Space technology is seeing a creative and competitive boom like never before. Startups and scale-ups are increasingly seeing potential in technology that reaches beyond the confines of Earth, not just commercially, but from a defense and national security perspective as well. Dual-use space capabilities are powerful concepts, but raising and leveraging capital to support American interests, especially within the Space Force, requires building relationships, understanding where the money is coming from, and creating opportunities for startup companies to survive the lean times before contracts start coming in.
I recently joined a TechCrunch Sessions breakout panel, comprised of individuals involved in growing opportunities and breaking through barriers to enable collaboration between government and startup companies interested in space. We shared our perspectives on the challenges public and private sectors face and how to reduce the pitfalls. Moderator Jen Ross, from ABL Space Systems welcomed me, along with Chris O’Conner from Harpoon Ventures, Jordan Noone from Embedded Ventures, and Lieutenant Colonel Rock McMillian from Space Systems Command.
Community leads to confidence and momentum
For startups hoping to expand, develop dual-use solutions, or enter the defense market, success will always come down to trusted relationships with diverse stakeholders. I believe building a community is the first and most vital step for any space-related startup. There is long-term value in convening a mix of interested parties from the private and public sector, as well as investors, innovators and problem-solvers. This is where regular, transparent conversations can take place so the government can signal what problems it needs to solve, and private investors and innovators can determine what makes sense from a dual-use or commercial perspective.
Technology hastened by the pandemic has made it possible to connect with just about anyone virtually, eliminating travel and business meetings. It’s easier to build associations with passionate people centered around a common cause. As the relationship grows, so does trust, as people develop a history and an understanding of each other’s needs and goals. When you have a solid team, there is more willingness to take some risk, because you trust the team, and you know how it works. Deals tend to move faster. The value of this relationship-building flows into the next area of capital: timing. Having trusted relationships with investors who come in and understand the entire structure and timeline of your innovation will be the make-or-break difference for your startup’s survival.
Timing for growing a solid capital base
The first question that often arises is when to start raising capital. In my experience, the earlier you start, the better. Once a founder or company has decided the pathway forward, they will ideally begin to build a strong foundation of capital to keep afloat during the so-called valley of death – the time it takes between the start of operations to having paying contracts in hand. The relationships you’ve already built with investors and people inside government to encourage milestones and support is crucial for progressing forward, and healthier for a startup than hoping capital will suddenly appear when needed most.
Surviving the most common pitfalls for entrepreneurs and startups means raising funding throughout the process. This requires investment from the private capital community in addition to relationships within the government to survive stretches between contracts. If you have investors that understand that there will be fits and starts, valleys and peaks, they can bridge financing to get a startup from that first valley of death to first revenue. At the same time, the startup can continue having conversations with public sector players to build a pathway toward government traction later on.
The origin of money
Not all money is good money. As the saying goes – if it seems too good to be true, it probably is. When you’re trying to raise money for your startup, be vigilant about raising it from the right players, especially in the space and aerospace industries. Certain countries of special concern are among the United States’ biggest adversaries, and they can offer large sums that carry even bigger expectations. The Defense Investor Network (DIN) I run has set up mechanisms to help companies vet investors and potential hires.
We also help investors vet companies to ensure their capital is clean, which helps people building companies have their eyes wide open. To further simplify the pathway to investment, certain networks, including the DIN, demand proof of clean capital before they approve membership. The government has pushed for greater transparency in the origins of capital. The private sector is working to set up mechanisms to make decisions easier for founders, entrepreneurs and investors.
Funding America’s space future
As the stakes increase for space exploration and exploitation, and political unrest grows, the U.S. needs more than solutions. The Department of Defense needs sustainable innovations backed by reliable, clean funding with no strings attached. For startups, that means balancing the needs of government, while figuring out how to survive lean times, and win in commercial markets. It’s a difficult task, but rewarding if you start building your relationships early with the right people, at the right time, and with clean, honest investments.
