Is space truly within reach for startups and VC?

Elon Musk’s SpaceX managed to pull off something very few people thought it could — by disrupting one of the most fixed markets in the world with some of the most entrenched and protected players ever to benefit from government contract arrangements: rocket launches. The success of SpaceX, and promising progress from other new launch providers, including Blue Origin and Rocket Lab, have encouraged interest in space-based innovation among entrepreneurs and investors alike. But is this a true boom, or just a blip?

There’s an argument for both at once, with one type of space startup rapidly descending to Earth in terms of commercialization timelines and potential upside, and the other remaining a difficult bet to make unless you’re comfortable with long timelines before any liquidity event and a lot of upfront investment.

Cheaper, faster, lighter, better

There’s no question that one broad category of technology at least is a lot more addressable by early-stage companies (and by extension, traditional VC investment). The word “satellite” once described almost exclusively gigantic, extremely expensive hunks of sophisticated hardware, wherein each component would eat up the monthly burn rate of your average early-stage consumer tech venture.

Now, driven largely by miniaturization and manufacturing efficiency gains resulting from the ubiquity of home computing and smartphones, those components are a lot more affordable and a lot more available. High-quality optics can be had off the shelf for a relative song; antennas, solar cells, batteries and more have all dropped off a cliff in terms of manufacturing cost. Consumer hardware startups benefited from this trend as well, but it’s paying dividends to companies with higher-altitude ambitions, too.

“A communication satellite is basically a dish in space, so if you want more communication, you need a larger dish,” satellite startup NSLComm founder Raz Itzhaki told me in an interview.

“But a larger dish requires a larger satellite, requires a larger launcher, so everything becomes more expensive. This is why if you launch a geostationary communication satellite, you have to operate it for 20 years, because it has an ROI of more than 10 years. It weighs tons because it needs to live for 15 to 20 years.”

Thanks to improvements in materials science, NSLComm was able to develop a proprietary technology to quickly deploy long communications antennas in orbit from relatively small craft, letting them offer high-bandwidth ground and air connectivity at a fraction of the cost needed by large satellite operators, while still maintaining favorable margins.

“What we can do, is we can have a satellite that has an ROI which is lower than two years,” Itzhaki explains. “We can have another satellite that can transmit up to three gigabits a second, we can create a constellation of such satellites at costs that are two orders of magnitude smaller than other satellite constellations.”

SmallSat startup Wyvern has similarly reaped the benefits of advancements in technology over the past few years, and especially improvements in optics and connectivity. It aims to provide specialized hyperspectral (that is, “more spectrum” than we pick up with our eyes) imaging for a variety of applications, starting with agricultural and hopefully expanding to other use cases, including defense.

“I think we generate something like 300 gigabytes of data a day,” Wyvern co-founder and CEO Chris Robson told me about his company’s imaging satellites. “Trying to bring all that down on a ground station network is insane. And that’s just from one satellite, not even from our constellation. So there’s that barrier, there’s the barrier of power, but then probably the most significant barrier is signal to noise. Because of the way hyperspectral works, it’s very hard to get a good quality image without having a really big satellite. So our optical system allows us to basically put what should be a big satellite into the form factor of a small one without breaking the laws of physics […] and that allowed us to come up with a business model that could actually be a successful business.”

“Imagery is, suddenly now, with our business model, affordable enough that it can be used, but it’s not so highly capitalized that it’s impossible to fund,” he added.

Getting there is the trick

While SmallSats and CubeSats are bringing high-tech imaging and communications business models within reach for spacefaring startups, the “space” part of that equation remains to be solved. SpaceX and Rocket Lab are taking up payloads from paying customers, but there’s definitely a capacity cap just in terms of the number of launches these companies can run. And while they’ve greatly reduced costs, prices are still high, even when jumping in on a rideshare mission with payloads from other customers.

Launching, and developing a launch vehicle, also remains a fundamentally difficult challenge. Even methods like Virgin Galactic’s, which uses a modified 747 that takes off like an ordinary passenger jet to bring a much smaller rocket that uses far less fuel to a high altitude to launch, are backed by extremely well-capitalized entities that aren’t sweating the longer development timelines involved.

SpaceX, Blue Origin and Virgin clearly have deep-pocketed people and entities willing to defy normal risk and return expectations, but this is a bottleneck that needs expanding if our first category of space startup is truly going to flourish.

That could change — a few companies without that kind of big-league founding personality willing to foot the bill are emerging to try to capitalize on the clear demand. Rocket Lab, for instance, followed a more traditional funding path, and LA’s Relativity Space appears to be doing the same, though they’re earlier on in their trajectory.

But that’s still just a list you can count on one hand, and the demand far outpaces supply. Startup SpaceRyde, which is only in the testing phase of its technology to launch SmallSats from a small rocket attached to a stratospheric balloon, is essentially already oversubscribed in terms of customer interest.

“We have been talking to customers since the inception of the company,” SpaceRyde co-founder Saharnaz Safari told me. “For example, right now we have letters of interest from five different customers, two of them being launch brokers, and three satellite operators, so direct customers, and that’s worth $4.5 million based on the price that we charge. So, if we’re to turn all of this into binding agreements, it will take us to mid-2023 to fulfill all of it. There’s so much demand.”

“One of the launch brokers that arranges launches for small satellites that we were talking to, we basically described our service, we discussed the technology, we describe how much we’re going to charge,” Safari continued. “And and then we asked them, ‘How many rockets do you think you can fill up?’ And then they said, ‘You’re the bottleneck — how many can you produce in a year?’”

Investor appetite

While there are some firms that specialize in making bets on technologies with longer time horizons and more basic science R&D work, sometimes referred to as “frontier” tech, the overall interest in space tech is a bit harder to easily pin down. But the issue may be more about knowledge and comfort, rather than time horizons for ROI.

“The space sector is one of the biggest ones that’s taking off and in the DC area,” said Dr. Anita Sengupta, co-founder of electric aircraft startup Airspace Experience Technologies, in an interview. “The challenge I’ve seen, though, is that a lot of traditional VCs don’t have a background in it. So some of them are nervous as to how to assess what is a viable business proposition or what is technically feasible.”

I asked Moon Express co-founder and Silicon Valley-based angel investor Barney Pell about what he thinks about the challenges in securing venture funding for some for space-focused businesses, and he broke it down around hard tech problems and opportunity.

“There’s kind of two questions really — there’s sort of the time to make a certain technology thing work, and that may be hard in its own time frame. Then there’s like ‘when is it a business,’ ” he said. “So if you’re like, you know, Planet, and you’re doing basically like, an Earth-observing system, well there already are Earth-observing systems, there’s a business and so remote sensing, remote imagery, all this stuff. And if you can do it better, and have more frequent images with higher resolution, you’re probably going to be business, then it comes down to the technical operational risk of how can we launch these things cheaply, quickly make them you know, coordinate them, but you can kind of see why you can do that. When you’re going after habitats on the Moon, you’re a long way away. And then how big is that market ever going to be? Okay, so that’s the hard part.”

Pell notes that in the case of Moon Express specifically, when he co-founded the company nearly 10 years ago, few people realized that building Moon habitats could lead to Moon infrastructure, leveraging, for example, the “vast amounts of water ice” on the lunar surface at the poles (this was only confirmed last year, though it was conjectured much earlier, as Pell correctly notes). That kind of long-term vision is a different kind of play versus your typical consumer or even enterprise-facing startup.

That’s the kind of opportunity that invests space startups with so much potential. Anousheh Ansari, the first female private space tourist, an investor and co-sponsor of the Ansari XPrize to develop reusable crewed spacecraft, likens this time in space innovation to an earlier one in the history of internet technology.

“When the internet was just used by universities and government, nobody even created anything for it,” she explained in an interview. “When Netscape, for the first time, made access to the internet simple and easy and understandable for more people, then all of a sudden, people started coming up with all sorts of things. No one predicted what’s happened when they opened up the internet […] I’m thinking space will be like that, once the cost of access to space goes down. And there are technologies that are being developed that are making the cost and the access simpler, faster, cheaper.”

As that access increases and decreases in cost, there’s no telling where we could end up in terms of the innovation landscape around space and space-related technologies.

“Then the innovation will just, you know, people will just create something that we can’t even imagine,” she said.