- Venture capitalists are increasingly investing in aerospace startups.
- New space startups raised $1.5 billion in venture funding last year.
- Aerospace engineer Ellen Chang created LightSpeed Innovations as a Y Combinator just for "astro-preneurs."
Venture capitalists have historically avoided investing in aerospace start-ups. That's because developing space technologies like rockets or satellites costs a great deal, and it can take a long time to reel in customers, especially if a start-up is seeking government contracts.
That's where space angel Ellen Chang comes in. The veteran aerospace engineer created LightSpeed Innovations in the summer of 2015 as an accelerator like Y Combinator or TechStars, but just for aerospace startups. Her aim is to help space startups find ways to make money, even before their technology is ready for big-time customers.
It's no longer necessary to launch a multi-million dollar rocket to have a viable space-tech start-up. Demand for space-related technology has ramped up beyond NASA and the Defense Department.
According to the Director of Research at the nonprofit Space Foundation, Micah Walter-Range, aerospace technologies like GPS and nano-satellite constellations are being used in areas such as ride-hailing, navigation apps and business services that monitor things like crop growth on farms or factory emissions.
Venture investors have begun to place bets in so-called "new space" startups, with $1.49 billion in funding going to aerospace companies in 2016 across 49 deals according to CB Insights, and 25 venture deals in this sector so far in 2017.
Lightspeed aims to help these start-ups by creating a network of early-stage mentors, investors and accelerators -- the type that peers who make mobile apps or hardware would take for granted.
But a typical tech accelerator like Y Combinator doesn't necessarily work for these kinds of founders.
"Astro-preneurs tend to be older. They get advanced degrees, have some industry experience and are ready to go out on their own. But they also have families and can't relocate then eat only ramen," she said.
The incubator is trying to show startups a path to becoming the next SpaceX, which was recently valued at more than $20 billion in a private investment round, and looks well-positioned for a public offering. It is also connecting startups with channel partners and corporations that may become clients, or eventually, acquirers or investors like Airbus, Boeing, or Northrop Grumman.
LightSpeed brings each cohort together for a kick-off weekend of workshops and networking in Los Angeles. Then it convenes the companies by video-conference every week. Start-ups also get together for optional events like an investment forum up in San Francisco attended by both investors and potential customers.
Space tech startups need to consider a balance of grants and private capital to grow their business, Chang added. Developing space technologies can still be capital-intensive, and often times angel money isn't enough to get startups ready to score institutional funding.
But it's a common mistake among new space startups to rely too heavily on grants.
"If you go for grant after grant, your startup can survive but you won't build self-sustaining, profitable companies that way. In the industry, we call these companies 'SBIR babies," Chang said, referring to the Small Business Innovation Research grants many start-ups get from the U.S. government.
"They develop plenty of cool technologies, but lack commercialization muscle. If their best ideas just gather dust on the shelf, that's not good for engineers. They want to see their tech go into orbit."
Chang, and her business partner and fund advisor Monica Jan, who is currently a senior director of strategy at Virgin Orbit and advisor to LightSpeed, use Steve Blank's "lean Launchpad" methodology to help companies create a so-called "minimum viable product," something they can sell in to the market long before they burn up their available cash, time and other resources.
For instance, cities have been willing to pay satellite companies a small fee to analyze traffic patterns, and large insurance companies have been willing to pay drone and data analytics startups to inspect properties from the sky, without signing on for a huge multi-year contract.
Alumni of LightSpeed include KubOS, a company building a common operating system for small satellites; Inova Drone and Skylift Global, which are working on drones that could possibly operate in orbit, lifting heavy machinery and withstanding extreme weather; and Ragnarok which uses satellites to bring high-speed internet to airplanes, boats and uncovered territories on Earth like Antarctica.
"We want to build a 'Silicon Valley' of aerospace in Southern California," Chang said. "But more than that, we want to make sure that the U.S. remains the leader in aerospace. We're seeing that challenged as more countries invest in their space programs."