Disrupt Space 2017: Venture Capitalists and the Quest for Space-Facebook
On the 14th and 15th of March, some members of the function(core) team attended Disrupt Space 2017 in Berlin. As one of the space guys of the bunch, I couldn’t miss it for anything on the world! We managed to get to Berlin, despite the airport strike, and spent two days networking with startups and investors in the space industry.
Disrupt Space was a great event, filled with interesting people. We had talks from highly influential people in the space sector, such as Chad Anderson, CEO of Space Angels Network, and Amaresh Kollipara, founder of Earth2Orbit and board member of the Space Frontier Foundation. We enjoyed workshops from companies as diverse as SpaceTec Partners and Cosma Schema, and were in general treated to a great combination of investors (Asgard VC, Airbus Ventures, Deutsche Ventures) and innovative companies (ispace, Planet, Local Motors) during a number of panels. The complete list of speakers and attendees is too long to go through, but suffice to say that everyone was pretty much awesome, and I thoroughly enjoyed the event. I definitely recommend every startup or aspiring entrepreneur in the space sector to attend Disrupt Space next year, and I will certainly do my best to be there in 2018.
Space disruption at a glance
The amazing list of attendees at Disrupt Space makes it a great place to gauge the general direction of venture capitalists (VCs) in space: where they want to invest, what their goals are, and what they expect from the sector. You can also see what the most current startups are doing. However, given that pre-seed startups are usually money-starved, travel limitations will mean you’ll get mostly those based in Europe.
From the startup side of things, we could see three trends that are already settling in space:
- Constellations aren’t innovative anymore. Everyone has either launched one or planned one, and now people talk about a 100-satellite constellation like it’s business as usual. Until earlier this year, the largest constellation was Iridium, with 72 satellites. Now we have more than 13,000 satellites planned for launch in the next 5 years, with the huge majority in constellations of 100 or more satellites. Everyone assumes that, if your company uses space data, it either has its own constellation or gets the data from some other constellation. They also don’t care about the constellation, so don’t bother them with it; instead, talk about what you do with the data.
- Satellite-related activities-as-a-service are the option of choice. Of course space didn’t miss the “as-a-service” bandwagon, and things like ground stations-as-a-service are now pretty standard. This isn’t new, per-se (Spaceflight has been offering it since 2015), but how people talk about it is. Long gone are the days where someone started building a CubeSat in a garage and turned it into a full-fledged constellation, building their own ground network, hardware, and software in their office. If you want a constellation now, you can contract out the mission design from launch to end-of-life, the satellite design and manufacturing, the ground stations, and the launch and deployment. Essentially, people are taking care of anything engineering-related so that you can focus on your market. Space is not anymore reserved for those in the know.
- Launch delays and regulation are the largest roadblocks for space activities. That means that you could get your satellite designed, integrated, tested, and ready to go in 6 months, but have to wait another 1–2 years to get it to orbit. This has long been the way things are, and will continue until we see the eternally promised surge in launch capabilities when the small launchers come online (Rocket Labs should be first to market later in 2017, finally!). Also, regulation was made for Old Space, and will have to catch up with the new way of doing things. This will take some time, and the best solution is to learn how to deal with it.
- Everyone is doing data applications, i.e. applications for data obtained with satellites. You could move a rock and find a space data applications startup. The majority of the startups at Disrupt Space were data-based, and most people talked about space as a pain in the ass you had to put up with in some cases to get the data you wanted (one startup founder said literally “space is always the worst option”). More on this later.
As you can see, the startup scene was pretty much standard. CubeSat constellations, data applications, some Moon fans, and a bunch of people saying how hard space is. We’ve had a lot of innovation happening in recent years, and now all those new things are becoming common place. This is good, as it means people are starting to understand how to work in space, they’re creating experience within the industry, and losing the fear of space operations, at least in Earth-orbit. Once these markets start making money, and investors see how space works, they’ll be more willing to put cash into the development of the Cislunar Economy.
The most interesting takeaways in my view were from the investor scene. New Space startups have spent the last 5–7 years convincing investors that space is a thing, and it seems like they’ve finally managed to do it. Here are the main points that were presented:
- Investors are more willing than ever to bet on space. Funds like Space Angels Network are getting more members outside the space community, and a number of other funds are jumping into the space sector. Additionally, new funds are being created specifically for space. We saw a graph with an increasing number of deals, with increasing amounts per deal (assuming you consider the $1B SpaceX round from 2015 an exceptional event and take it out of trend calculations). Space is becoming trendy, and investors like trends.
- Startups in space fail to reach quality standards for investors. A common complaint from VCs was the poor quality of the pitches. Apparently there are too many engineers just pitching tech, and too many startups just doing tech and forgetting about market. Everyone emphasized that you should start from the market, then develop the solution for it. They don’t care about your fancy piece of technology unless you know where you’re going to sell it, which leads me to the next point.
- Start from the market. I said this above, but it is worth repeating: when you talk to an investor, you should start with the market. They don’t care about the technical details of your piece of tech, they want to know how you’ll make money with it. I think all the investors emphasized this, and it is indeed one of the largest shortcomings in the space industry in general. Most people just get excited with the tech, present an amazing project, but completely overestimate their market, or fail to even define it properly. So please, please, start from the market.
- Most investors won’t bet on hardware. Or technology for that matter. The prefer data applications, or data companies. If you are building hardware to get your data, that’s ok. If you just get your revenues from hardware, you might have a harder time finding investors.
- VCs still love CubeSats. The blind trust in CubeSats as money making machines continues. Now that Planet’s constellation is fully up, the time of truth has come for the microsats to show they can make money and not just work as a great tech development platform. Given common criticism, we might see companies and investors move away from them and closer to the 50-kg range, at least for Earth observation. We’ll see how this develops.
- Everyone’s crazy about data applications. Literally, everyone. All VCs mentioned it as one of their main focus, and some even as their sole focus. If you have a startup that found a new application for satellite data, you’ll find people throwing money at you as long as you’re half decent. Investors have this love for data in common with startups, though I’m unsure what came first: the startup data-app obsession or the investor’s one. I find this level of commitment to data applications a warning sign though: the sector is either being overhyped or overcrowded. Maybe even both.
Data applications and increasing interest were the common denominator of the conference. You can see here the advantage of Disrupt Space: hardly anywhere else can you find the combination of startups and investors required to give you such a broad perspective of the space startup scene. This alone is reason enough to go to the conference, and represents the bulk of what we got out of it.
If you are thinking of making a startup in space, you should now have a better idea of what to focus on. The easiest way is to find something to do with satellite data, and you’ll have access to all the goodies. However, I find this level of commitment to data applications a little unnerving, and would like to discuss it more here.
Always looking for the next Facebook
One of the keynotes presented the reasons for the obsession with data better than anyone else. He tried to make his case that space applications are the most interesting part of the mix, with the following points:
- He made an introduction to disruption with a brief history of Apple, presenting how their revenues took off with the introduction of iTunes and how Apple became the world’s largest music retailer and disrupted several industries, with the obligatory reference to Steve Jobs.
- He made an analogy of space with the Internet, which was highly disruptive to the economy. He said space industry will have a similar path to the Internet.
- He separated the Internet industry into two segments: infrastructure (Cisco, AT&T) and applications (Facebook, Amazon, Google). He said that infrastructure and applications have a symbiotic relationship, and need each other to survive.
- He concluded that, same as with the Internet, you should focus on data applications, and forget about hardware. He concluded by saying that the companies on the applications side were among the 5 highest valued in the world, and emphasized his point by saying something along the lines of “Who talks about Cisco anymore? It’s all Facebook.”
This seems to be the general idea that most investors (especially those that aren’t space-exclusive) have of how space will develop: with the improvement of tech, we’ll find some extremely disruptive application that will change forever some of the largest industries on Earth (say, agriculture and energy).
Notice the focus on Earth. The speaker even said that we shouldn’t care about space (“This is not space” when talking about applications), because it’ll be all about data. You can see it in the takeaways from the conference: most people won’t invest in hardware, they just want data.
This view has been cultivated by all the Earth observation companies, led by Planet, during the past several years. It suits their business model, and got all the investors excited about it.
This view is wrong.
Now, we’re still waiting see the effects of the Earth observation market on the global economy. We might at some point see that disruption from Earth observation in agriculture that everyone’s talking about. But it won’t come from applications, it’ll come from infrastructure.
The reasoning presented above is pretty easy to dismount: For starters, not everything follows exponential trends. People in tech love this, and so do the huge majority of the investors coming off Silicon Valley. They think everything can follow an exponential curve, same as microchips did. But Moore’s law isn’t for everyone, and especially not for complex pieces of hardware, like rocket launchers. Last summer I had the CEO of a famous Silicon Valley space startup essentially tell me I’m an idiot for saying that the cost of Falcon 9 will be about the same in 2020 as it is now. He started grumbling about how the price will be about a 10th, on account of exponential growth. But no, my friends, most space tech won’t follow your beloved exponentials, and in most cases (as is the case of rockets), it’ll be physics to blame.
Second, infrastructure and applications clearly do not have a symbiotic relationship. If Facebook disappeared tomorrow, most of its users would freak out, but life as we know it would go on. What would happen if we lost the internet infrastructure though? Internet has a greater effect on GDP than agriculture or utilities. The internet infrastructure has been way more disruptive of the economy as a whole than any application that has come from it, by the mere fact that the infrastructure enabled all those applications to exist. It might not be cool to talk about Cisco (even though it has almost twice the revenue of Facebook), but everyone will know when Cisco goes down (and everyone talks about it in zero-days, like the one just this month).
And finally, the most obvious reason: Facebook, Google, and Amazon might be among the most valued companies, but they aren’t those with the highest impact. They’re all technology companies that benefit from extremely large network effects to create way more value for cost than was ever possible before the internet. However, their impact on the economy in general is relatively small. Of those, only Amazon is in the top 50 companies by revenues, and none of them works on the largest industries of the world’s economy (energy, retail, pharmaceuticals and telecommunications). Most people in the world live without these applications, but everyone needs infrastructure (even the companies themselves).
How will it be in space? We already have the answer. None of the big name applications of today (Planet, Terra Bella, Spire) were possible some years ago. They required the development of a ridesharing infrastructure and the availability of launches from ISS. They required better tech for their satellites (which they developed themselves) and a network of companies manufacturing CubeSat parts. They required cheaper launchers (Falcon 9, PSLV), and they are still roadblocked by the lack of launch capability. They had to build a network of ground stations to serve their constellations, and now companies are offering that as-a-service. In sum, they needed a strong infrastructure to remain viable, an infrastructure which, in some cases, they had to build themselves.
Meanwhile, what are the hardware companies doing? Outside the CubeSat area, companies keep bringing the cost of launch down, bringing the cost of satellites down, improving communications and ground stations, and providing technology all around. They are also the ones working on reusable rockets, private space stations, asteroid and Moon mining, propellant depots, and lunar bases. These are the activities that will enable the future Facebooks and Googles. No one will talk about them, they’ll be taken for granted, but they’ll work in the largest sectors in space, lead technology development, and make decisions that will impact the entire economy.
The conclusion is clear.
Do you want to make highly valuable companies and have people invite you to all their conferences as a keynote speaker? Do you want to be potentially worshiped as a startup guru and dream of leading the largest IPO in history? Sure, go for data applications.
Do you want to work on the long-term development of space and get humans to the Moon and Mars? Do you want to influence the future of humanity at a deeper level and enable economic expansion beyond our current limits?
Do you want to really disrupt space?
Then go build some hardware