Space Startup Observations

In the world of “new space,” a person can become confused about what’s real, what’s progress, or what’s even a viable business in the space industry. More confusing is understanding what a new space company is. These companies generally are associated with the Silicon Valley mindset of breaking things often and breaking them fast. Silicon Valley’s fast production pace goes hand-in-hand with fast iteration. Using the Silicon Valley “cloak of terminology” can (and does) provide new space companies some cachet--whether they are successful or not.

Pitch it Until You Make It

Part of the conflation can be explained by the new space companies themselves. These startups typically search for sources of funding, including venture capitalists (VCs). Space startups learned to use terms VCs are comfortable with and avoided mentioning other terms, such as “capital-intensive.” As Burton Lee from Space Angels noted in a ,,2014 SpaceNews.com interview:

“These firms are savvy enough to pitch themselves to investors as information technology companies offering big data plus analytics...”

For example, instead of being a satellite operator of satellites collecting imagery, the space startup is expert with information technology, using a platform for providing insights that can only come from huge Earth observation datasets. Instead of building a ground network for satellite commanding and collection downloads, a company might paint itself as a big data network, curated by artificial intelligence programs to provide on-the-fly customized analytics.

This, meant, of course, that VC’s might feel a sort of false confidence about the information a space startup presented. Steve Jurvetson, a SpaceX investor and director of a VC firm, noted as much in the same SpaceNews.com article:

“Investors don’t need to be smart about space, because it’s just like their other software investment...”

And this strategy worked. Certain space startups successfully won over VCs and other investors, getting funding for their companies. However, in spite of the words and familiar terms, the space industry is not Silicon Valley--a fact that most VC’s probably recognize. A successful company like SpaceX may adopt certain agile methodologies commonly used by Silicon Valley companies. However, unlike those companies, SpaceX has to deal with high startup and capital costs (most space companies do).

Technology companies like Google, Facebook, and Microsoft work (primarily) with software, which costs essentially nothing once it’s written. They had extremely small startup costs. Their code is portable and easily reproducible (it costs nothing to copy). This is the basic nature of code (and a foundation of the software industry)--it’s inexpensively created and implemented, easily reproduced, and transportable.

These characteristics are why the music industry originally freaked out about iTunes and Napster. This is why companies that write code (Microsoft or Spotify, for example), are embracing other ways to make money from it--such as subscription services--otherwise, someone copies their code or their ideas and maybe makes something that’s good enough and cheaper. (If you appreciate reading these types of ideas and concepts, I suggest subscribing to ,,Stratechery)

Also, unlike the overall technology sector, the space industry still remains beholden to government money and government regulation (unlike the internet--remember when it was considered the modern “Wild West?”). Some reports add up just U.S. government spending to be around 12% of global space economy spending (of slightly over $400 billion). Adding in other governments and their space spending brings that percentage share up to 20%.

Not Like Silicon Valley Startups

Space companies, even the newest ones, are not in the position of their tech/software-sector peers. Most of the hardware in the space industry is expensive (even for small satellites). While some try to use off-the-shelf equipment, important parts, such as sensors are typically manufactured from exotic materials. The hardware is not easily reproducible. A lot of it is large, not lending to portability. The regulatory environment is not quick and can increase a company’s expenses. And that’s just the part of the industry that’s on the ground.

Some of these newer space companies try to semantically wriggle out of the capital costs--partially to stay with the story they’ve created for investors. They publicly note they aren’t interested in the satellites they must manufacture and operate because they say they are data/software companies. They are only interested in the data the satellites are collecting, compiling it, and maybe selling it as a service/product. That same ,,SpaceNews.com article illustrated this attitude in the author’s initial paragraphs about Skybox’s (now belonging to Planet) activities:

Every few months, Skybox Imaging employees take a break from building a constellation of small Earth observation satellites for Hack Day, a contest to see who can do the most creative thing in a single day. Winners of the most recent Hack Day created three-dimensional videos using imagery drawn from SkySat-1, the firm’s first spacecraft in orbit.

This ritual, an integral part of the computer programming way of life but foreign to most aerospace companies, provides an indication of the culture of the entrepreneurial space companies in the San Francisco Bay Area. These startups favor workbenches over high bays and commercial components over flight-tested hardware. In addition, many of the firm’s senior executives, who are often in their late 20s or early 30s, say their businesses have little to do with space. Satellites are simply a tool they plan to use to provide customers with valuable imagery and other information.

It’s true satellites are a tool. This is nothing new--governments have used satellites for years as tools for spying on other countries, watching the weather, navigation, and more. But, like the governments prior to them, space startups must still invest in the hardware and people, and some have severely underestimated the costs and time to build their space systems.

Unlike government, these startups don't have access to essentially unlimited funding. They also must learn to operate the hardware--which means they become space operators as well as data collectors/providers. It takes time to understand orbital mechanics, the space environment, systems commanding, and other pertinent industry topics before operating satellites on orbit.

More thoughts about this in the next post.