How Lockheed Martin Ventures manages its early-stage $200M fund

In niche markets like aerospace, where the traditional VC model might not yield an abundance of available funding, corporate venture funds can offer entrepreneurs an interesting alternative.

Unlike traditional VCs, firms like Lockheed Martin Ventures are in constant contact with internal business units about challenges they need solved, or improvements they’re seeking that cannot be sourced internally or through existing vendors. 

Lockheed Martin Ventures Executive Director and General Manager J. Christopher Moran explains that while in the past that has traditionally meant the company’s in-house VC sought out later-stage investments in companies with more “mature” technology, the fund recently shifted its focus to early-stage companies.

“[Lockheed’s venture arm] was actually established in 2007, as a fund called the ‘Emerging Technologies Funds,” Moran said in an interview. “And it was a vehicle for the business areas to look for and find small startups […] They were using it to look for sort of leading edge, but more mature technology. We started realizing that what we wanted to do was focus more on commercial tech, with a dual-use capability for aerospace, then that made us think that we should probably be looking at much earlier stage companies.”

Aerospace has always spun out dual-use technologies like GPS and satellite imaging, but today’s startups are solving larger problems; autonomous technologies like machine learning, computer vision, neural networks and artificial intelligence have tremendous potential for application in Lockheed’s aerospace and defense businesses — but most of the startups working on these challenges are geared towards automakers and mobility, since they offer a clearer and more immediate path to revenue.

Moran accordingly shifted the focus of the fund, aiming its investments at much earlier stage companies, and looking instead for leading edge or “visionary” startups. Once identified, they look to establish partnerships with areas of Lockheed’s business to help inform the startups’ work at an earlier stage in the process.

Lockheed Martin Ventures now has $200 million committed, and Moran says it has returned around $80 million on its first $100 million invested already in its first decade of operation. It’s an ‘evergreen’ fund by design, meaning that returns generated by the fund go back into funding more startups through the venture wing exclusively.

“We spend a lot of time – and this is something people who do venture on the institutional side don’t understand – talking to the business areas, asking what issues, what problems, what interests do they have,” Moran said. “Then we use that as a roadmap to go look for technologies fit those needs.”

That’s not to say that the venture arm exclusively focuses on pieces that fit the puzzles it’s sourced from the rest of the business: Moran says that they’ll also act as a kind of technology scout, occasionally finding something that no one else in the company has ever heard of or even thought to look for, and that these have been useful targets not only for investment, but also for partnership potential.

As for specific areas that the fund is focused on right now, space is definitely one near the top of the list.

“Right now, there’s a good a good mapping between aerospace tech, aerospace interest, and what’s being invested in in the venture world,” Moran told me. “We’ve already done two launcher companies: Rocket Labs is in our portfolio, and another small company called ABL is in our portfolio. A small satellite company [we invested in] called Tyvak, we actually use as one of our product lines now. We white-label their satellites under our name, and we sell those satellites, because making small satellites is something startups are better suited to do.”

Automation technology, and related sensor technologies like lidar, radar, sonar, AI, algorithmic optimization is also extremely interesting, and has applications that include helping develop its lunar and planetary lander tech. Another investment that’s delivered tangible results is one the fund made a few years ago in a generative design startup which led to a 3D-printed bracket part that is currently “sitting on Mars,” says Moran, a unique opportunity for any early-stage startup.

Space-specific companies face a steeper climb when it comes to securing investment than some dual-purpose fundamental tech companies, Moran says. That’s to do with horizons on liquidity events, still somewhat of a question mark in space-sector startups.

“There are still problems with the payoff,” he said. “There haven’t been a lot of space exits, […] so I think there’s some concern about that. I don’t think we’ve reached a plateau yet, but things are certainly slowing a little bit from what I saw when I when I started three years ago. But I think people are looking to those first constellations or satellite companies that are going to generate a continuing profitable revenue stream.”

Ultimately, Moran said he thinks there will be a general sobering and return to older principles of profitability and solid core businesses in the startup investment world, after many years where space tech companies rode the wave of investment interest in big ideas that trumped immediate concerns with dollars and cents.

“I was joking with another VC yesterday: does anyone talk about cash flow breakeven anymore? I don’t think I’ve actually heard that in the board meeting of the last three years,” he mused. “So I think that’s going to come back and people are going to look at business plans a little bit more skeptically than they have in the past, there was a kind of a rush to have a space property in your portfolio. And now people like, well, how is this thing going?

Where’s the market? That stuff still being resolved.”