

Relativity's Aeon R Engine Test Campaign

Furthermore, another organization already working towards first and second-stage reuse is Stoke Space, which has its own innovative methods for developing second-stage rapid reusability by actively cooling the heat shield upon reentry.

With so many "shots on goal" for developing fully reusable rockets, it seems plausible that we could have the capability within the next five or so years. This means we could have point-to-point rocket cargo technology not too far after.

Follow The Money

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Another powerful signal regarding point-to-point rocket travel is the amount of effort and money the Department of Air Force is investing toward becoming a customer.

Through the Air Force Research Labs (AFRL), the Department of Air Force runs a number of what they call Vanguard programs. These programs are aimed to deliver long-term, "remarkable new capabilities that provide warfighters with superior advantages in the battlefield". As of early 2021, there were three such Vanguard programs, related to autonomy for unmanned aerial vehicles (called Skyborg), next-generation GPS technology (called NTS-3), and an integrated autonomous weapon system (called Golden Horde). In 2021, the Air Force added a fourth Vanguard program, called Rocket Cargo. The program enables a path for the Air Force and Space Force to work with industry on becoming a customer of this technology.

In speaking about the Rocket Cargo program, the Space Force's highest leadership has been vocal about its interest. In 2021, the Chief of Space Operations Gen. John "Jay" Raymond said, “Rocket Cargo will fundamentally alter the rapid logistics landscape, connecting materiel to joint warfighters in a fraction of the time it takes today. In the event of conflict or humanitarian crisis, the Space Force will be able to provide our national leadership with an independent option to achieve strategic objectives from space.” Rocket Cargo was also a repeated focus topic at Space Systems Command's Space Mobility Conference in February 2023. At the event, the program executive officer for Space System Command's Assured Access to Space directorate, General Purdy, stated about Rocket Cargo, "We absolutely would buy this as a service."

General Purdy speaking at the Space Mobility Conference. Source: Space News

To back it up, AFRL started funding the Rocket Cargo program in FY2021 with $9.1M. In 2022, that funding stepped up significantly and the Rocket Cargo program awarded SpaceX a $102M, five-year contract to mature the capability to rapidly transport military cargo and humanitarian aid around the world onboard a rocket. AFRL has also signed cooperative research and development agreements (CRADA's) with Rocket Lab, Blue Origin, Sierra Space, and Exploration Architecture Corporation (XArc) to exchange data information regarding point-to-point travel capabilities.

On the Rocket Cargo program, AFRL is closely partnered with US Transportation Command (USTRANSCOM), Space Force Futures & Integration, Air Force Futures, formerly the Air Force Warfighting Integration Capability (AFWIC), and Space and Missile Systems Center (SMC). In discussing how the technology will be matured, the program lead for the Vanguard Rocket Cargo Program, Gerg Spanjers, said “AFRL will be leveraging several commercial demonstration launches over the next few years to collect the data.” He added that The Air Force “does not drive this schedule but rather will collect data whenever SpaceX flies relevant missions.”

Why It's So Valuable

One of the tougher realities of the space industry is that it is still a nascent commercial ecosystem. That is to say, there aren't many super-massive markets where you can build ten-billion-dollar, or even hundred-billion-dollar companies. The industry is growing and we'll get there, but the at the moment, the only real way to do that is in communications, moving bits around the Earth to satisfy the unrelenting demand for data.

What is so exciting to me about point-to-point rocket travel is that it offers space companies the opportunity to tap into another such market. The market for global freight is enormous. In fact, enormous doesn't really do it justice. The global cargo shipping market size is around $2.2T, estimated to reach $4.2T by 2031. When defining the market size of point-to-point rocket cargo though, perhaps it makes sense to focus on only the most time-sensitive of global freight. In that case, even the market for air freight is $287B, expected to grow to $413B by 2028. Any way you slice it, there's a lot of money in getting things quickly from A to B all around the globe, far more money than governments and corporations currently spend on launching things into orbit. Those are the kind of big, juicy markets that space companies can target in order to attract more investment and grow more aggressively.

In Conclusion

While the market for point-to-point rocket travel could be enormous, the bottom line is that it only matters if the technology is feasible at a price point that doesn't break the bank. Whether or not that's the case will depend largely on the success of launch companies aiming to develop fully reusable rockets in the next few years. The likelihood of that reality is still unknown. However, one thing we can say today, which we couldn't five or ten years ago, is that multiple teams of very smart people are giving it their best shot.

Will Bruey (right) with Varda co-founder Delian Asparouhov (left). Source: varda.com

In late 2020 Will co-founded Varda, alongside Delian Asparouhov and Daniel Marshall, a company whose mission is "building in space for life on earth". Varda is developing an in-space manufacturing platform to offer customers the opportunity to produce products on orbit, without the effects of gravity. Varda is aiming to launch its first demonstration spacecraft in June of 2023 aboard a SpaceX rideshare Transporter 8 mission.

Now let's dive into the conversation!

As you consider different products to offer through in-space manufacturing, how do you decide on where to begin? There's a lot of excitement and discussion about what can be enabled through in-space manufacturing, so how do you determine which materials or products you'd like to first produce in zero gravity?

Essentially we begin by looking at what research has been done on the International Space Station. Our company's thesis is hell-bent on engineering and less so on science, or I should say on reducing scientific risk. We're more about reducing the execution and the engineering risk. So there's been a ton of experiments on the International Space Station. Everything from fiber optics to pharmaceuticals to semiconductors. We look at those and see which ones make the best fit or which ones would lead to significant revenue for our first products. A lot goes into those considerations including size of the market, customer education, cost, etc. It's an analysis of if we can engineer it in space and is the value of that product in the realm of economically feasible for producing in space. What is economically feasible also changes as launch costs change, but that's essentially the thinking.

On your website, Varda describes its initial spacecraft as having three critical components, the satellite bus, the payload factory module, and the re-entry capsule. Do you down the road see yourselves offering the actual spacecraft itself as a product, either as a whole or in individual components?

Yes absolutely. Not too much more to elaborate there other than "definitely yes." I think one thing that is of particular note about our spacecraft as a reentry vehicle is that it is complementary to the down mass solutions that exist today. So if you think of other reentering spacecraft like the X-37, Soyuz, and Dragon, they are all multi-fault tolerant vehicles. Two of them are human-rated large spacecraft. Not everything that comes from space back to earth requires that level of sophistication, size, cost, or redundancy.

We're plugging a hole in the market on the demand for down mass that doesn't require that level of complexity or cost. We purposely complement those services and are differentiated. Instead of large, we're small. Instead of being expensive, we're cheap. Instead of being highly multi-fault tolerant, we try to be smart about where we need redundancy and keep things simple. So beyond our in-space manufactured products, I think our spacecraft will be a nice addition to the commercial market for down mass.

Rendering of Varda payload factory module and reentry capsule attached to satellite bus. Source: varda.com

One thing I'm excited to ask about is that for your first mission, you're using a Rocket Lab photon for your spacecraft bus and it's launched on a SpaceX Falcon 9 rideshare mission. I think that's interesting because you're bringing together two organizations that otherwise wouldn't typically collaborate. What were the challenges or opportunities of bringing together teams from two of the world's most successful space companies to work on a single mission?

It is really exciting and neat to have brought together two large commercial players in the industry. The challenges aren't that bad. Most of it came down to writing the statements of work and figuring out which parts of the process were owned by Varda, Rocket Lab, or SpaceX. Essentially, where the liability is for every part of the process.

At the end of the day, Falcon 9 is the best launch provider for our company and the Photon bus is the best bus platform for our use case. So it's neat for one mission to highlight so many of the key factors that enable Varda to succeed. Five years ago Photon didn't really exist and rideshares were rare. Both of those innovations create the opportunity for Varda to build on top of them. It's cool to be able to see launch slowly becoming commoditized and spacecraft slowly becoming commoditized. It gives us a fighting shot at creating something new at top of that.

As commercial space stations are introduced in the future and there's more real estate available in space, how do you think about potentially leveraging existing real estate access versus having to do the whole thing end-to-end yourself?

For the International Space Station, in order to berth or dock with it you have to go through what they call the keep-out sphere. In order to cross that boundary, you essentially need to be highly fault-tolerant to avoid accidentally crashing into the space station. As a result, propulsion systems become safety-critical because all of a sudden one thing goes wrong and a thruster propels your spacecraft into a collision trajectory with the space station.

For commercial space stations, it's still TBD what those requirements will look like because some space stations will be automated while others will have humans on board. The regulations or requirements for engaging with that commercial space station will drive a lot of the operations surrounding docking with it. So, before those get defined it's a little bit TBD about how much involvement or I should say like how quickly or interested Varda would be in those kinds of partnerships.

With regards to the reentry capsule Varda is developing, we're super excited about being part of the development of commercial space stations. However, the opportunities that we have in the near term are driving the majority of our engineering decisions compared to those longer-term opportunities. We aren't taking commercial space stations in the near term into our calculus for our technical roadmap because they're a little bit far out at the moment. But that being said as it gets closer, I mean we're a company full of space enthusiasts with a reentry capsule. I can't imagine us not getting involved in some way. Even if it's for something as simple as trash disposal, we'll be happy to build garbage trucks for the space economy.

Rendering of Varda payload factory module and reentry capsule returning through Earth's atmosphere. Source: varda.com

While some space companies have already had to address scaling pains around increasing launch operations, Varda may be the first to be looking to push the boundaries of scaling high rates of commercial reentry operations. Are there any challenges you see ahead of you as you find infrastructure or spaceport capacity that can meet your needs for re-entry operations and frequencies?

That's a long-term challenge in the industry. Right now for the first four missions, we're landing in the Utah test and training range, which is a military base in Utah. That site is great because it's got enough space for our dispersions, so it gives us a really wide area where the spacecraft can come down. As we continue to improve our dispersions, create more accurate reentry, and increase our cadence, we will no longer need that huge swath of land inside a government base. Nor will that base be interested in being our routine landing spot. So in the coming years, I think the industry is going to need more private providers offering reentry locations at scale. That's something that would not only benefit us but the industry more broadly.

I find it exciting how emphatic you've been in saying explicitly that Varda’s customers don't care where your products are coming from or that they're manufactured in space, they just want a higher quality product and that's what you're focusing on offering. So to that end, what efforts are you doing to make sure that your products integrate seamlessly into the existing customer supply chains?

Oh, it's by far the most fun and exciting challenge on the business side of Varda. At the end of the day, the value prop that we are offering our customers is not space access. It's the unique influence on chemical systems that microgravity provides. Quite frankly, our customers would be much happier if we just designed an anti-gravity box in the back of the lab.

For chemists and designers of chemical systems, there are a lot of knobs you can turn on the ground to influence the outcome of your chemistry. Everything from temperature to the actual ingredients, or how fast you stir the thing. So the analogy I use with folks who aren't technical is, I say it's kind of like a kitchen. You've got all these knobs on the oven and the stove. We come in and we basically offer one more knob, one more dimension that you can now control to influence your chemical system. That dimension is gravity.

It's kind of like saying to a chef, "Hey I don't know if you ever realized this, but if you turned off gravity while you were baking muffins you would have a whole different shape. The whole muffin could be the muffin top rather than just one side." The chef might be like "Hmm, our customers tell us that muffin tops are their favorite part of the muffin."

Now if we could just turn off gravity in the chef's oven in their home kitchen down on Earth, that would be their preference. Sadly, Einstein has put the "kibosh" on an anti-gravity machine on Earth. But if we say, "Well, we'll take your muffin batter and it'll be more expensive cause we're gonna take it all the way to space, bake the muffins, and then when we bring them back. But on the upside you'll be the only chef in the entire world that makes entirely muffin top muffins." That's a much different conversation than just "Do you want to manufacture your product in space."  I don't know how I got on that muffin rant, but hopefully, that somewhat answered your question.

It does. I think the analogy of microgravity being just another knob you can turn is helpful.

Exactly, it allows us to engage with customers on their terms. We can go to customers and say "hey, we can turn off gravity", but they don't care. But to stretch the chef analogy further, if we can say "we can allow you to scale up production on the best-selling part of your product" then they're interested.

Looking at previous attempts at manufacturing in space that have been slower to scale, what do you see as key factors that enable Varda to tackle that market more effectively?

A primary factor is commercial independence and not having to use the ISS. It goes back to that "keep-out sphere" we were talking about. If we're trying to make a manufacturing assembly line and we're already pushing the cost barrier because we got to go to space, the last thing we need to do to the assembly line is put humans in a multibillion-dollar piece of machinery, right in the middle of it all. You can't scale that. The distinguishing feature of Varda is that we are commercially independent, so we don't have to go to the space station and we go up on commercial launches that can launch once a week or more. We have our own reentry solutions, so we don't have to wait two months for the next Dragon return and hope there's payload space on board. We don't have to deal with any of that. Rocket Lab and SpaceX are our two biggest vendors and there's no government involvement in that line of business whatsoever yet.

Bruey (second from left) alongside one of the company's first spacecraft being manufactured in their facility in El Segundo, CA. Source: varda.com

My last question is, what are you most excited about for the future of the space industry?

This is obviously a selfish answer, but I am most excited about going camping in some remote area and looking up and gazing at the stars by the campfire and seeing one or two streaks of our capsules coming back in with customer products inside. I'm looking forward to that being just a routine part of the economy.

In the future, I really think that space will feel more like the ocean to our kids and grandkids. The reason for that is, if you think about people in non-coastal areas, they feel like oil rigs are way closer to them than the cosmos. But that's not true. Space is actually pretty close, just 100 miles away or so. But people feel like the oil rig is closer because it's part of the routine economy. So from one perspective, I think success in the space economy will actually bring space closer to us, rather than us into the stars, at least in our lifetimes.

That's a wrap, thanks for reading!

Seyka shared really detailed, nuanced, and sometimes contrarian insights into attracting and signing the best-of-the-best to your organization. We also talked about the other side of the process and how individuals looking for roles in the space industry can improve the outcome of that process.

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Honestly, this is the kind of information you would usually have to pay a lot of money for. I'd consider it a must-read for anyone in the space industry looking to build great organizations or maximize their career opportunities, which probably includes just about everyone who subscribes to this newsletter. Now let's jump in.

What are some of the space companies that you’ve supported in their recruiting efforts and what types of hiring, from new grads to executive positions, do you typically support?

We work exclusively with space and clean technology startups. In terms of who we work with, we don't disclose any partnerships unless we've explicitly asked for permission to share. A couple of those are Varda and Ursa Major. And we work with multiple small launch companies and a variety of others in the new space startup community.

As far as roles that we work with, we do either executive hiring, so that's like C-suite level roles, and often "head of" roles, which is a common term that's used in startups where there's not a lot of differentiation between director and VP. We also work with any roles in the technical vertical. So we might work with entry-level new grads, but that would be a pretty big exception. That's usually when one of our clients explicitly asks for help with that and we recognize that it's not where we're always most focused, but we know we can help. Typically we're filling roles where the demand is for someone at least slightly seasoned.

Anecdotally I hear a lot of discussion around a talent shortage in the space industry. As someone with a lot more data on the topic, does that resonate with you? If so, what would you attribute that labor shortage to?

Great question and there's a lot that goes into that topic. To start, yes there's a shortage. The space startups that we're working with are all going after the top 5% or even 1% of talent. Part of the reason for that is that startups don't have a lot of wiggle room for mistakes. If you're a space startup, your work needs to be high reliability and it's often safety-critical, so there's not a lot of margin for mistakes. Beyond that, at a startup, time is money. Being able to slow your burn rate means you are going to have more opportunities to make your company work. So getting things done very quickly is really important. That's part of why we hear clichés like, "move fast and break things". So there is high pressure in these startup environments to do things well and do things quickly. As a result, we're fighting over the very cream of the crop talent.

In addition, there's a very small number of people in that talent pool. For example, if someone goes the route of working at a legacy space organization like Boeing, Northrop, or Raytheon, the sort of experience that they're going to get, while high-quality and a wonderful experience, is not always applicable to the work that has to be done at a startup. At a legacy organization, the work tends to be very specialized and focused since you have so many people working on projects.

Whereas at startups, you might only have one person who works on a particular part. Individuals have to have more of a breadth and wider span of knowledge, where they have to see something through its entire lifecycle. There aren't 10 people working on each piece of the lifecycle for that part. As a result, people who go the route of a legacy company become less relevant to startups. Beyond that, the pace and the style of legacy versus startups are very different. At a legacy organization, if you have a great idea, you have many stakeholders to win over, so that idea might come to fruition over 12 to 24 months. At a startup, you have a great idea on Wednesday, you might have it implemented by Thursday morning. So the styles and the types of problems are really different. As a result, for people that spend more time at legacy companies, we see them becoming less relevant to the startup world over time.

In addition, pay is a factor as well, and tech pays a lot more. As a result, if individuals are not incredibly passionate about clean tech or space and the kind of engineering rigor that goes along with those industries, they can get pulled into very lucrative work, which can potentially also make them less relevant for these industries or startup cultures. So that's a bit of what I think is going into the challenges around talent shortages.

In the early days of a startup, its typical for founders to hire almost exclusively from within their networks. The risk of that path is in building a homogenous team with similar perspectives and blind spots. Is there a head count number at which you push early teams to look outside their immediate networks?

On one hand, hiring can be a very labor-intensive piece of building a company, especially if you're going outside of your network. That's why as an entrepreneur you're often hiring from within your network, or looking at people you've already worked with. You trust them, you know that you can rely on their work. There's not a lot of guesswork in the interview process. If you've worked with them, you can get enough buy-in that you can make that decision quickly. You have the relationship capital to be able to pull those people in. So there are a lot of benefits to tapping your network early on, which is why so many people do it. And frankly, we advise it when people come to us early on. We ask, "Have you effectively tapped your network?"

However, as soon as you have a homogenous starting team, you start to get yourself into a bit of a pickle with how easy it's going to be to get other people to come in. It can feel a lot like an in-group, outgroup dynamic to people who are trying to contribute to the organization. That dynamic has been well studied in organizational psychology, and it does not turn out well for the outgroup. So there has to be a lot of intentionality in pulling the outgroup into the organization. We tend to say that the first 10 to 20 hires is a really good place to be pushing yourself to pull in diversity of thought and diversity of background. Not just tapping the network that you already are very familiar with.

Hiring is probably a great indicator of the state of the economy and of the space industry in particular. How have you seen the recruiting landscape change over the past year as market conditions have gotten more challenging?

This is another really fun question. It was really interesting when we saw some of the big tech companies hit massive layoffs. I forget when exactly, but that was maybe three, four, or five months ago. Some of the CEOs at the companies we're working with were like, "Oh, this is great. We're going to have an influx of great talent."

At the time I was like "Maybe...it might actually swing the other way." I think that's what we've seen. I'll explain why. First, there are definitely exceptions, but typically the people that we are trying to recruit for our clients are happily employed and haven't been impacted by layoffs. They're not available and we are enticing them for a new opportunity. So the impact is really that, these individuals we're trying to hire just saw a bunch of their peers get laid off and they're more risk averse, saying to themselves, "I know what I've got here and that opportunity over there seems a lot more uncertain. Do I really want to make a big change during a risky time? I think I'm good." So instead of there being an increase in talent, we saw a real tightening up of talent.

Additionally, with inflation we hit a very interesting time where candidates were saying, "Due to inflation, I'm going to need to see my salary somewhat match that inflation rate." As a result, startups are saying "My money just became less valuable. I need to hold onto my capital. So we started seeing more sticking around compensation. So we've seen a lot of tightening in the space industry and in talent recently. However, in Q1 we've actually seen things start to warm up a bit, especially in comparison to Q4 of 2022.

What is something that you think space startups frequently get wrong in the hiring process?

If I can just get up on my soapbox really quick, I would emphasize the value of employer branding. I believe that branding your organization through the hiring process is one of the most powerful marketing branding opportunities that a company has. You have people who are open, who are actively trying to absorb information about your organization, and who are interested in the conversation. Talk about an advertising opportunity. Usually, people are clicking away from ads, but you've got people who are in your industry, who are in the network of other people who are in your industry, who are going to go on to either work with you, work with one of your customers, work with one of your vendors, work with one of your competitors, etc. The opportunity to have a massive influential impact in how you are marketing your organization is just prime for the picking. I think that people miss that opportunity all the time.

Some practical ways that people can grab this opportunity are by being really intentional with the interview process. Have some documents that you put together, some handouts that explain who the organization is, and what candidates can expect from the interview process. That can be very useful for the interview process. It's also an opportunity for your organization to say who you are and share your story.

Another key way to improve the hiring process is to be very thoughtful about how these candidates are interacted with. I like to say that when a candidate enters your interview process, they should always exit with a positive impression. Either they're exiting your interview process into your company and you want them to be excited and motivated and starting off on the right foot, or they're exiting thinking, "It didn't work out but that was a really cool company." We hear all the time from candidates, "I applied and I just never heard back." Or even worse, "I applied and I interviewed, but then nobody ever followed up with me, my emails started going into a black hole." We hear it all the time.

Sometimes startups are like, "I have so many applicants that don't fit anything that I'm trying to hire for." We tell them to send a mass message that's letting those people know that this is not the right time for this position, but here's something about us and we're really appreciative that you applied. Even that is an opportunity to plant a seed and brand your organization. So that's a key one that I could talk about forever.

Another area where I see things go wrong is in interviewing. Somewhere around 10 years ago, Google was in the news for asking questions like, "If you were a tree, what tree would you be?" If it's an exploratory team bonding opportunity where people then get to explain why they'd be that type of tree and what that means to them, then sure. As an interview question where there's a right answer and a wrong answer, it is a terrible interview question that is not going to tell you what you need to know about this individual. There's been a lot of research on questions like this.

Every question really needs to be able to tie to an outcome or a behavior that you want to be able to see in the job. It's not about pressuring people, unless you are interviewing somebody who's going to have to endure that kind of pressure in their actual job. Then that would be relevant, but it's typically not. So it's important to ask yourself, "Am I testing for the skills I actually care about, or am I using this because I think it's like a crafty interview trick." You really want to stay away from the latter.

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What are some things you’ve seen done really well in the space startup hiring?

Intentionality and commitment to high-caliber talent, even when its painful. It can get painful to know that you really need to fill a role and nobody is meeting your technical bar. Sticking that out can be very challenging when you really want to just hire someone to get the role filled.

On the other hand, you can take that to an extreme where a company might find someone that's almost perfect, but it's going to take some time to mentor them to be truly perfect, so you pass on that individual because they're not perfect at this moment. But passing can often mean waiting three more months until you get the right person and in that time, the nearly perfect person could have become the perfect person. So there are two sides to that coin. Waiting for the right person in a role, but also being able to identify when someone is worth mentoring and bringing them on so that they can really level up to be perfect.

Another thing that's done really well in space startup hiring is having mission-driven organizations and teammates. So people that are very tied to the mission of the organization. There's no denying that money matters, but it's very rare that people are taking the job just for money. It's just not how these industries work. People are in it for the mission and the vision. They are very passionate and intrinsically motivated for the work that they're doing.

Its no secret that the aerospace industry doesn’t have the most diverse workforce. It seems to me that drawing from a more diverse talent pool would be a solution to some of the industries labor shortages. Are there any efforts that you’ve seen space companies take that have been particularly effective at attracting and maintaining a more diverse talent pool?

Shameless plug, we've got a podcast called AdAstra With, and we're releasing an episode with Janeya Griffin who runs an organization called Equity Space Alliance. One of the things that Janeya talks about is that diversity and inclusion isn't enough. There is an element of equity and ownership that's needed in the space arena, even in small scrappy startups.

So, what does that look like practically? Well, employee resource groups are something that a lot of organizations have, where people of this group can get together and discuss what would work best within our organization. What Janaya emphasizes is 1) if you don't know how to set one of those up, you can contact the Equity Space Alliance and they've got ideas and tools to help you set that up, and 2) once that is set up, it's not just a space for those people to gab or communicate. It's really a space to come up with ideas to improve the organization. Janaya emphasizes that its critical to give those employee resource groups the resources to actually make an impact and have ownership over the changes that they'd like to see. That means giving them a budget, giving them ownership, and giving them the ear of the stakeholders that need to be involved in making those changes. So really having equity be a piece of the conversation and not just inclusion.

Seyka interviewing founding SpaceX team member Hans Koenigsmann for the AdAstra With Podcast. Source:

In contrast, are there efforts to increase workforce diversity that you have seen companies take that aren’t really impactful or seem to be an ineffective use of resources?

Absolutely. Something common we hear from organizations coming to us is, "We really need to hire for these positions and we're getting a ton of applicants, but none are good." We call that the "post and pray" method. So they're posting roles online, maybe they're even paying to get job postings listed at universities that are historically diverse or historically of one community group or another. But there's got to be more active work to get to those candidates. Having a line on your job description that you care about diversity isn't enough to really get that moving in your organization.

Another place we see organizations fall short is in talking about wanting diversity, but not being willing to fill in gaps that may exist because of generations of societal norms and practices that have made it such that certain groups are not part of our industry. There are a lot of groups in our world where their parents were engineers or their parents were part of the space community and as a result, they see themselves as generationally belonging to this community. On the other hand, there are other groups where previous generations haven't had those opportunities. Being able to include diverse perspectives will sometimes mean taking somebody who is excellent and filling in some gaps that they don't have.

Flipping over to the perspective of the candidate, what questions would you recommend a candidate ask to better understand the value of the equity package they are being offered.

We find that even for people who have been at startups before and received equity packages, equity is a slippery topic to understand. That's especially true because sometimes a lot of the information that you would like to have isn't available to the public. So I recommend asking a lot of great questions and trying to really get insight into what the value and accessibility of the equity are going to be.

As a result, there are a few things you can ask. A key one is to figure out how much of the company you own, which involves asking 1) "What percentage of the company is being offered", or 2) "What is the number of shares" and "How many shares are there" or 3) "What's the value of the shares" and "What's the value of the company?" Sometimes one of those pieces of information isn't available, but if you can get a few of them, you can start to do some calculations and start to wrap your head around how valuable that equity package is going to be. Understanding the vesting schedule is also important. For example, is there a year cliff and then monthly vesting? Is it a four-year schedule? What's the strike price and is it lower than the current value of shares?

Dilution also becomes critical over time. It makes sense to ask how much dilution is expected to determine if your equity will be dramatically less valuable in five years or so. Of course, that's not something that the company can guarantee, but it's a way to give an idea of what is the projected value of the company, how much time until that value can be realized, and what is the probability of success.

There are other things to ask to help you decide if you think the company is going to be successful. For example, is the company solving a problem that's large enough to justify the projected valuation? Are they hiring and are they able to hire awesome people? Are the leaders able to execute the plan to build the company? Does the company have enough money to meet those goals or do you think they can attract the kinds of investors they'll need to get there? So not only having money, but also having access to more money.

There's another great resource by Holloway that describes some standard values around equity packages based on the stage of the company. For example, if it's a seed company, 0.5% to 2% is in a strong zone for an equity offering. For a Series A stage company, 0.1% to 0.5% is pretty strong. For Series B up to 0.1% is pretty strong. Those are kind of the zones that we often see for equity.

How would you recommend a potential hire conduct technical due diligence on a company they are considering joining?

With regards to that form of diligence, there are things you can try to determine around product-market fit and the size of the total addressable market. You would want to understand what this company is looking to solve and how big the market is that they're going after. Does their product solve a key problem in that market? There are a lot of really cool ideas that don't solve an existing problem, and that will even require a ton of market education before getting customers to make a purchase. I'm not saying those are bad ideas, but it's very painful to educate consumers and that's a good thing to be aware of.

There are great ideas that don't plug into the market easily. Or, in the clean tech space, you'll often see really great ideas that are very altruistic. Another shameless plug, we had Josh Geiger on AdAstra With, and that podcast will be released soon, but we talked about how you can't shame people into buying a product.

You also want to try to understand if the company has a solid technical roadmap ahead of them that you believe they can execute on. That is often informed by how they have executed their previous goals. Do they have strong evidence that they can continue to hit milestones? You can also ask the individuals who interview you about what common patterns they have seen in teammates who are successful at the organization. Another great thing to ask individual interviewers is "What are the biggest challenges that the company is facing?" Then, you can see if you're getting similar answers from interviewers or if they contradict each other. Use the interview process to understand the organization at a much deeper level by exploring how people see the organization from the inside.

That wraps up the interview! I hope you got as much out of it as I did. Make sure to subscribe to SpaceDotBiz for more great insights like these!

Historically, nuclear has only been leveraged in limited ways in space applications. However, that may change in the coming years. Both the U.S. civilian government and the Department of Defense have expressed renewed vigor in exploring applications of nuclear systems for space applications. In fact, there are now multiple projects that have received tens to hundreds of millions in funding to explore the use of nuclear systems for enabling power and propulsion in space.

This newsletter will discuss the existing applications in which nuclear has been used in space before covering future nuclear space technologies and ultimately addressing the government programs that are aiming to turn them into reality.

Here's a quick summary of what will be discussed:

• Types of Space-Based Nuclear applications

  • Radioisotope Thermoelectric Generators

  • Nuclear Reactors

• Current US Government Programs for Nuclear in Space

  • Civilian Government Programs (NASA)

  • Defense Department Programs (DARPA, DIU)

Together with...

Types of Space-Based Nuclear Systems

Radioisotope Thermoelectric Generators

The first nuclear mission in space involved the launch of a Radioisotope Thermoelectric Generator (RTG) named Snap-3 aboard the US Navy's Transit 4A navigation satellite in 1961. RTG's use thermocouples to convert the heat from a small sample of decaying radioactive material into an electric potential. That potential is then used to provide reliable electric power. RTG's are typically used in locations with remote access making them appealing for applications of satellite electrical power.

Transit 4A satellite. Source: Johns Hopkins University Applied Physics Laboratory

For satellites operating in proximity to Earth, solar panels have become the prevailing means of electric power generation. As a result, RTG's have in most recent decades been used almost exclusively for powering deep space probes and rovers, including Voyager, Galileo, and Curiosity. Despite their reliability, RTG's are only capable of generating a few hundred watts of power, making them insufficient for the electrical demands of more substantial space applications, such as for large spacecraft or eventually powering crewed habitats or spacecraft.

Nuclear Fission Reactors in Space

Historical Use

For more significant power or heat requirements than can be met by RTG's, nuclear reactors leveraging nuclear fission are necessary. The process of nuclear fission involves a neutron colliding with the nucleus of a heavy atom such as Uranium or Plutonium. The collision results in the emission of other high-energy neutrons, leading to a chain reaction and the release of significantly more energy which can be harnessed for power generation.

In 1965, the Air Force launched the nuclear-powered SNAP-10 satellite aboard an Atlas rocket from Vandenberg Air Force Base, marking the world's first operation of a nuclear reactor and ion thruster in space. After 43 days, the spacecraft failed for reasons unrelated to its reactor and it remains in a 1,300km polar orbit. While the US never launched any additional fission reactors after SNAP-10, the Soviet Union sent to orbit a total of 31 reactors to enable nuclear electric propulsion applications.

SNAP-10 satellite. Source: US Department of Energy

Why Nuclear Now?

As the US looks to return to the moon, this time with a permanent presence, nuclear power has emerged as a clear enabling technology. NASA recently released potential landing zones for the Artemis III mission, which will be the first Artemis mission to place a crew on the lunar surface. The landing zones are all near the Moon's poles because of interest in accessing potential ice sources in craters at the Moon's polar regions.

Colder temperatures, due to shadows and reduced sunlight, in the polar regions increase the likelihood of finding ice. However, reduced sunlight also means solar panels would be less reliable. Furthermore, for long-duration missions, it would be difficult for crews to carry from Earth enough oxygen and hydrogen to generate electrical energy using fuel cells, which were used during the Apollo missions. As a result, nuclear power becomes an attractive means of reliable and long-term power generation.

In addition, nuclear provides benefits as a reliable heat source for propulsion systems on missions to further planetary bodies like Mars or beyond. Two forms of nuclear propulsion, Nuclear Thermal Propulsion (NTP) and Nuclear Electric Propulsion (NEP) offer capabilities that enable high-energy missions requiring large delta-v maneuvers. NTP uses a fission reactor to heat a propellant, typically considered to be hydrogen, to high temperatures before discharging the propellant to generate thrust. NEP uses a nuclear reactor to first generate electricity which is then used to create an electric field that accelerates an ionized propellant particle. That particle is then emitted to create thrust.

NTP affords a theoretical specific impulse as high as 900s, approximately three times that of a chemical rocket engine, with thrust levels on the order of around 50,000N, much higher than for electric propulsion systems. For comparison, NEP is theoretically capable of Isp levels as high as 10,000s, but with thrust of less than 1N. This means NTP can accelerate spacecraft at a much higher rate, with long-distance NEP missions taking months or years longer.

The unique capabilities of nuclear fission reactors towards powering crewed habitats and novel propulsion systems have led the US government to recently place emphasis on maturing these technologies.

Current U.S. Government Programs for Maturing Nuclear in Space

U.S. Civilian Government Programs

Surface Power

One of the key programs that NASA has prioritized for enabling an extended crewed presence on the Moon or Mars is the Fission Surface Power project. The goal of the program is to develop a system that can generate 40kWe of electric capacity, can be delivered by a large lunar lander, and can be transported on a lunar rover.

In June 2022, a joint effort between NASA and the Department of Energy announced that it will award 12-month Phase 1 contracts to three companies to develop preliminary designs for these reactors.

• Lockheed Martin of Bethesda, Maryland – The company will partner with BWXT and Creare.

• Westinghouse of Cranberry Township, Pennsylvania – The company will partner with Aerojet Rocketdyne.

• IX of Houston, Texas, a joint venture of Intuitive Machines and X-Energy – The company will partner with Maxar and Boeing.

A conceptual illustration of a fission surface power system. Source: NASA

Propulsion

NASA and the Department of Energy's near-term focus on nuclear propulsion primarily concentrates on nuclear thermal propulsion. In July 2021, that partnership announced a 12-month contract, similar to that for the fission surface power program, that will be awarded to the following companies to produce a conceptual design reactor that could support future missions

• BWX Technologies, Inc. of Lynchburg, Virginia – The company will partner with Lockheed Martin.

• General Atomics Electromagnetic Systems of San Diego – The company will partner with X-energy LLC and Aerojet Rocketdyne.

• Ultra Safe Nuclear Technologies of Seattle – The company will partner with Ultra Safe Nuclear Corporation, Blue Origin, General Electric Hitachi Nuclear Energy, General Electric Research, Framatome, and Materion.

Rendering of a spacecraft using Nuclear Thermal Propulsion. Source: Ultra Safe Nuclear Technologies

Military Government Programs

In addition to NASA and the U.S. civilian government's expressed interest in nuclear application to space, the U.S. Department of Defense has its own focus in this arena as well.

Defense Innovation Unit Programs

Based in Mountain View, California the Defense Innovation Unit (DIU) is a US Department of Defense organization founded to help the U.S. military make faster use of emerging commercial technologies. In May of 2022, the DIU announced awards of two Prototype Other Transaction contracts for space nuclear projects, with the purpose of accelerating ground and flight testing for nuclear-powered prototypes.

One of these was awarded to Ultra Safe Nuclear, for a demonstration of a nuclear radioisotope batter called EmberCore, which Ultra Safe is developing for both propulsion and space power applications. The EmberCore radioisotope product aims to offer 10x higher power levels compared to previous plutonium radioisotopes systems. The stated ambition is to offer "more than 1 million kilowatt hours (kWh) of energy in just a few kilograms of fuel."

The second contract from DIU was awarded to Avalanche Energy to develop a small fusion reactor, approximately the size of a lunch pail. This device, which Avalanche calls Orbitron, uses electrostatic fields to contain high-temperature, high-energy ions in overlapping orbits, offering opportunities for collisions and fusion events within the small fusion reactor. Orbitron is intended for use either as a propulsion system, presumably as an electric propulsion system by emitting the high-energy ions, or as a power supply for spacecraft electrical systems.

DIU has stated that these two awards are specifically for supporting highly maneuverable, smaller spacecraft. This is in contrast to NASA systems which are intended for larger spacecraft or powering crewed habitats on the Moon or Mars. When the awards were made, DIU's Program Manager for the Nuclear Advanced Propulsion and Power (NAPP) program emphasized the bridge between the government and commercial capabilities when it comes to nuclear, stating "Nuclear tech has traditionally been government-developed and operated, but we have discovered a thriving ecosystem of commercial companies, including start-ups, innovating in space nuclear."

DARPA DRACO

The Defense Advanced Research Projects Agency (DARPA) is a research and development agency of the United States Department of Defense responsible for the development of emerging technologies for use by the military.

In April 2021, DARPA had announced three contracts awarded as part of its Demonstration Rocket for Agile Cislunar Operations (DRACO) program. The goal of the program is to ultimately demonstrate a nuclear thermal propulsion system on orbit.

There are two tracks to the DARPA DRACO program. Track A involves development of the nuclear fission reactor while Track B focuses more on the conceptual design of the spacecraft system and mission objectives. The 2021 contract awarded Phase 1 funding for both tracks.

For Phase 1 of Track A, General Atomics was awarded $22M to develop a study of the nuclear reactor design. For Phase 1 of Track B, Lockheed Martin and Blue Origin received $2.9M and $2.5M to each develop their own plan for a spacecraft design to leverage the nuclear reactor and implement an NTP system. DARPA plans to select only one spacecraft design to carry into later phases of the program.

Conclusion

After decades of limited interest and modest investment in applying nuclear reactor systems to space, there is a sudden growing momentum. While it is easy to maintain skepticism regarding near-term timelines for projects hoping to place nuclear material in space, the level of funding behind these civilian and military government programs provides reason to be optimistic. Given that existing propulsion and power systems offer little realistic path for a sustained economy beyond the moon, there seems to be an inevitability around the need for nuclear in space. We'll see how soon that future becomes reality.

At the time of writing, SpaceDotBiz has 1,164 subscribers. It's taken about 18 months to get to this point. I sent out my first newsletter in March of 2021 and it has been a gradual process of building this community ever since. In total I've sent out 31 newsletters, consisting of 10 interviews and 21 original "essays". Now let's get down to business...

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The Best-of-the-Best: Most Insightful Interview Responses from SpaceDotBiz's 18 Month History

I believe SpaceDotBiz is at its best when it's offering something you couldn't get from any other source. Some of you have been subscribing since I first started writing this newsletter in March 2021 and others have only signed up more recently. As a result, there's a lot of valuable wisdom about the space industry that may have never reached your inbox if it went out before you signed up. So I went back through all of my interviews and picked out the individual responses that I believe carry the most powerful and enduring insights to this day. If these passages inspire you to read the entire interview, just click the links I provide in each section. So here they are:

Interview: Phil Ingle, Managing Director in Morgan Stanley's Aerospace and Defense Investment Banking group. Phil's job is to assist the best space companies in financing their ambitious plans. He himself advised Rocket Lab through their very successful SPAC process in 2021.

Phil (second from left) speaking at the Satellite 2022 conference

Question: How would you counsel executives at post-SPAC companies that need to tap capital markets while their stock prices are depressed?

Answer: Markets are window-driven. Last year, 2021 was an absolute boom for equity markets in terms of issuance, IPO's, equities, etc. Then the first quarter of 2022 was a desert. I think there were two IPO's and two follow-on rounds. It doesn't matter how great you are right now, the capital markets are pretty closed for most high-growth companies.

So the advice is that you've got to execute on your business plan, but then you've got to be ready so that if the window does open, you can quickly tap it because these windows do open and close. The worst thing would be to do everything right operationally on the business front but not get yourself in a position where you're mentally prepared to tap markets. That preparation means having spent time talking about it with your board and saying "if the markets do open up, we're going to raise X amount of capital and we think the right strategy is equity because..." Being prepared is critical because if you're not prepared and the window opens and closes, that's not where you want to be.

Interview: Sunil Nagaraj, Founding Partner Ubiquity Ventures, formerly a Principal at Bessemer Venture Partners. At Ubiquity, Sunil invested in Loft Orbital and Muon Space and while he was at Bessemer, he led the fund's investments in Rocket Lab and Spire Global.

Ubiquity Ventures Founder Sunil Nagaraj. Source: TechCrunch

Question: What do you look for in potential early-stage space investments?

Answer: With early-stage investing, when I’m investing before there are many metrics, I usually ask myself three very specific questions. It might be natural simply to ask myself “Do I like this product?”, but I think that’s a terrible way to make investments. I’m not looking for companies that I would use as a customer, so it doesn’t make sense to ask, “would I ever use the product myself?”. I think it’s very tempting to do that, especially when you watch something like Shark Tank and they’ll say “oh I would never use that”.

The three questions I ask myself are “Does anybody want this product?”, “Are there a lot of those people?”, and “Can this entrepreneur find them?”. Those three questions keep things simple, but they correspond to the business concepts of product-market fit, market size, and unit economics. In my day-to-day, most of my time is spent on question number one, “Does anybody want it?”. That’s trickier than it seems to evaluate. When I hear a pitch it is pretty helpful if an entrepreneur includes some customer quotes, prospective customer quotes, or expert quotes. During my own post-meeting diligence, I’ll often call a potential customer and describe this new product, but they’ll say “oh I don’t want that”. If I ended the diligence call there, that could be a mistake, so I’ll usually have to explain more and navigate the nuance of a prospective customer’s mind in order to figure out if this would be a good fit. So that’s the trickiest thing I do. I try to figure out if customers might buy the product or service in the future if it existed. Steve Jobs has a famous quote “it’s not the customer’s job to know what they want”, so it’s this delicate process of figuring out what might work if it existed.

Interview: Laura Crabtree, Co-Founder and CEO of Epsilon3, a company building procedure and operations software for spacecraft and complex engineering. Epsilon3 has raised over $18M in funding from Lux Capital, Village Global, MaC Venture Capital, and others.

Laura from her time at SpaceX mission control

Question: What made you decide to participate in an accelerator and Y-Combinator in particular?

Answer: Early on at Epsilon3, we talked a lot about accelerators, mostly while saying to ourselves, "We understand the problem and the industry, but how do you build a business around this problem and how do you give the company the highest chance to succeed going forward?" With that in mind, I read a lot of startup books and newsletters. One of my advisors said to me, "These books are great, but have you ever thought about joining an accelerator?"

There were a couple of different accelerators we were looking at and Y-Combinator was kind of a no-brainer once we got in. When we interviewed and they accepted, I thought to myself, "If I'm going to build a business, I'm not going to have time to go to business school anymore, so this is the best possible way to learn how to build and scale." Y-Combinator really provided help in that path for myself and my two co-founders.

Interview: Dan Berkenstock, Founding CEO of Skybox Imaging. Skybox was acquired by Google for $500M in 2014 and was the first venture capital funded space startup to have a significant exit event, which was a critical inflection point for the space startup world.

Dan giving a Ted Talk in 2013. Source: youtube.com

Question: What were some of the things the company struggled with early on?

Answer: I think where we could have done a better job was communicating and getting buy-in from all of our investors on our strategic plan, what we were doing and why. That is one of the hardest things when you're a 28 or 29-year-old first-time founder and you're trying to take on a big, meaty, capital-intensive problem.

During the course of our Series A, we continued to dive deeper into understanding the nuts and bolts of what it would take to develop a spacecraft constellation and get them launched. During this process, it became clear it would be significantly more expensive and complicated than we had originally anticipated to bring the total capability to market. Part of the reason for that was naiveté on our part because we hadn't gone through and done the work yet to really understand the fine print.

Part of it though was also a difference in backgrounds from our investors. We should have added more buffer into our investor and board's expectations early on in the process. Our team primarily came from aerospace backgrounds, where we knew that there was a dramatic difference in any aerospace program between a back-of-the-envelope, conceptual design and a fully formulated program plan. I think we expected that our investors and board would see things the way we saw them. However, I think for them, it was a more jarring experience. They came primarily from the software industry and other areas that were not as capital intensive and not as subject to significant program ballooning, as you got into the meat of a project.

Interview: Caleb Henry, Senior Analyst at Quilty Analytics and formerly a journalist at Via Satellite and Space News

Caleb Henry. Source: APSAT

Question: There’s debate around the scale of the market demand for LEO constellation services. Do you have thoughts on the size of that demand and whether there’s room for all of these competitors to survive and even thrive?

Answer: We’re seeing a real shift towards a multi-orbit future, what is sometimes referred to as a hybrid architecture. It’s probably not going to be favorable to have service from just one orbit. Even if you have LEO operators like SpaceX and Amazon go forward, I think lots of customers are planning networks around using satellites in LEO, GEO, and even elsewhere like MEO or highly elliptical orbits. That looks like it’s very much going to be the future, people want to combine the advantages of each one. They want the low-latency from LEO, the density of capacity that you can put down from GEO, polar coverage that you can get from LEO or GEO, and the ability to dynamically steer capacity quickly across large geographies that you can get from GEO.

So that’s probably the future that we anticipate. It’s less about who wins and who loses and more about what the broader future of satellite communications looks like. That future is likely not principally defined by a single architecture.

Interview: Tess Hatch, Partner at Bessemer Venture Partners, focuses on frontier technology, specifically the commercialization of space, drones, autonomous vehicles, and agriculture and food technology. Tess is currently a board observer at Rocket Lab and was previously a board director at Spire Global.

Tess Hatch speaking at Tech Crunch Disrupt

Question: What is something that you wish more entrepreneurs knew when they start reaching out to early-stage investors about raising funding?

Answer: It’s a relationship/conversation! I encourage all entrepreneurs to do as much diligence on the investor as the investor does on the company. Call up every CEO/founder the investor has worked with and ask them about working with the investor. Emphasis needs to be on the person, and not just the firm. You are about to partner with this person for the foreseeable future so make sure you two are the right match.

Interview: Steve Isakowitz, CEO of the Aerospace Corporation, a nonprofit corporation established in 1960 that advises and conducts analysis for government, civil, and commercial aerospace customers. Aerospace Corp. has over 4,000 employees and earned over $1.1B in revenue in 2020.

Steve Isakowitz, CEO Aerospace Corporation

Question: What do you think isn’t receiving enough attention in the space world right now?

Answer: From the government side, I think there’s more work to be done on creating a market that’s better understood by the private sector, so the private sector knows where they can invest and can have the confidence that it won’t change for them. The government is trying to figure out how to be a good customer but at the same time knowing that they can depend on the private sector to step up. Something I think the government is always wary of is, will those companies that are hot today be there tomorrow? Can they depend on suppliers to avoid sourcing components from adversaries? Do those suppliers take matters like cybersecurity sufficiently seriously, will the information used within those services be protected? I think the government and industry are starting to work their way through it, but those issues certainly need to be tackled.

That's a wrap! Thanks for being part of the journey so far to 1,000 subscribers and I'm excited to keep offering you even higher quality insight and access into the world of space startups going forward!

And please forward this email to a friend you think would enjoy it!

That newsletter covered some incredible topics, including what they struggled with early on, how they validated Skybox's value proposition, his board deciding to hire a new CEO, and more.

Now let's dig into part two!

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Skybox ultimately was acquired by Google. How did that Google acquisition come to be? And what were some of the learnings from going through an acquisition like that?

Fairly early on in Skybox, I asked one of our investors how acquisitions happened, since I had no idea how it worked in the real world. They said, "Well, the acquirer is often a customer and not usually your biggest customer. You'll hit some major milestone and they will have a conversation with you that goes something like, 'We'd like to explore other ways we might be able to work together.'" At the time I thought it couldn’t be that simple, but I filed it away in my head.

A few years later, that's exactly what happened. Google was a customer, but they weren't our biggest customer. They were an important early customer and we started to have talks with them about ways that we might be able to work more closely. When SkySat-1 launched, I think we surprised ourselves, them, and all the other folks that were watching us with the quality of the imagery that was coming off of the satellite.

Some of the first video released from SkySat-1. Actual video is in HD 1080p. Source: youtube.com

Our acquisition, any acquisition really but ours in particular, was just this somewhat magical sequence of events that all came together. We were in the right place at the right time, with the right capabilities, and the right team to help with a need that they saw. As with every other acquisition that I have now witnessed any of my friends or colleagues go through, these are all bumpy rides with a lot of negotiating, a lot of uncertainty, and a lot of anxiety about whether you're going to actually get it across the finish line. Thanks to the efforts of many, many people on both the Google and the Skybox side, it did get over the finish line.

Second only to actually launching a satellite that works for the first time, there's probably no better feeling in your professional life than walking into Google and starting your first day with 150 of your closest friends and colleagues. Everyone was wearing the Google beanie caps and getting our Google badges and computers. That was just an extraordinary experience.

Also, it allowed us to hit the reset button back to our early days, which was a large motivating factor for us in being acquired. We were suddenly in an organization that prized information and data and applications of that data more than just building satellite hardware. We were part of a group of people that had vast experience working with imagery, knowing how to store it, make it look better, and get the most bang for your buck in terms of how the imagery is presented. The expertise went even beyond that though, like in being able to orthorectify imagery so that shots from multiple days line up with each other, which is very important if you're trying to look at change over a period of time. They were also experts at using machine learning models at scale to extract information from imagery, which happens billions of times a day in tools like Google Photos. There was an unimaginably vast set of infrastructure that we could lean on once we were part of the Google team. Overall it was just a fantastic experience and one that, if I had to make the choice again, I would do every day of the week and twice on Sunday.

In addition to just being a great deal for the investors and our employees, I really believe in thinking realistically about the future valuations of companies based on earnings and honest financial metrics, not just based on enthusiasm. I had run the numbers. I had looked at what types of future valuations we were likely to honestly support based on comps to public markets, based on discounted cash flows, and based on the revenue ramp that we credibly expected to achieve.

The risks that were inherent to our path and the amount of money that we would have to raise to be able to hit those milestones, they were pretty daunting. It was daunting for us then, and I think it remains daunting today for the industry as a whole, which I think is a big part of the reason why there haven't been a whole lot of other significant acquisitions in this industry.

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Well, it's funny you say that because I was going to ask why you think there haven't been any acquisitions like Skybox's since it took place back in 2014.

Well, I don't know how big the Swarm acquisition was [Swarm was acquired by SpaceX in 2021 for an undisclosed amount]. That is the one other acquisition that I would say seems to be a significant one. I think that a lot of it is because it has remained stubbornly difficult to assign a value to space businesses outside of limited government-dominated markets.

There's a lot of great technology that's been developed. I mean, a lot of just extraordinary technology that's been developed for launch and spacecraft, both for communications and for earth observation. It's mind-blowing to think about the degree of technology that's been developed in many cases by relatively junior folks in their career over the last 10 or 15 years. It parallels things that were developed by nation-states in the forties, fifties, and sixties. It is just extraordinary.

However, the growth in markets for the applications of the data that come off of these spacecraft have just been so much more stubborn to develop than any of us wanted to believe 15 years ago, and I think anybody still wants to believe today. The value chain for the data off of any type of observation or measurement spacecraft is just so complex. It requires so much more finagling and modification and tuning for each specific application than is ideal.

Often when you even do get to the end of that road, you finally have something that's useful for an end user that hasn't traditionally used satellite imagery and their response is "Let me use this for two years, and then I can tell you what the value is to me." It remains very difficult for them to be able to ascribe a specific value proposition for that data based on its quality, frequency, dependability, and its comparative value with other types of data that also drive daily business decisions.

I'm a big believer that in 50 years, this data will be ubiquitous. It will be used in all kinds of varied applications through all types of industries that we can scarcely imagine today. But the path for how we get from today to that endpoint is not a lot clearer to me now in 2022 than it was in 2012, even with all this time and money and investment. Most of these companies are still tracking towards deeper connections to government and larger proportions of their revenue stream coming from governments, versus a commercial user base that we would all like to exist.

What form does Skybox live on in today?

Today there are 21 spacecraft that we developed and are operated by Planet Labs [the SkySat satellites were later sold by Google to Planet Labs], which I believe makes it the largest high-resolution imaging constellation in existence. From what I see in the media, they're taking a lot of great pictures every day. There's been an incredible batch of pictures taken by SkySats in the last six months related to the Ukrainian conflict. It's wonderful to see the clarity and the quality of the data that's coming off of the SkySats and the impact that I believe they continue to make for the public.

SkySat-1 Image of the Port of Jeddah on February 23, 2014. Source: Inc.com

When you see pictures on the CNN wall from satellites that you helped develop and they're helping to describe to the country how a major global crisis is unfolding, I find that pretty extraordinary. I think that that's a wonderful legacy of all the time, effort, blood, sweat, and tears that the Skybox team put into developing, manufacturing, and launching those satellites.

How are you involved in the space industry today?

I'm a formal or informal advisor to a number of early-stage space ventures. I'm also on the board of Astranis as an independent director.

What are your thoughts on the relationship between venture financing and the space industry going forward?

I think that we in the space industry have a responsibility in the types of projects that we pursue. Especially when venture financing is involved, we need to really be honest with ourselves about the commercial viability of these programs and the likelihood that they will be able to move beyond technology projects to true businesses. I think that the last 15 years have proven that the venture industry has been willing to put a significant amount of financing to work in space projects. I think that there's a real risk that some of these projects that have had so much capital put into them, still have an uncertain path to real commercial success. As a result, we run the risk of souring future investment. Just because you can raise a lot of money doesn't always mean you should.

A project that ends up not being commercially viable can be an enormous loss on somebody's balance sheet. One or two high-profile instances of that, I think could really cool the investment market for the next generation of people that come along.

I think there have been some really smart business models, like Swarm Space's for example, where you've got a company that can build a true commercial capability, with a small team and a relatively small amount of money, which has the potential to scale. I also think that efforts in the communication industry, in general, are very interesting because the value chain is so much less complicated than it is for Earth Observation. The bits get moved around and the customers are happy.

I think that there are some great examples where it makes a lot of sense to go for venture investment, in situations where you can disrupt an industry that has existed, or try and take advantage of a new disruptive technology that has the potential to turn into a real growth business. Ultimately though I think there's a fair amount of responsibility that's incumbent on entrepreneurs in the space industry to be honest with themselves about pursuing projects based on an actual fit for the venture industry and an expected return profile. That's in contrast to instead falling in love with the technology and just seeing how far you can take it based on the money you can raise.

What are you most excited about for the future of the space industry going forward?

First, I'm excited about operating networks of commercial sensors that will help us really understand our planet. You can't manage what you can't measure. We have an existential crisis in front of us to try and leave a world for our kids and grandkids that is as good as, if not better than, the world that we were given. I think the path to that does lead through measuring so that we can manage. Constellations of lower-cost satellites enabled by cutting-edge technologies can offer their services much faster through startups than they can through traditional space programs. I think that is a noble, valuable, and critical effort toward the future of humanity.

 I also think that there are still so many places in the world where communications are difficult to come by or even nonexistent. There are so many people in the world whose lives could be lifted up by improved access to communications. I really hope that that's something that technology from space can help drive as well.

In addition, space for the last 50 or 60 years has inspired and catalyzed new generations of scientists and engineers that will help carry us all forward with their future discoveries. Being a part of a space startup that has a bold mission and great people is an exhilarating and extraordinarily fulfilling experience. I hope that's something that lots of people can have in their careers. I hope that these companies can help inspire the next generations of scientists and engineers. We're all gonna need them for all the things that are gonna come up in the future.

Looking back, is there anything you would've told your younger self in 2009, when you were founding Skybox?

I'd probably take more pictures and videos. People did actually tell me that. Folks who had been successful with their own startup companies came through and said, "Wow, this culture, this office, it feels awesome. Make sure you stop to enjoy it now. Record it, take pictures, take videos. It's not always gonna be like this. Things are going to change as you raise more money and the stakes get higher. You're at a unique moment in life, and there are gonna be a lot of other great moments in life, but this will be a unique one."

Dan alongside some of the Skybox team. Source: Inc.com

 I would probably tell my younger self to slow down, smell the roses, and take in what's around me. Of course in the midst of continuing to push hard toward the next step on the ladder of making the whole thing work.

I also would've told myself that I was one of the luckiest people in the world for having the co-founders that I had and the early team of people that we had. There were four formal co-founders, but then the next 10 or 12 of us were co-founders too in a certain sense. We were so lucky to have that group of people together as a core. It got us through so many hard times and really was what punched us through to being successful in all the ways that we were successful.

That wraps up the second part of SpaceDotBiz's two-part interview with Dan Berkenstock, founding CEO of Skybox Imaging. Make sure to subscribe to SpaceDotBiz to receive more interviews and insights like these on startups and investing in the space industry.

Skybox was founded in 2009 and became the first venture-backed startup in the space industry to have a major exit event when Google acquired Skybox in 2014 for $500M. The company was founded by four Stanford graduate students, three (including Dan) in the school's Aeronautics and Astronautics department and one in the Graduate School of Business.

Dan giving a Ted Talk in 2013. Source: youtube.com

I met Dan in 2019 when he was my professor. That year, he came back to Stanford to teach a course called How To Build An Aerospace Startup, alongside his Skybox co-founder John Fenwick, which I enrolled in when I was myself a grad student in the school's Aeronautics and Astronautics program.

This interview is so thorough and Dan was so generous with his time, that I've had to split it into two parts, the second of which I will send out as my next newsletter issue. In this first part, we talk about topics like what it was like raising venture capital for a space company in 2009, what they struggled with early on, how they validated Skybox's value proposition, his board deciding to hire a new CEO, and more.

Now let's jump into the interview...

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How did the Skybox team come together and what was the company's mission?

The Skybox team originally came together in response to the Google Lunar XPRIZE announcement back in 2007. At the time, there were a few Stanford folks thinking about going after this prize, including groups doing hybrid propulsion, working on CubeSats, and studying control theory. Overall, there were four or five sets of people who had all independently been talking about this prize. Over pizza and beers, we all coalesced into a big, integrated project team. Stanford had just won the DARPA Grand Challenge as well, which was related to autonomous driving, so we thought an exciting next step could be putting a rover on the Moon. Unfortunately, the economy collapsed soon after the prize announcement and it became clear that doing an expensive industrial-grade mission out of Stanford was not a likely scenario. As a result, most of us scattered and went our separate ways.

I kept wondering whether we could take the approach to low-cost systems engineering that had been developed involving CubeSats at Stanford and turn it into a viable commercial mission. After canvassing this nascent industry, I eventually bumped into a guy who said that he wanted to use frequent satellite imagery for monitoring carbon offsets, specifically, trees that had been wrapped into carbon offsets in Southeast Asia. But, satellite imagery was way too expensive, way too hard to get, way too hard to work with, and way too infrequent for that to be a useful application. That conversation sparked the goal of good enough quality imagery for viable commercial information applications on a consistent and affordable basis.

That was fundamentally the mission of Skybox, to open up the world as a data set to companies, nonprofits, and governments in a way that just hadn't been practical before. Both from the imagery side, as well as in plumbing the imagery. To be able to convey this information in graphs, charts, and numbers in an Excel file, instead of just providing large, difficult to work with, proprietarily formatted satellite images.

The Skybox co-founders, (left to right) Dan Berkenstock, Ching-Yu Hu, Julian Mann, and John Fenwick. Source: Inc.com

What was it like raising venture funding for a space startup back in 2009?

It was rough. We talked to 60 firms before we got our first term sheet. There was real interest in what we were doing, but there were no existence proofs yet. It took finding a senior partner at a firm that was early in its fund cycle, had a lot of capital, had a big vision, and had a lot of appetite for technical risk. We didn't know in the beginning that that's what we needed to look for. Fortunately, we had some very good advisors who eventually introduced us to the tiny subset of people that are at the center of that overlapping Venn diagram. That's who ultimately ended up investing in us.

What were some of the things the company did well early on and some of the things you struggled with?

I think that far and away, the best thing that we did early on was in hiring. We had an extraordinary team of people at Skybox. That's largely because the first 10 to 15 hires were some of our best friends from Stanford and we were blessed to have come into Stanford with a brilliant, exceptional, very well-rounded group of people that were not just technically very sharp, but were also great people. They were people that had the ability to grow into the types of leadership positions that a startup needs along the way.

I think that we also did a really good job of canvassing the market and talking to many potential users who hadn’t considered satellite imagery an option in the past. Satellite imagery is a technology that has perennially been stuck within the confines of a small group of expert users with very deep pockets, primarily on the government side.

We were motivated to break through that log jam. We believed then, and I continue to believe now, that the best way to do that is to understand what types of problems these people were solving in their daily lives. For example, what were the applications they were using when they sat down and logged onto their computer at work? What were their decision-making processes about how to buy things, how to sell things, and where to move things? How to monitor things? When to fix things? Doing that allowed us to get to a point where we wanted to optimize our system to be able to see vehicles moving around the planet on a daily basis. We learned a lot from that process. For example, for us it really didn't make sense to have high-frequency imagery that was at too low of a resolution to see the things that change on a high-frequency basis. I think that in the last 10 or 15 years, all the applications and developments and challenges in the commercial space industry have validated the approach that we took and the decisions we made on the resolution, quality, and timeliness trade-offs while designing the system.

I think where we could have done a better job was communicating and getting buy-in from all of our investors on our strategic plan, what we were doing and why. That is one of the hardest things when you're a 28 or 29-year-old first-time founder and you're trying to take on a big, meaty, capital-intensive problem.

During the course of our Series A, we continued to dive deeper into understanding the nuts and bolts of what it would take to develop a spacecraft constellation and get them launched. During this process, it became clear it would be significantly more expensive and complicated than we had originally anticipated to bring the total capability to market. Part of the reason for that was naiveté on our part because we hadn't gone through and done the work yet to really understand the fine print.

Part of it though was also a difference in backgrounds from our investors. We should have added more buffer into our investor and board's expectations early on in the process. Our team primarily came from aerospace backgrounds, where we knew that there was a dramatic difference in any aerospace program between a back-of-the-envelope, conceptual design and a fully formulated program plan. I think we expected that our investors and board would see things the way we saw them. However, I think for them, it was a more jarring experience. They came primarily from the software industry and other areas that were not as capital intensive and not as subject to significant program ballooning, as you got into the meat of a project.

Photo from the early Skybox offices. Source: Inc.com

Do you think the awareness of what it takes to build a space company exists now in the venture community more so than it did in 2009?

 Absolutely. I think that there's a bit of a quandary in the venture community in that you want to be willing to be first into a new market from a financial return point of view, however, it can be intimidating to be first into a market from an execution and risk point of view. That's especially true when it's a new type of technology and development process. It's tempting to pattern match from what you've seen in the past in other industries, but it can turn out to be very different.

I think today, 15 years later, there are a lot of existence proofs that just weren’t part of the equation when we started out. That development is based on the efforts of a number of different companies and on the financial success of a limited number of companies. For example, there is no question today that a young group of founders with moderate industry experience in the aerospace industry can, with the right amount of capital, attract a team, come up with a qualified technical plan, and drive the execution through to putting satellites in orbit or launching rockets from the ground.

At this point, that's in the rear-view mirror. I think that the concerns that existed more in 2009 or 2010 around the question of, "Would a group of folks with this level of experience be able to successfully execute a program? Would a group of folks with this level of experience and age be able to raise money for this type of program?" I think those questions have been answered. And I think that the financial industry, the venture community in particular, has a very different perspective on that today than they did back then.

I still see a great number of open questions surrounding the business viability, the potential market size, and trying to understand how consolidated versus how fragmented the user bases are for these products. However, I think the fundamental question of, "Can it be built on a venture scale investment with a dedicated, but relatively inexperienced team?" I think that's been put to pasture at this point.

It's interesting and encouraging to hear you say that a space startup can be built in a compatible way with the venture model because I think a perspective still exists about that being an open question.

I would say that ten billion, or so, dollars in investment, at least bought an answer to that question. However, I would say that it has not bought an answer to the question of whether or not these are scalable, reliable, and enduring business models.

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In the early stages of Skybox, how did you go about validating the company's value proposition?

We talked to everyone we could conceive of using satellite imagery. We really searched far and wide. We talked to every reseller that we could find that sold satellite imagery in the current market. We talked to every government agency and government agency representative, both from the United States and around the world, that would talk to us. We sat in the offices of hedge fund managers in New York, oil traders in Texas, and people who sold imagery to farmers across the country. We set out to talk to a very large swath of people and tried our hardest to distill that down into a set of technical feedback that we could use to make informed decisions. We digested all of that information to design the spacecraft and the tools that went downstream of the images that we captured.

SkBox's first satellites SkySat-1 and SkySat-2 satellites. Source: SpaceNews.com

That's pretty thorough. Not easy for a bunch of grad students

No, it wasn't. It was a lot of fun though. We were busy. We racked up tons of frequent flyer miles and so many nights on friends' couches around the country.

What were some of the growing pains of being a first-time founder in the space industry?

Culturally, there's a lot that's very different in the aerospace industry than in the startup world. The aerospace industry is a place that's slow to change and where someone's value is often correlated to their time in the seat or how many years they've put in. It's an industry that tends to be hierarchical. It's an industry where you don't project certainty about your plans or your decisions because there is always uncertainty.

It can be a tough job to balance that with some of the things that can make you successful in the startup world, such as projecting significant confidence and selling a story that actually goes beyond the exact horizon of what you know today and putting your confidence in people based on perceived and demonstrated ability versus the length of their career. It's challenging to balance those two worlds.

About three years into founding Skybox, the company's board chose to bring in an outside executive to take over the CEO role and you stepped into the Chief Product Officer role. How do you now look back on that experience and are there any key learnings that stay with you?

Looking back based on the context as well as the state of understanding within both the venture community and the startup aerospace community at the time, I understand the board's reasons for wanting what they perceived as a professional CEO who could help catalyze the investment that would be required to continue the capital intensive business plan that we were on. I think that now with the benefit of hindsight and what we've seen across the industry, the concerns they had at the time were largely unfounded. That's a hindsight being 20/20 observation, not one that was clear at the time. There have been quite a lot of existence proofs at this point of people with the same age, experience, and ability that I had, who were able to carry these businesses much further.

At the time it was not a decision that I supported quite frankly. I wanted to carry the company through launch and early revenue. At some point, I expected to turn it over to someone else to lead, but I felt that I had, along with the other three co-founders, set the company on a good trajectory and that the business was coming together. The technology was coming together. The team was certainly coming together. I felt that there was a lot more that I had to offer.

At the time I also feared that making this step would limit our potential because, although there were more experienced people than me in both the satellite world and in the world of building new markets based on information applications, I did not at the time nor do I believe today, that there was anybody out there that was more experienced than me at merging the two of those together in a startup.

I believed that, by hiring a professional CEO, we would inevitably have to prioritize one of those things over the other. In addition, I also worried that, because of the capital-intensive nature and risk of the satellite side, we would probably end up prioritizing someone who knew and understood satellites, but who did not know and understand Silicon Valley growth information markets, or at least not specifically the applications of satellite imagery. I was concerned that in doing so, we would be more likely to over-invest in technical risk reduction in manual systems to support the satellites. Therefore, our overall risk posture would be too conservative and more geared towards satellites versus balancing that risk reduction with making the investments that we would need beyond the launch of the first satellites, and providing of initial imagery.

Ultimately, that's essentially what happened. On balance, the things that I was concerned about did come to pass. It's a counterfactual today, but I think the things that the board was more concerned about were less likely to materialize, based on events as they have occurred throughout the rest of the industry.

At the time, I didn't have any money in the bank to fall back on. I had invested everything I had in Skybox. I had invested my time, my career, my friendships, and my reputation. I felt a strong responsibility to that group of friends that had been willing to leave jobs at Lockheed Martin or at NASA centers. They left places where they had a 401(k), the opportunity to work on incredible projects, and a very clear arc for their own careers laid out in front of them.

These folks had taken a big risk, left those places, came to work with us, and bet on the Skybox vision. Based on all those things, I didn't really feel like I could just say, "No, if you hire a CEO, good luck but I'm leaving." I didn't feel like I was in a position to be able to say that, based on my own personal apprehensions, my own lack of resources to fall back on, and the responsibility I felt to the team.

I think that now I would handle that very differently, having gone through the whole iteration and being in a different place in life. I think I would be much more comfortable saying, "No, I'm sorry, that's not something we're gonna do." Or, "That's not something I'm going to entertain."

While I think that situation is less common today in the space industry, it is still a very real concern for any CEO or for any first-time founder. I think it's important to have a conversation with yourself early in the process and have a plan for what you're going to say, if and when that comes up. I also think that changing CEOs is a very messy process that should generally be avoided, especially in a company that's going at 110 miles an hour in a very complex development project.

In retrospect, there were certainly ways that I could've helped myself and there are ways that the people around me could've helped me better to navigate the interpersonal and team dynamics and issues that came after that transition.

I think it's also a good lesson for folks that might go through it themselves. If you're going to choose to stay, you have to look at part of your job as figuring out the way to make it work best. You have to work through it. Not just around it. I don't think that the working “through it” is something that I did as well as I could have, or that we as an organization, did as well as we could have in hindsight.

That wraps up part one of this two-part interview, part two is coming out as my next newsletter issue! In part two we talk about Skybox getting acquired by Google, what Dan thinks about the relationship between venture capital and space going forward, and so much more. If you aren't yet subscribed to SpaceDotBiz, make sure you do so below so that you can get part two directly to your inbox!

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Titled the Launch Landscape, the series touched on everything from Astra's Rocket 3 on the smallest end, all the way up to SpaceX's Starship at the largest. There were 23 rockets discussed over 5 publications.

Having now hit upon so many vehicles over an extended period, I think it's helpful to provide a single, comprehensive writeup of the whole set of rockets and reflect on the Launch Landscape holistically, as well as take a look back on what has and hasn't changed since the newsletters were published. Lets dig in!

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Small-Lift Class Vehicles, originally published June 16th, 2021

I wrote about small rockets in the summer of 2021. It was an exciting time in the small launch industry with some companies hoping to scale up their operations and others attempting their first orbital launches in the months to follow.

While Astra and Vega-C have now successfully reached orbit for the first time, other small launchers like Firefly's Alpha rocket, Relativity's Terran 1, and ABL's RS1 are still hoping to make their first successful orbital launches. Furthermore, Astra has decided to step away from their Rocket 3 and move to a newer, larger Rocket 4. On the other hand, Virgin Orbit's LauncherOne and Rocket Lab's Electron vehicles are scaling operations as their vehicles demonstrate higher rates of reliability, with Electron hitting its stride and surpassing a monthly launch cadence. 

In my newsletter 12 months ago, I focused largely on questions regarding the size of the market demand for dedicated small launch vehicles carrying payloads less than 1,500kg. In retrospect, it's hard to determine how warranted those concerns were around market size. There hasn't been enough scale on the supply of these launch vehicles to determine what launch rate would seem to meet the demand from satellites and spacecraft. For the moment, it's clear that the demand still outpaces supply.

In some ways, the slower ramping up of these launch vehicles is further reducing concerns around demand, as new satellite constellations are being announced on a seemingly monthly basis. Some constellations have started to partner up with these launch companies, however, it's notable that most constellation deployments have been planned with vehicles in larger payload classes. For example, Relativity's significant partnership to deploy OneWeb satellites was announced using their next-generation Terran R vehicle rather than the smaller Terran 1.

In addition, attention has shifted from questions around demand to instead focus on risks around execution. This is particularly true as launch companies begin to announce next-generation ambitious projects like lunar landers, satellite buses, and communications constellations, making it all the more important that these organizations execute on near-term milestones before moving towards future projects. For more information on those projects, check out a previous newsletter of mine titled When Rocket Companies Become More Tan Rocket Companies.

Medium-Lift Class Vehicles, originally published July 29th, 2021

When I wrote about the rockets in the medium launch vehicle category, I emphasized the international nature of this payload class of rocket. Representing the US, China, India, Russia, and Japan, there was something particularly global about the vehicles capable of lifting 2,000kg to 20,000kg of payload to low Earth orbit.

The geographic diversity of these vehicles has become even more relevant due to the events that have transpired since the article was written. When Russia invaded Ukraine in February 2022, western nations responded by sanctioning a number of Russian exports. Roscosmos, Russia's state-sponsored space agency, themselves responded by suspending flights of western satellites and cooperation with European partners. The first to be impacted was satellite broadband provider OneWeb who had been using Russia's Soyuz rocket for deploying its constellation and had a number of satellites integrated aboard a Soyuz vehicle at the time cooperation halted. OneWeb ultimately never recovered those satellites and wrote them off as a $229 million loss. OneWeb has since announced partnerships with U.S. launch companies SpaceX and Relativity.

In addition, the Northrop Grumman Antares rocket used Russian-bought RD-181 engines to power its first stage. Supply of those engines has similarly halted and Northrop has recently announced a partnership to develop a new first stage alongside Firefly Space, which will power the Antares rocket.

Given the supply chain challenges, it's no wonder so many spacefaring nations have elected to maintain a domestic launch capability in this lift class, despite the costs in doing so. 

Medium/Heavy-Lift Class Vehicles, originally published March 2nd, 2021

When I began writing the Launch Landscape series, I chose to start with the busiest rockets on the market. It turned out that many of those rockets all had similar payload capabilities right around 20,000kg to LEO, the border between the medium and heavy lift classes. Rather than shoehorn them in with the medium rockets (2,000kg to 20,000kg) or the heavy rockets (20,000kg to 50,000kg), I gave them their own category.

In retrospect, these three vehicles tell an interesting story of the impact that innovation has had on the launch industry. One of these rockets, the Falcon 9, has in only the last decade completely redefined not only launch, but the space industry entirely. The consequence is that the other two vehicles, the Atlas V and the Proton, are being displaced and phased out due to their lack of competitiveness in this shifting launch market.

It's hard to overstate the impact the Falcon 9 has had on both rocketry and the economics of launch. It most obviously has reduced the costs of accessing space. More than that I'd argue though that it has greatly shifted how we even think about space as a commercial industry. The Falcon 9 challenged us to focus less on the technology of rocketry and more on the economics.

Given the significant demand for vehicles in this category, as exemplified by their rate of flight, we can better understand why some companies building small launch vehicles, specifically Rocket Lab and Relativity, have announced next-generation rockets around this 20,000kg to LEO lift-capacity.

Heavy-Lift Class Vehicles, originally published November 23rd, 2021

When I wrote about vehicles in the heavy-lift class category, I discussed how those rockets had been optimized not for price, but for performance. They were intended to enable one-off missions with highly precise orbits, often at higher energy GTO or direct insertion into GEO. For that reason, they were all incorporating engines using high-performing hydrogen rocket engines that are more challenging due to the need to work with cryogenic hydrogen in liquid form. For these reasons, the heavy launch rockets tend to be expensive and serve less price-sensitive customers, such as civilian space government agencies or defense-related national security agencies.

This was recently exemplified by the launch of the James Webb Space Telescope in December 2021 aboard an Ariane 5 rocket. Due to the high-precision, high-energy nature of the Ariane 5, Webb was placed into such a perfect trajectory that the telescope needed very little of its own propellant to make additional orbital corrections. Consequently, the James Webb Space Telescope ended up with significant "extra" fuel onboard, effectively doubling the fuel-limiting lifetime of the telescope. Given that there are fewer such applications that require this type of high-energy launch, we can see why the heavy launch vehicles tend to be in a price category that often makes them uncompetitive for commercial satellite customers.

In contrast to my categorizing these vehicles specifically towards high-energy orbits, one recent launch deal showed that these rockets might be used toward price-sensitive launches to low Earth orbit as well. This was Amazon's bulk purchase of 38 Vulcan launches to carry Project Kuiper satellites to LEO. The deal will tie up a considerable chunk of launch supply over the coming years and shows that these heavy lift vehicles may be more versatile than we've previously seen.

Super Heavy-Lift Class Vehicles, originally published March 10, 2022

The Super Heavy-lift launch class was the rocket category that I covered most recently and for that reason, it is the category that has changed the least.

Perhaps the most exciting part of this lift class is that we may soon be seeing the first orbital flights of both NASA's Space Launch System and SpaceX's Starship. In fact, SLS scrubbed the first launch attempt in recent weeks and currently has another launch window scheduled for September 23rd. That first flight has been over a decade in the making and It will also likely mark the end of NASA's legacy of developing rockets themselves, as the agency has chosen going forward to primarily purchase launch services from commercial industry.

While the first launch of SLS will be a triumphant feat for NASA, Starship is expected to have a far more profound impact over time. While SLS is aiming to scale towards a launch rate of every year or so, Starship has ambitions to eventually fly multiple times per day. Before even its first orbital attempt, Starship has inspired numerous articles about the pending transformational change it will have on the launch industry. There are youtube channels with tens of thousands of viewers that show 24-hour coverage of vehicle development at Boca Chica. Perhaps most importantly though, it has attracted to this industry a generation of enthusiasts who might otherwise have never been exposed to space.

Wrapping It Up

The diversity of vehicles in this post is a testament to the growing robustness of the launch sector, led by venture-funded companies proving to be critical enablers of space access. This was recently emphasized in the U.S. Department of Defense's State of the Space Industrial Base released in August 2022, which stated, "After a decade of innovation and significant private investment, the U.S. has begun to recover and is once again resurgent as a leader in space launch services."

Furthermore, while an impressive set of commercially developed vehicles is already servicing customers or seeking to imminently do so, there are a handful of rockets that I did not include because they will likely not launch for another two to three years at least. Those rockets may themselves reshape the market in the not-too-distant future. They include Rocket Lab's Neutron, Relativity's Terran R, Phantom's Daytona, Astra's Rocket 4, and Stoke Space's yet-to-be-named vehicle.

All this leads to an optimistic future for satellite and spacecraft operators, who will be looking forward to increasing launch rates and decreasing launch prices over the horizon.

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Xona also announced just last week that it has raised more than $25M so far toward developing this service. That funding includes a significant investment from Lockheed Martin Ventures, the venture capital arm of defense contractor Lockheed Martin.

Brian Manning, CEO and Co-Founder of Xona Space

I'm particularly excited to share this interview because I've been fortunate to know some of the Xona founding team from when we overlapped in our graduate programs in the Stanford Aeronautics and Astronautics department a number of years ago.

Before we start, it might be helpful to provide definitions for some terms that will be used throughout the interview

GNSS, or Global Navigation Satellite System. This is a type of system that uses satellites to provide location information on the Earth's surface. The most well-known and broadly used GNSS system is the U.S. government's Global Positioning System, or GPS. There are four current GNSS systems, all of which have been developed through national government efforts. These include the U.S.'s GPS, the European Union's Galileo, Russia's GLONASS, and China's BeiDou.

PNT, or Position, Navigation, and Timing is a combination of three distinct capabilities

• Positioning, the ability to accurately and precisely determine one's location and orientation

• Navigation, the ability to determine current and desired position (relative or absolute)

• Timing, the ability to acquire and maintain accurate and precise time from a standard (Coordinated Universal Time, or UTC)

Now lets dive into the interview.

What is the value that Xona's Pulsar system provides and how does it compare to traditional GNSS services like the US's Global Positioning System?

GPS is just a phenomenal system. Not many people realize just much value and how many industries GPS actually supports. Everyone knows it's in your phone, but not many people realize that it's part of every form of modern transportation, most infrastructure, banks, power grids, cell towers, and financial markets. They all rely on GPS.

GPS was never designed to be the only source of navigation and timing throughout the entire world but it's so valuable, available, global, and useful that for many applications it is the only thing that can meet everyone's needs. As a result, many different industries have adopted it. Looking toward the future, there are a number of new technologies that are leveraging precision navigation, like autonomous vehicles, robotics, drones, augmented reality, and many others. When GPS was conceived, these topics were largely still science fiction and the needs of these applications are very different from prior applications. GPS is certainly modernizing but the needs of the commercial market are evolving incredibly rapidly. There has never been a system designed from the ground up to support the accuracy levels, security levels, and integrity levels that those industries need.

So that's really where our system comes in, adding a second differentiated navigation system that is really specific and targeted at providing very high-performance services to newly demanding applications. Things like the automotive world, the drone world, and even into mass mobile.

An illustration of Xona's Pulsar system compared to traditional GNSS. Source: www.xonaspace.com

How did the Xona team come together and what drew you to this problem in particular?

A lot of this technology comes from the prior work of our CTO Dr. Tyler Reid and the rest of our founding team. Our team is actually eight founders, so it's a pretty big founding team. It's all a bunch of Stanford aerospace graduate program folks that met around 10 years ago. After that, some of us split up into industry and others stayed in academia. I for example went into the automotive world for a while and then back to SpaceX. Some of the other folks stuck around after the Masters's program and continued into the PhD program. Tyler did his PhD on how to build a new generation of GPS using New Space systems of large constellations and small satellites.

After that, he went to work at Ford as a research engineer in their autonomous division out here in California. While at Ford, part of his job involved navigation technology scouting. That meant looking out into industry and trying to figure out what solutions and what technologies were available that could support this coming world of modern technology. That's where he started to realize the big gap between where the navigation tech sits today and where it needs to be to support the integrity, safety, and accuracy levels of upcoming modern technologies. So he was the one that started getting these conversations going.

It began with dominos pizza and beer chats and once there were eight of us in the room together, we started asking ourselves "Why has nobody done this before? Well, maybe it's because this team hasn't been together to do it." That was about three years ago and we've been off and running since.

Can you describe some of the constellation design choices for Xona's satellite systems and why they were made?

Well our constellation is a couple of hundred satellites, which looks fairly different than a lot of the multi-thousand communication satellite constellations. Part of the reason for that is that we are a navigation and timing system which is inherently very different than a communication system in many ways. When you are optimizing for the best navigation performance you have different trade-offs. For example, you want multiple satellites in view of your receiver, with signals coming in from different angles to better calculate location performance. However, for a communication system, you really care about maximizing bandwidth for the user, so you typically want only one satellite covering an area or as few as necessary, and to have them all as close together as possible and directly above the receiver’s location on Earth as opposed to spread out with higher geometric diversity.

The superpower of GPS and the reason we have something like six or seven billion GPS devices on the planet is that it's a one-directional broadcast. That really allows you nearly infinite scalability, as opposed to having a limited number of users that each satellite can service, which is the case with bi-directional communications satellites. Having a broadcast-type service drives the system choices around altitude and number of satellites you need to support all of the potential users around the globe.

I'm not familiar with any other LEO-based one-directional broadcast services, a lot of those end up being GEO based, like satellite radio or DISH television for example. Your team seems to really be able to explore this from a fresh perspective because it hasn't been done before.

Yeah, it turns out to be a unique and different use case. Even though the predecessor to GPS (TRANSIT) was in LEO, high-precision LEO navigation has really not been explored in too much detail so we have had a lot of pioneering to do on how we approached this problem.

How do you plan on distributing ground receivers to customers? Will you manufacture and sell the receivers yourselves or do you plan to work with licensed partners who will build and sell receivers, similar to Iridium's approach.

We're still a small team and our core competency is really in how to create and distribute high-performing navigation information. It's not necessarily in how to apply that on the user end case. Part of the reason is if you just look at the breadth of customers for GNSS, it's an incredibly diverse set of applications. Everything from dog collars and key chains, all the way up to a B-2 bomber aircraft. The use cases, threat vectors, and capabilities that are needed across all the different devices between those applications are massively varied. So there's no one size fits all or even ten sizes fit all. There are a lot of sizes with different levels of capability.

Likewise, there are many companies that have created a ton of IP and have a lot of experience in how to make the most out of GNSS signals coming from space and utilizing that information to extract as much performance as you can. For us, everything comes back to our company mission, which is to enable modern technology to operate safely in any environment, anywhere on Earth. If you're building an autonomous car and you want the highest level of safety possible, from a GNSS perspective that means you want the most advanced receiver as well as the most advanced transmitter. So, we are really focusing on the transmitter end and partnering with companies on the receiving end to get the best of both worlds.

There's been a lot of discussion regarding how the Russian invasion of Ukraine has highlighted the value for key satellite-enabled services such as Earth Observation imagery or Starlink's internet service. Are you finding a similar focus around secure and highly precise GNSS services?

The situation in Ukraine has really shown how commercial companies can support national security efforts. One of the satellite services that has been most challenged in the defense and national security world for a long time is GPS. It's something that adversaries have historically known how to jam and disrupt.

We're building around the requirements and the needs of applications like autonomous cars. The needs of those applications are so rigorous in terms of resilience and resistance to interference that as a result, we can meet the needs of a lot of other industries including government and national security applications. In many of these cases, it is expected that GNSS is unavailable; and a global, resilient, and alternative PNT system is needed which simply does not exist today. So ultimately operating in space has a lot of applications that can certainly help towards national security and we believe that alternatives and complements to GPS like we are developing is one of those.

Can you share what you learned from your most recent demo deployment of your first satellite on the SpaceX Transport-5 mission? What milestones do you have planned ahead of you?

We have learned a lot on that mission. Unfortunately we can't share too much just yet, other than that you're definitely going to want to stay tuned to see what we have coming up. 

What are you most excited about the future of the space industry?

In general, space is as useful as the services it can provide back on the earth. There's certainly space exploration and other space-for-space applications that are somewhat of a different category. However, most of what people are using space for is enhancing the human experience back here on earth.

I think there are a lot of analogies between what space is like today and what the oceans were like hundreds of years ago. If you asked somebody back then, "What are you excited about the oceans?" I think they might have said, "The ability to connect people."

Today the same is valid for space. The superpower of space is scalability and that you can cover the entire globe. You can build something that can provide value and enhancements to literally every person on the planet with only a few hundred pieces of satellite infrastructure. I think we are still seeing more and more new applications emerge. The obvious ones are Earth Observations and LEO broadband internet, but PNT is a huge one also. As these new technologies develop, I think space is a natural place to look to put infrastructure to support future technology, whether that's autonomy, augmented reality, or whatever else is going to come down the line. Because you can utilize that superpower of scalability to reach so many people with a generally limited set of infrastructure, it becomes a very efficient way to build something global.

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What are the biggest challenges you see in building a space startup now?

A lot of challenges that we face are due to the uniqueness of what we're building. So much of it is very novel. Part of why I'm so excited to be working on this is that no one has really done what we are doing. If you look at who in the world has built navigation constellations, it's the U.S Government, the Chinese government, the Russian Government, the European Union, and now us. So there are a lot of new and different exciting challenges. It's inspiring to see how adaptable and quick this team can be in coming up with creative ways to overcome new challenges.

At the start, there were a lot of things we hadn't considered that were really challenging about building a navigation constellation. We're taking it in stride and it's why, when we launched on the Transporter-5 mission in May, it established us, as far as we know, as the first ever privately funded company to get a navigation mission into space. That was a huge milestone for us,  and the team here continues to get better every day. We expect to have a lot more exciting milestones to come behind it.

Anything else you'd like to touch upon that I haven't asked?

Well, we're hiring!

The driving mechanism for this change is said to be SpaceX’s new Starship rocket, a super-heavy lift class vehicle that is intended to be fully reusable.

Starship on the launch pad near Boca Chica. Source: SpaceX

It’s an extremely alluring proposition. Slashing launch costs would theoretically increase innovation in the space industry by allowing commercial entities and research institutions to rapidly deploy space technology in a much more affordable way.

However, I find myself skeptical of this silver bullet solution to the expensive cost of getting to space. In fact, SpaceX has previously speculated on reducing prices as a result of cost savings from reusability, and those price reductions did not materialize. In this week’s newsletter, I’ll discuss the source of my skepticism and how history may repeat itself.

What is Starship?

If you’re already familiar with SpaceX’s Starship vehicle, feel free to skip this section. For those that are new to the rocket or just want a refresher, Starship is SpaceX’s next-generation launch vehicle that, when it launches, will be the most powerful rocket ever flown. Starship intends to lift 100 tons of payload into orbit with every launch, an incredibly impressive feat. Even more extraordinary though is the fact that Starship aims to be the first-ever fully reusable launch vehicle.

Below is an animation created by SpaceX to demonstrate how this might look in the case of the rocket’s first stage landing back on Earth and the second stage traveling to, and landing on, Mars.

Theoretically, What Could This Cost?

Speculation abounds as to what the cost of a Starship launch might be when it is launching regularly. By fully reusing the vehicle and eliminating any need to discard expensive flight hardware, the cost reductions to SpaceX would likely be great. Musk himself has stated that SpaceX’s costs could be as low as $2M per launch, while analysts have suggested that something around $10 million might be more reasonable.

At a $10 million cost per launch, putting 100 tons of payload into orbit would come to about $100/kg. The current cost to SpaceX for a Falcon 9 launch is likely somewhere around $3,400/kg and so Starship’s cost per kg is potentially a full order of magnitude or more improvement.

As a result, it seems understandable why some think that Starship is going to change the game.

But What About The Price?

However, if we want to greatly expand access to space, then cost isn’t necessarily the key indicator that we should be tracking. More importantly, SpaceX will need to pass those cost reductions on to its customers in order for satellite providers to reap the benefits. This is where much of my skepticism resides, because it seems to me that there's little incentive for SpaceX to pass along those savings, or precedent that they will do so.

To understand what might happen when SpaceX is able to reduce launch costs from reusability, I think we should consider what happened the last time a similar dynamic was introduced.

Deja Vu?

On December 15th, 2015, SpaceX accomplished the seemingly impossible. They successfully landed the first stage of a rocket for the first time.

Image of the first Falcon 9 first stage landing in 2015. Source: https://www.space.com/31420-spacex-rocket-landing-success.html

This meant that SpaceX would soon start reusing its Falcon 9 first stages, an innovation that could seemingly slash the cost of getting to orbit. Just three months later, SpaceX president Gwynne Shotwell spoke at the Satellite 2016 conference in Maryland. At the time, she speculated on what Falcon 9 first stage reusability might mean for SpaceX customers, citing that it could potentially reduce prices by 30%, down to $40M per launch. At the time, a Falcon 9 launch cost $61.2 million.

That wasn't the first time SpaceX leadership openly contemplated how reusability would impact pricing. Looking even further back to the Singapore Satellite Industry Forum in 2013, Shotwell speculated that Falcon 9 reusability could mean launch prices to customers as low as $5 to $7M.

Well, it has now been 9 years since the 2013 mention of $5 to $7M prices and 6 years from the 2016 speculation of $40M prices. Since that time SpaceX has widely surpassed the industry's expectations on reusability, flying some of its first stage boosters over 10 times. So what is a Falcon 9 launch priced at today?

$67 million.

The price has actually increased about $5.8M from the pricing in 2016. If we account for inflation, the real price hasn't much increased over that time but has generally stayed the same. The below image is from SpaceX’s current website.

Falcon 9 pricing. Source: https://www.spacex.com/media/Capabilities&Services.pdf

So what happened? Did SpaceX’s costs benefits from reusability not materialize? I doubt that.

Actually, I just think SpaceX hasn’t passed any of those savings on to its customers, they’ve simply expanded their margins and made more money on each launch.

Which I think is entirely understandable. When fully expendable in 2015, the Falcon 9 was already the cheapest launch vehicle in its lift-class at $61.2 million per launch. Today at $67M, that's still the case. In fact, a ride on an Atlas V rocket is twice that price. Not that you could get a ride on an Atlas V anyway, they're all sold out through the vehicle's upcoming retirement.

Furthermore, since 2015 the Falcon 9 vehicle has become arguably the most reliable rocket on the market, with over 115 successful launches in a row.

With no competition capable of putting pricing pressure on SpaceX, why would they reduce their prices? You could make a strong argument they should be raising them. Which they are!

SpaceX is laser-focused on getting humanity to Mars, an enormously expensive ambition. It isn't in their interest to charitably pass savings to customers when they already offer the best product on the market.

Want more evidence of that? Just look at the launch frequency of their rideshare business. SpaceX conducts a few rideshare launches each year where they carry many small satellite payloads in a single Falcon 9 and deploy them all into low Earth orbit. The wait time for a customer to get on one of those missions is close to around two years. SpaceX could fill the manifests for twice as many rideshare missions as they currently perform and reduce wait times significantly. They choose not to because these rideshare missions are simply not high-value launches. It is operationally intensive to work with many customers to pack potentially over a hundred satellites into a single rocket and those customers are extremely price sensitive.

Instead, SpaceX chooses to focus on pricier services like crewed missions to the International Space Station, expensive national security and commercial satellites, or Starlink deployment which SpaceX hopes will bring significant recurring revenue for the company.

So when we look forward to the introduction of Starship, why would SpaceX be incentivized to dedicate many missions to small satellite payloads when it would have to work with hundreds, or even thousands of customers to fill a single Starship with CubeSats?

While Musk states that the company could potentially conduct up to three Starship launches per day, it will take years to get to that launch cadence. In the early days and years of Starship, SpaceX is still going to prioritize deploying Starlink, delivering high-value Human Landing System missions for NASA, and maturing the technology required to put humans on Mars.

Furthermore, what competition is going to pressure SpaceX to bring its pricing anywhere close to its marginal cost of $10M per launch? If Starship can put 100,000kg in low Earth orbit, its nearest competitor by payload class is NASA's Space Launch System (SLS), which was most recently approximated to cost over $2B per launch.

If I were to guess (and to be clear, this is just a guess), I think Starship is likely to be priced early on somewhere around $150M-$250M per launch. At that price, Starship will still be a great deal for customers at only about 1.5x the price of a Falcon Heavy while carrying much more than 2x mass and volume to LEO than a Falcon Heavy. The cost per kg in that price range would be somewhere around $1,500/kg to $2,500/kg to LEO. That would be on a full Starship, but keep in mind that a rideshare Starship for smallsats would likely be carrying much less than its full 100-ton payload capacity and so the price per kg would be higher.

So in the middle of that range, $2,000/kg, we're talking about a 42% reduction in price below Falcon 9 cost per kg of $3,400. That's an incredible benefit to the industry. But it's not the order of magnitude or greater price reduction that I see many hoping for.

Wrapping it Up

Ultimately, I struggle to see the incentive structure that would encourage SpaceX to introduce a revolutionary (which I suppose I'm loosely defining as an order of magnitude or greater) reduction in launch prices for smallsats. If they wanted to further expand access for smaller satellites, they could already do more of that with more frequent rideshare missions. It's just not financially worth it for them.

Just like everyone in this industry, I'm rooting for SpaceX. I would argue, along with many others, that SpaceX is the primary reason we even have a NewSpace industry in the first place. However, I'm also rooting for SpaceX's competition, because I think competition is the only factor that will push SpaceX to bring its launch prices closer to its costs.

Phil has a unique perspective on how the world of NewSpace companies is intersecting with public equity and debt markets. In this interview, we'll get insight into how Phil advises CEO's of late-stage NewSpace companies on fundraising, including what to consider when taking a company public. We'll also discuss how he sees the NewSpace world evolving, by leveraging his experience in other frontier industrial sectors such as electric vehicles.

I met Phil in 2018 when I was a fellow in the Matthew Isakowitz Fellowship Program. Phil volunteers for the program and was my executive mentor. I'll take this opportunity to plug that incredible program for undergraduate and graduate engineering students interested in the commercial space industry. Read more about it here.

This interview uses some minor corporate finance language, particularly with respect to SPAC's, so feel free to refer to an article I wrote in 2021 describing SPAC'ing process. 

Now let's kick off the interview!

You have around 20 years of experience at Morgan Stanley working with companies in the Aerospace & Defense industry. What originally drew you towards a career as an investment banker supporting this sector?

I grew up in Australia and I did a double undergraduate degree in economics/commerce and law. Very early on in that program I realized that I didn't want to be a lawyer and was more drawn to finance. While I was at university, I got a letter in the mail from Morgan Stanley asking "do you want to interview for a summer analyst internship?". Morgan Stanley didn't have a big physical presence in Australia, so I didn't know much about the company.

I ended up participating in the first summer analyst program that Morgan Stanley offered in Australia and I loved it. I joined full time and I spent two years in the Australian office as an analyst before transferring to the US office for a one-year rotation and I guess I'm currently on the 18th year of that one-year rotation.

With respect to Aerospace & Defense, I first came into the industrials group and I've always had an inclination towards industrial-type companies rather than, for example, consumer retail, healthcare, or tech. I was also an infantry officer in the Australian military reserve for 5 years so I had a familiarity and a positive disposition toward things defense-oriented. Aerospace & Defense is a big area of the industrials group and as an analyst I got put on a few early accounts that were defense-related, which I enjoyed. I kept working with those companies and over time built up those relationships. Eventually, I got to a point where I had done a number of interesting transactions with more traditional defense/space companies.

For space in particular, from when I was small I had a passion for space. I loved space LEGOs and the first birthday party that I can remember was space-themed. As a result, I thought that maybe there was a chance for me to spend some more of my work dedicated to the space sector. Earlier in my career, there wasn't too much space business, but I figured maybe that could change in the coming years so I picked a few companies that looked interesting and spent time with them. One of those companies in fact was Rocket Lab earlier in their lifetime. A few years down the line, space has become a very active area, especially in the last 24 months.

What are the core financial service solutions your investment banking team at Morgan Stanely provides to Aerospace & Defense clients? Are there any notable recent deals you’ve been a part of that you’d want to highlight in this industry?

As investment bankers, the most important services that we provide are really in two categories, providing capital and offering advisory services.

In terms of providing capital, we act as intermediaries in helping customers get access to that capital. We have a large trading and market presence, so we can offer connectivity to the major providers of funding, anywhere from institutions like Fidelity and T. Rowe Price, down to family offices and private equity funds. In providing that access, our role is in underwriting debt, equity, or convertible debt offerings, as well as private debt and private equity placements.

The second major service we provide is advisory work. Mostly that takes the form of Mergers and Acquisitions (M&A). That means a company is either buying a business or selling a business and we're providing advisory services in relation to that process.

There are other smaller bits and pieces that we support, however, the core bread and butter of our services is the capital raising and the advisory services.

With regards to your second question, there are a couple of recent deals I would highlight. The first is that we advised Rocket Lab on their very successful de-SPAC and merger with Vector Acquisition Corporation. They essentially raised a $500M PIPE and in total raised close to $800M. The other space transaction we worked on last year was underwriting and advising on the IPO of MDA.

Going further back, a couple M&A deals that I was involved with were Harris's acquisition of Exelis, in which a signification number of space assets were involved, and then the merger of Harris and L3 to become L3 Harris Corporation.

Phil speaking on a panel at the Satellite 2022 conference

In the last few years, "NewSpace" companies have started listing on public exchanges. How have the capital markets dynamics evolved accordingly?

Some of the trends that have happened on the capital markets front as related to space are consistent with other markets. A classic example of that would be automotive. For a long period of time that industry was dominated by the traditional "Big Three" in Detroit and then Tesla came along. Even more recently there have been a bunch of electric vehicle startups like Rivian and Nikola. So space is not alone in these same dynamics around new disruptive capital and disruptive companies.

Generally, the timing of what went on last year was tied to some background market forces. We were in a super low-interest rate environment and we were in a "risk-on" environment. In addition, we were seemingly on our way out of the pandemic and the outlook for inflation was low. As a result, people were looking for growth. Nearly all space companies are considered growth companies and so you had a marriage of a bunch of companies that were looking for capital and a bunch of investors that were looking to invest in those sorts of companies. Low and behold, there was a window of about twelve months and a bunch of space companies, fortunate for them, took advantage of that.

The environment is different today. My view is that all of the NewSpace companies that came to market got more capital than they would have outside of that goldilocks window period, which is great in aggregate. Some of those companies are going to succeed, but others won't and that might take the form of businesses closing, being acquired, or being merged. That's a natural part of the evolution of an industry within a capitalist environment.

Someone once told me that at the turn of the 19th century there were a hundred automakers. Twenty or thirty years later there were only a handful. This is a natural evolution of how markets develop. A lot of it is going to be dependent on the macro forces of the space economy itself, but there will always be individual winners and losers and that's a natural dynamic of any market environment.

Is this next generation of space companies attracting new types of investors? Or are you seeing legacy A&D investors engaging or reallocating funds from legacy names towards the newer businesses?

What you refer to as "legacy space" are typically the traditional prime defense contractors. I would say that the investors in legacy Aerospace & Defense companies are currently only making smaller investments in NewSpace. Part of that is a function of the way those investors look at risk and return. They want to see a little more history of performance from those newer companies to see where they sit on the risk/reward spectrum.

Another reason though why traditional large institutional investors in Aerospace & Defense haven't moved significantly into NewSpace is that big institutional investors can't deploy enough capital into NewSpace companies to make the investment worth the effort. When a NewSpace company is worth $300M, you can only invest a few million dollars into that company. So even if the company does well, the dollar return is not necessarily meaningful. However, it takes the same amount of effort to consider an investment in a larger company, like Raytheon for example, as it does for an investment in a smaller NewSpace company. With Raytheon's market cap at over $50B, the investor can deploy a lot more capital at once. Furthermore, the larger companies have higher trading volume and therefore more liquidity, so it's easier for the investor to quickly get their money out when they want to exit the investment.

As a result, for the most part the investors in legacy space and NewSpace are two different sets of investors. Over time as the winners in the NewSpace arena get stronger and bigger, you will start to see some of those traditional institutional investors move toward the newer companies.

Having said that, we have seen so far some investments from institutional names like Fidelity, T. Rowe Price, and BlackRock. A bunch of them have invested in several of the PIPEs that the de-SPAC companies have done. Several of them have invested in the larger late-stage private rounds that companies like SpaceX, Relativity, ABL, Astranis and others have done.

So there has been some crossover, but in aggregate it is two sets of investors and we're going to have to sort some of the wheat from the chaff before the traditional legacy investors move towards the NewSpace investments.

The PIPE investment in Astra's SPAC process was led by institutional investor BlackRock

When a public space company is looking to raise money, what are the key market factors and core parts of the company’s profile that you weigh when considering whether to raise equity or debt capital?

I think for almost any NewSpace company today, the right corporate financing is equity capital. There's a lot of risk to a NewSpace company right now. You've got technology risk, market risk, and competitive risk. When you add these in aggregate, there's not many NewSpace companies that are in a position where debt is a viable option. The right corporate finance answer for them is to go to the equity markets. You're going to see over time though as businesses mature and people start generating real EBITDA and cash flow, that's when you're thinking about adding debt to the balance sheet.

An interesting case in point there would be Tesla. When Tesla IPO'd, it was a $300M market cap company, not that different from a small space company today. There was a lot of business risk associated with them being able to produce even one car, let alone tens of thousands per year. As they hit their milestones and went from the Roadster to the Model S and now the Model 3, they built up production facilities and battery facilities. The business risk and the technical risk came off the table, so they were able to move to engage in different types of corporate financing, starting from equity and moving to debt. They began with an IPO, then did a few secondary equity offerings, then a mix of convertible debt, and then they did a high-yield debt financing.

It created an interesting case study of how the operational milestones of Tesla over time matched with the ways in which they brought in capital. It's actually a case study I shared with a client of mine recently to demonstrate that evolution. That's the sort of thing you're going to see successful space companies do. Equity at first, eventually some convertible debt mixed in, and then you'll start to think about some of the high-yield debt bank markets, whether that's asset-backed lines of credit or a high-yield offering or something like that.

We're still in the early stages of that process, so I don't see NewSpace companies tapping high-yield debt markets any time soon.

Many SPACs across high-growth industries are now trading below their “IPO” price. How would you counsel executives at post-SPAC companies that need to tap the capital markets while their stock prices are depressed?

As a CEO, you can only control what you can control. Therefore, there are two things I'd say.

First, you've got to execute on your operational milestones, whether they're technical, market, or business-related. At the end of the day, that's the most important thing in being able to raise capital. That will drive the stock price and it will drive perceptions of risk/reward and therefore potential investor appetite.

The second thing I'd say is that markets are window-driven. Last year, 2021 was an absolute boom for equity markets in terms of issuance, IPO's, equities, etc. Then the first quarter of 2022 was a desert. I think there were two IPO's and two follow-on rounds. It doesn't matter how great you are right now, the capital markets are pretty closed for most high-growth companies.

So the advice is that you've got to execute on your business plan, but then you've got to be ready so that if the window does open, you can quickly tap it because these windows do open and close. The worst thing would be to do everything right operationally on the business front but not get yourself in a position where you're mentally prepared to tap markets. That preparation means having spent time talking about it with your board and saying "if the markets do open up, we're going to raise X amount of capital and we think the right strategy is equity because..." Being prepared is critical because if you're not prepared and the window opens and closes, that's not where you want to be.

What excites you most about the future of the space industry?

I'm most happy that there are a lot of talented companies and a lot of talented people that took advantage of a good environment to raise money last year and in aggregate, a lot of capital came into the space environment. There's not going to be 100% success rate, but you don't need a 100% success rate to see a lot of exciting things coming out of all these great projects.

More broadly I'm excited that there's a lot of talent in terms of business leaders and engineers. There are a number of exciting projects and a ton of smart people working on anything from disruptive launch technologies, disruptive in-space hardware, and disruptive business models. There is a real market for space. That includes both providing services on Earth from space and, not that far around the corner, a broader in-space economy that's moving outside of LEO and ultimately toward the lunar environment. I think the talent in this industry is going to solve interesting challenges in the next decade that are going to benefit all of us on Earth and I'm super excited about that.

A consequence of the intersection between the Silicon Valley approach to company building and the space sector has been the development of infrastructure and programs meant to support this new class of space companies. One piece of that infrastructure is the emergence of space-focused startup accelerators. 

This newsletter will cover the accelerator programs that are catered particularly to support space companies and discuss the value offered to startups by accelerators. As a quick overview, these are the organizations that will be discussed in more detail in this post:

• Creative Destruction Lab's Space Stream

• Seraphim Space Camp

• STARBURST Accelerator

• Techstars Space Accelerator

• Bonus: Y CombinatorCreative Destruction Lab’s Space Stream

What is an Accelerator?

First, a quick summary of what defines an accelerator in this context. A startup accelerator is a program that supports early-stage, growth-driven companies through education, mentorship, and financing. Startups enter accelerators for a fixed period of time, and as part of a cohort of companies. The accelerator experience is a process of intense, rapid, and immersive education aimed at accelerating the life cycle of young innovative companies, compressing years worth of learning-by-doing into just a few months. There is also often some equity ownership that an accelerator receives in exchange for the support provided to the participating companies. 

The Space Accelerators

Creative Destruction Lab's Space Stream

Creative Destruction Lab (CDL) is a nonprofit organization that delivers an objectives-based mentorship program for seed stage science and technology startups. CDL operates 16 industry-focused “streams”. The Space stream is tailored towards coachable startup companies who are applying advanced technologies to exploit commercial opportunities related to space and space-based services.

The program is operated in partnership with the Rotman School of Management at the University of Toronto, the Scheller College of Business at Georgia Tech, and HEC Paris. CDL Space was originally spearheaded by retired Astronaut and former International Space Station commander Chris Hadfield, who continues to serve as a mentor for the program. 

Applications are accepted until the end of July and the program takes place between October and June each year. During that period, startups attend five objective-setting sessions in which companies meet with advisors that provide feedback and help the companies set goals to track towards for the next session. Between sessions, the startups are mentored weekly by astronauts, entrepreneurs, investors, and scientists from fields related to the space industry.

CDL does not invest funds in and takes no equity ownership from the participating startups. At the end of the program, startups attend a Super Session day where they have the opportunity to meet with investors and corporate partners in the CDL community for the purposes of fundraising and business development.

Notable graduates from CDL Space include Kepler Communications, Skywatch, and Starfish Space.

Seraphim Space Camp

Seraphim Space Camp is a 10-12 week VC backed accelerator program based in the UK that involves 1-on-1 mentoring, workshops, investor office hours, and more to support startups and help them prepare for raising series A funding. Seraphim Space Camp is operated with a number of partner and sponsor organizations including AWS, Airbus, ESA, and the UK Space Agency. To be eligible for the accelerator, companies must be pre-seed or seed stage and looking to raise a series A within 6-18 months.

Seraphim Space Camp runs twice a year with the next program operating from April through June. Workshops during the program cover a number of topics, ranging from preparing the right fundraising materials to delivering an effective investor pitch.

During the accelerator, companies participate in two separate demo days where the startups can pitch to a global audience. One of the demo days is targeted towards corporates which aid the startups in developing relationships with potential customers and corporate partners. The final demo day allows the companies to pitch to potential investors part of the global SpaceTech ecosystem.

Additionally, Seraphim operates its own venture capital fund called the Seraphim Space Fund which often makes investments in graduates of the Seraphim Space Camp accelerator.  Some notable graduates of Seraphim Space Camp include Xona Space Systems, Starfish Space, Wyvern, and Satellite Vu.

STARBURST

STARBURST is a global accelerator and venture fund focused on early-stage space companies (pre-seed to series A). The program is conducted on a rolling basis and startups can apply throughout the year. STARBURST leverages its partnerships with over 50 corporate and government organizations to help the participating startups support customer discovery, pilot programs, fundraising, and more.

STARBURST Accelerator aims to support startups with three key pillars: business development, fundraising, and strategic advisory. In doing so they provide introductions to potential customers, investors, and mentors while helping startups mature their product-market-fit, sales pipelines, datarooms, and company roadmaps.

There is an equity exchange involved in the program. STARBURST receives $120K in equity (grant or options) at the valuation of the startup’s most recent priced round.

While STARBURST’s main accelerator program is global, they also organize additional specialized accelerator programs with partner organizations. These include the SCALE accelerator (Pre-Seed) in collaboration with UCLA, the BLAST accelerator (Pre-Seed - Seed) in France, the Entrepreneurs Challenge in collaboration with the NASA Science Mission Directorate, and the NASA MSI Space Accelerator, also in collaborating with the NASA Science Mission Directorate.

Some notable STARBURST graduates include Momentus, Orbital Sidekick, Launcher, and Morpheus Space.

Separately from the Starburst accelerator, Starburst Ventures is investing in pre-seed and seed stage space startups.

Techstars Space Accelerator

Techstars is a global early-stage tech startup community that operates a number of accelerator programs, including the Techstars Space Accelerator. The Techstars Space Accelerator is based in Los Angeles and has partnered with a number of corporate and public sector organizations, including NASA’s Jet Propulsion Laboratory, Lockheed Martin, Maxar, the US Air Force, The Aerospace Corporation, and more. It is a 13-week program that runs from September to December and applications close in May.

The program begins by helping the participating startups grow their networks, pairing them with industry-specific mentors, investors, and prospective customers. Startups then work with the accelerator's managing director, program manager, and mentors to identify Key Performance Indicators for the startup. Those individuals support the founders as they execute milestones, such as prototyping or acquiring customers. Finally, the founders develop a fundraising strategy and prepare for the Demo Day that occurs at the end of the program.

Techstars receives a 6% common stock ownership in startups participating in their accelerator programs. In addition, the companies are given a $20K living stipend to support themselves during the program.

After being accepted and before the start of the accelerator program, companies are also offered the option to accept or decline an investment of a $100K Convertible Note with a $3M valuation cap.

Notable graduates of Techstars Space Accelerator include Orbit Fab, Morpheus Space, and Pixxel, while graduates of the broader Techstars community include Kepler Communications, Skywatch, Zipline, and Slingshot Aerospace.

Y Combinator

In theory, it might not make sense to include Y Combinator (YC) in a list of space accelerator programs because startups of all sectors are eligible to participate in YC. In practice though, because YC is the largest and most successful accelerator in the world (by market cap of alumni companies), it has had a number of highly successful space startups pass through its program. For that reason, I think any space startup looking into accelerator programs could reasonably consider participating in YC as well.

YC is an accelerator program based in San Francisco that was founded in 2005. The accelerator runs twice per year, with one program in the Winter that goes from January through March and another in the Summer that runs from June through August. YC participation involves a number of features including ongoing office hours with the YC team as well as weekly "dinners" in which the entire batch of companies comes together to show off what they've built that week, meet other YC companies, and listen to an off the record talk from a well-known tech entrepreneur (such as Meta's Mark Zuckerberg or Airbnb's Brian Chesky).

Each cycle culminates in a Demo Day, at which the startups present to an audience that now includes most of the world’s top startup investors.

YC invests a total $500,000 into each participating startup through two separate SAFE agreements. Companies in YC receive a $125,000 investment on a post-money SAFE in exchange for 7% of their company. Beyond that, YC invests an additional $375,000 into each company through the form of an uncapped SAFE with a Most Favored Nation (“MFN”) provision. For more detail on those terms, head here.

Some aerospace companies that have gone through Y Combinator include Relativity Space, Momentus, and Boom Aerospace. For more information about space companies at Y Combinator, check out my previous post on the topic.

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Is an Accelerator Right for You?

The decision to participate in an accelerator program is unique for each individual startup and founder. Accelerators can be invaluable means of helping a startup focus and define their particular value proposition while offering the support systems and connections to execute those plans. Acceptance into an accelerator can also potentially be seen as a sign of validation by some investors and that may benefit a startup during their fundraising processes.

Startups should always understand carefully the terms involved in participation with any accelerator. That is particularly true if a program involves the accelerator program receiving some equity ownership in the startup. In addition, every accelerator program requires a significant time commitment that introduces inherent opportunity costs for any early-stage company.

When trying to consider participation in any accelerator, the best resources are likely to be founders that have previously gone through that accelerator. So if you're considering an accelerator program, I recommend visiting the website of that program, finding startups that have passed through, and reaching out to those companies' founders for feedback.

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The super heavy-lift class is the largest classification of rocket size and it describes vehicles capable of putting more than 50 metric tons or over 110,000lbs into low Earth orbit. The first rocket of that size was the Saturn V, which took humanity to the moon with the Apollo program.

A fact that helps emphasize these vehicles’ power is that the sound from the engines of the Saturn V was one of the five loudest sounds recorded, around the same noise level as the largest nuclear bombs ever detonated.

Only two rockets of this magnitude have flown before and only one of them is still around today. However, by next year we will likely have three operational super-heavy vehicles flying at once.

In this post, I’ll talk about these monumental feats of engineering and consider the changes they are creating within the space industry.

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The Rockets

Falcon Heavy

Organization: SpaceX

Payload Mass Capacity to LEO: 64,000kg

Price per launch: $150M

Falcon Heavy is the only super heavy lift-class rocket currently in active service. The vehicle is comprised of three Falcon 9 first stages oriented side-by-side. This means that the vehicle is capable of placing approximately four times as much payload mass as a Falcon 9 into low Earth orbit. While much of the commercial satellite market has trended towards smaller satellites that don’t require such a high lift capability, Falcon Heavy is best positioned to service the market for large, high-value national security and science missions that must be placed in higher orbits or even delivered to other planets.

However, the demand for such missions dipped in recent years. As a result, the Falcon Heavy has only flown three times since its introduction in 2018, with the most recent launch taking place in 2019. However, the rocket is scheduled for five flights just in 2022 and another five through 2024, so it is likely to have a busy few years ahead.

The Falcon Heavy’s first test flight in 2018 famously launched a cherry red Tesla roadster into an orbit around the Sun that occasionally passes by Mars.

If you’re so inclined, you can actually head to whereisroadster.com and track its current location, which at the time of writing is somewhere on the opposite side of the sun from Earth.

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Space Launch System

Organization: NASA

Payload Mass Capacity to LEO: 95,000kg

Price per launch: $2.2B

NASA’s Space Launch System (SLS) rocket is both an incredible success of modern rocketry and a lightning rod of controversy. It was imagined in the early 2010’s and eventually became the cornerstone of the Artemis missions, which is intended to return the US and its allies to the moon in the coming decade. It is the largest NASA-developed rocket since the Apollo program’s Saturn V.

However, SLS’s development has been troubled by significant overruns and delays. Originally forecast in 2011 to fly in 2017 at a development cost of $10B, SLS has so far cost closer to $21B to develop and may not conduct its first flight until 2023.

While missed budgets and timelines are not inherently unexpected in the development of a novel launch vehicle, it is the nature of SLS’s technical development that makes the setbacks particularly frustrating in the space community. Many of SLS’s systems were chosen specifically because of their extensive flight heritage which would theoretically enable a simpler and faster development process. For example, the four RS-25 engines that will power SLS’s first stage are based on the same Space Shuttle Main Engines (SSME) that flew for decades. In addition, SLS’s upper stage uses the RL-10 engine which was first flown as far back as the 1960s. As a result, for all of the cost overruns and delays that have plagued SLS’s development, NASA has gained relatively little in the form of maturing novel technologies.

Starship

Organization: SpaceX

Payload Mass Capacity to LEO: 100,000kg

Price per launch: $TBD

Depending on who you ask, SpaceX’s Starship rocket is either a vastly overpowered vehicle with little customer demand, or it is a rocket that will fundamentally transform the entire space industry through how it reduces access costs to space. What Starship will be when it first launches, is the most powerful rocket to ever fly. It weighs over 1,200 tons at liftoff and will be capable of putting over 100 tons of payload into orbit on a single launch. Beyond its size, what makes Starship so revolutionary is its ambition for full reusability of its first and second stages. Prior to SpaceX’s currently flying Falcon 9 rocket, no launch vehicle had ever reused the first stage of its rocket. In fact, the idea of landing a rocket stage and reusing it was largely considered impossible prior to SpaceX. Starship seeks to accomplish a much greater challenge, landing and reusing the entirety of the vehicle, both the first and second stages.

In doing so, SpaceX hopes to greatly reduce the cost of launch access by eliminating the need for discarding any significant part of the rocket during launch. Without any lost hardware, SpaceX hopes to have its launch costs approach only the cost of the propellants used.

SpaceX also intends for Starship to be the rocket that first lands humans on Mars and makes humanity multi-planetary. Here’s a recently released animation of how Starship will make that possible.

A Rebirth of Extraterrestrial Travel

Since the end of the Apollo program in the early 1970s, the world has not endeavored to put humans on another planetary body. In fact, since the Apollo program, the US has not had a human-rated transportation system capable of reaching the moon or other planets. The Space Shuttle, which flew from 1981 to 2011, was built to reach Earth orbit but never beyond. With the introduction of SLS and Starship, two vehicles developed specifically with interplanetary human space travel in mind, we are returning to a period of history where we will hopefully see humans on the Moon again and potentially even Mars for the first time.

The End of an Era

SLS and Starship, the two super heavy-lift vehicles that will both attempt to launch for the first time this year, embody a transition that is nearly complete in the space industry. That is the transition away from government-developed launch vehicles and towards rockets designed and built by commercial entities.

The cost and execution challenges of government rockets is quickly becoming unpalatable in the current space era. This was best illustrated in a recent House Science Committee hearing involving the NASA Inspector General, who serves as an independent watchdog for the agency. In the hearing, the Inspector General reported that a single SLS rocket will likely cost about $2.2B per launch. He further described the figure as “a price tag that strikes us as unsustainable.”

In contrast, SpaceX’s Starship rocket was developed primarily at the cost of SpaceX rather than the US taxpayer. Further, SpaceX aims to bring each Starship flight cost closer to $10M per launch, once the vehicle has been flying for two to three years. It is an ambitious figure, and the cost will likely start at much higher, but it illustrates the orders of magnitude difference between the costs of government and commercially developed rocket programs.

Furthermore, the Inspector General offered a scathing account of the relationship between NASA and the contractors that the organization utilized to bring SLS to life. “We did see very poor contractor performance on Boeing’s part — poor planning and poor execution…We saw that the cost-plus contracts that NASA had been using to develop that combined SLS and Orion system work to the contractors rather than NASA’s advantage.”

As a result, it is likely that SLS is the last of its kind. In recent decades rocket launch has become a form of critical transportation infrastructure, which is best suited for the private sector that can optimize for cost efficiencies and scalability. NASA pioneered rocketry in the United States and has successfully passed much of that knowledge base to private industry.

Consequently, most agree this is a key step that will benefit both NASA and the commercial space industry. Fully transitioning rocket launch to the commercial sector will enable NASA to more devote its resources to the groundbreaking fundamental research that has for decades advanced humanity’s understanding of our planet and the universe around us.

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In the interview, we talk about the three questions he asks himself before making an investment, what he learned from starting his own venture capital firm, and much more. Let’s dive in!

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At Ubiquity, you like to say that you invest in “software beyond the screen” and that you are a “nerdy and early” investor. Can you expand more about your approach to venture capital?

When I say that I invest in “software beyond the screen”, the focus is on powerful software, but not software tied to a personal computer or smartphone. It’s about software permeating the real physical world. That can mean software running on rockets, software that can run on cows, software that can run in space, on the side of a building, or in a hospital hallway. All of those are real Ubiquity portfolio companies and I think the opportunity here is massive, it’s the ability to solve real-world physical problems, but at the pace of software solutions.

Software can be a hundred times faster and cheaper to solve a problem. That was the case for Rocket Lab. When new rocket companies develop a rocket, it might be a $5 billion dollar program to get the vehicle working and Rocket Lab did it closer to the order of $50 million, so 100 times cheaper. That’s because Rocket Lab has software that’s core to their electric turbopump engine and a few other elements of their system. So when I say “software beyond the screen”, I mean powerful software starting to penetrate the real physical world and that’s why my VC firm is called Ubiquity Ventures, it’s a reference to ubiquitous software.

More tactically, that means that the areas I invest in have to do with smart hardware or machine learning. I view those two technologies as ways that software can jump off the screen. When it jumps off the screen, it needs somewhere to land and that’s typically smart hardware. Furthermore, when software jumps off the screen it also needs to understand, navigate, perceive, and adapt to the real world, which is also a great match for machine learning. Today Ubiquity is a roughly $100 million venture capital firm investing in smart hardware and machine learning but it’s a lot more fun to describe it as “software beyond the screen”.

The other side of your question on “nerdy and early”, I take very seriously as well. There are two ways to practice venture capital. One way is to look at businesses that have metrics to evaluate. You analyze the metrics in a Microsoft Excel spreadsheet, crunch the figures, and come out with an investment decision. I find that to be a bit boring. I also find that it misses a lot of upside compared to the second way of practicing venture capital: diving deep into code and technical trends, well before a company has revenue metrics or even usage metrics.

So when I say “nerdy and early”, those two things go hand in hand. Early means that for about a third of the companies I invest in, I invest the day they’re incorporated. So very, very early. I usually refer to this as seed or pre-seed investing. However, you can’t be “early” in my opinion if you can’t be “nerdy”, because if you’re “early” and you ask for an excel model, most entrepreneurs at that stage don’t have an excel model or traction figures. Most entrepreneurs I back don’t have revenue, so what I have to turn to instead is following technical trends, following technical people, and investing behind really big technical ideas that fall in line with software beyond the screen. So if it is a low-cost, lightweight physical solution to a physical problem that leverages a lot of software or smart hardware, then that falls in line with my thesis. “Nerdy and early” means that I try to spend my time hanging out with technical folks and understanding technical trends from the source, rather than reading about them in a Gartner report, at which point they’re lagging trends.

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Ubiquity Ventures was an early investor in Loft Orbital, a company only four years old, that is already signing customer partnerships of over $100M. What do you look for in potential early-stage space investments and what did you see in Loft Orbital when you first invested years ago?

With early-stage investing, when I’m investing before there are many metrics, I usually ask myself three very specific questions. It might be natural simply to ask myself “Do I like this product?”, but I think that’s a terrible way to make investments. I’m not looking for companies that I would use as a customer, so it doesn’t make sense to ask, “would I ever use the product myself?”. I think it’s very tempting to do that, especially when you watch something like Shark Tank and they’ll say “oh I would never use that”.

The three questions I ask myself are “Does anybody want this product?”, “Are there a lot of those people?”, and “Can this entrepreneur find them?”. Those three questions keep things simple, but they correspond to the business concepts of product-market fit, market size, and unit economics. In my day-to-day, most of my time is spent on question number one, “Does anybody want it?”. That’s trickier than it seems to evaluate. When I hear a pitch it is pretty helpful if an entrepreneur includes some customer quotes, prospective customer quotes, or expert quotes. During my own post-meeting diligence, I’ll often call a potential customer and describe this new product, but they’ll say “oh I don’t want that”. If I ended the diligence call there, that could be a mistake, so I’ll usually have to explain more and navigate the nuance of a prospective customer’s mind in order to figure out if this would be a good fit. So that’s the trickiest thing I do. I try to figure out if customers might buy the product or service in the future if it existed. Steve Jobs has a famous quote “it’s not the customer’s job to know what they want”, so it’s this delicate process of figuring out what might work if it existed.

If we shift gears to Loft Orbital, this was an investment where it was in one of my focus areas. I’ve met hundreds of space companies and what stood out about Loft was something I see very rarely among space startups. Loft Orbital had a pipeline of customers that spanned multiple categories. A lot of space startups have customers that are also space startups, so it’s risk-on-risk or startup-on-startup risk, which is tricky. Loft Orbital had interested customers across government, defense, domestic, international, legacy space, and new space. That diversity of customer pipeline was a really helpful signal to me that this is something attractive to a larger market and it’s a bit more real. When a larger company is interested in being a customer, it carries a bit more weight than if a small startup is.

The broader Loft Orbital thesis is that if we made space easier to access it would accelerate the size of the space market. As a result, I often compare Loft Orbital to Amazon Web Services. When AWS makes it easier to get your app or your code out to the world, you have the emergence of Web 2.0 and tons of internet startups exploding. I think AWS and other cloud infrastructure providers were behind that. You write your code, give it to them and they host it on their services, with cooling and electricity, and put it on the internet. You don’t even know where it is, but it is live to the whole world.

That’s conceptually very similar to Loft Orbital. You give Loft your payload, they certify it, get the FCC license, thermal test it, vibration test it, and then launch it for you into space and downlink the data. As a result, you can use space without being an expert in space. Between those two factors, diverse pipeline and great thematic fit, it was an easy decision to invest in Loft Orbital.

You’ve been a venture capital investor in early-stage space companies for nearly 10 years. How has the space industry changed in that time?

At my old firm, Bessemer, where I was until 2017, one of my old colleagues David Cowan invested in Skybox in 2010. Skybox sold to Google in 2014, which is when I got deeply involved in the space sector. Later that year in 2014 we invested in Rocket Lab’s Series B. At the time, they had conducted something like a two-second hot-fire test on one engine, so they were very early in their development. I would go to space conferences and be the only VC there –not a single other venture capitalist was present. Dedicated space venture capitalists didn’t exist as space hadn’t hit the radar of a lot of investors.

Space ideas were not yet tuned for the venture capital model, which would involve raising a seed round, then a year later raising a Series A, a year later raising a Series B, and so on. You have to fit the mold if you want to raise venture capital. Another part of the mold is that your idea can go from start to exit in less than ten years because venture capital funds are set up for ten years. None of those structures are important to the actual development of space technology, but you have to fit them if you’re going to take standard venture capital funding. What’s happened over the last ten years is that the average space founder now knows how to adapt their roadmap to fit the model so that they can secure this kind of capital.

At today’s space conferences, there are a dozen VCs actively participating which is a good thing for the industry. Now when people say ridiculous things like “space is hard” or “space is expensive” or “things blow up in space”, there’s enough conventional wisdom floating around the valley that says “no, that’s not necessarily true anymore” and that’s really powerful. I like to think I played a role in helping that trend. At every conference I went to, I’d speak on stage about why VCs are flocking to space and I’d go on my soapbox about “don’t say space is hard because it’s detrimental to the industry and it’s also not accurate anymore.” I think the space industry is feeling more like the tech industry with lower capex solutions, faster time to market, more agile iteration, and more VCs floating around. Now, we’re seeing a few dozen companies that have successfully raised late-stage funding rounds and are fitting the trajectory of a typical tech company.

What excites you most about the future of the space industry?

One of the most exciting parts about Loft Orbital serving as the AWS of space is that we don’t even know what applications will result. It’s a little bit like sitting in 1995 and AOL dial-up has been invented, and we don’t know what we’re going to do with it next. As internet access became more pervasive, people thought of all sorts of crazy things, including delivery, online dating, storage, e-commerce, blogging, and others. Those things are coming in the space industry. I don’t know what they are and I’m not smart enough to see around that corner, but I am happy to be invested in a company (Loft Orbital) that’s helping to accelerate that trend and basically let a lot more people experiment with space.

I would say the advent of AWS and super easy access to web servers probably let a hundred times more people experiment with internet technologies and get their apps to the world. I hope that’s the case with space, if we have a hundred times more people experimenting with ideas for space, there will be things we haven’t even imagined. As we know, there are the main space categories of imaging, communications, navigation, and tourism. I hope an equal number of new categories emerge as well.

With the internet today, you can run a multi-billion dollar software company and have never seen a server in your life – and that’s potentially a good thing. Similarly, there’s a transition going on now where you can start to operate in space without having to lay all the groundwork for building a full satellite. You can give your payload to someone like Loft Orbital and have them host it for you.

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You have had the unique experience of not only being a venture investor but also founding your own venture capital firm. What were some of the biggest challenges and learnings in the process of starting your own fund?

Raising a fund is very different from raising money for a startup. I’ve raised money for my own startup in 2009/2010 and then I’ve invested in startups, but raising money for a fund means that you’re asking people to give you money without a specific place it’s going to go. When any of the Ubiquity companies raise money, there’s a pitch, “here’s the product, here are the people, here are the customers”. It’s fairly specific. At the very beginning of any fund, especially your first fund, which I raised in 2017, it’s just a bunch of slides.

Ubiquity’s fund I was a $30M fund, so I offered my investors fewer specifics than a seed-stage startup would, but I was asking for 10x more than a seed-stage startup. That’s a big leap of faith and I’m appreciative that my early Limited Partners, the investors in my fund, backed me with no concrete specifics about where the money was going to go. I told them that I would invest in 20 companies that would fit into the themes we outlined earlier. Then I asked them to trust me. It’s a fundamentally different process and I don’t think I appreciated how big of a leap of faith LPs have to take, especially in a first fund but generally in any fund. Unlike investing in a startup, you’re committing capital for the next ten years with much less governance than in a typical startup investment.

To the extent anyone’s considering raising a new fund, the key is to gain trust with as many LPs as possible, and try to push from vague themes to more specifics. It also usually helps a lot when you have one investment in your fund, so if you can raise a little bit of your fund and put one investment into the fund, it means you’re serious, you’re already starting, but most importantly, folks can evaluate that one company as a concrete asset as opposed to a thematic idea.

Beyond investing, you also have a deep personal passion for space. In fact, you currently are President of the Astronomical Society of the Pacific, a role that was previously held by such giants in Astronomy as Edwin Hubble and Frank Drake. Where does your passion for space come from and can you please tell us about some of the space-related programs you are personally involved in?

There is a distinction between what people refer to as the space industry and the world of astronomy. In the commercial space industry, we use the word space and that industry involves subjects like rocket fuel, airframes, and engine architectures. In astronomy, you’re more involved with education and institutional research and the scientific study of galaxies, exoplanets, and physics. So I’m passionate about both and luckily they have a little bit of synergy, but I’ve found they tend to be distinct worlds.

My passion for astronomy originated before I can remember, I’ve always been obsessed with stars, planets, and questions of “where did we come from”. I was especially interested in the search for exoplanets and life, so I’m a little involved in the SETI (Search for Extraterrestrial Intelligence) Institute. I was a little involved in the Kepler project as well, which was a search for other Earth-like planets in our Milky Way galaxy. Now I’m with the Astronomical Society of the Pacific (ASP). It is a parallel effort to investing in space and it’s quite fun.

One neat thing from the ASP, a relatively recent project we did, was to create the astronomy badge for the girl scouts. So we do a wide variety of educational outreach projects to push astronomy as an entry into science. It’s an easy way to connect the dots as to why science matters and for people to fall in love with astronomy, it doesn’t mean they need to be a professional astronomer, but it is a good way to enter STEM fields

To read more from Sunil, subscribe to his newsletter, Ubiquitous Thoughts:

Ubiquitous Thoughts

The latest thinking on software beyond the screen and entrepreneurship from Ubiquity Ventures

By Ubiquity Ventures

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