Why LA Will Become the Epicenter of Space 2.0

In my last post I laid out my rationale for why I believe we will see an explosion of data generated from space and argued that we will see a number of great startups built leveraging this data in unique ways. If that does in fact turn out to be true, I also believe the LA ecosystem, more so than anywhere else, including Silicon Valley, is best positioned to take advantage of the next wave of aerospace startups.

Los Angeles has a lot going for it right now. It’s one of the fastest growing startup ecosystems and when it comes to aerospace in particular, it has a number of unique advantages over other geographies.

Rich Aerospace Tradition

Let’s start with the simple fact that the Aerospace industry has a long and deep history in Southern California dating back to the 1920s when companies like Ducommun Inc. supplied aluminum to early aircrafts including Charles Lindbergh’s Spirit of St. Louis. During World War II, Southern California was one of the largest producers of military airplanes in the country. By the time the Cold War came around, Southern California had become the nation’s hub for high-tech weapons research and pioneered the development of the U.S. intercontinental ballistic missile system. While Hollywood gets a lot of recognition, it’s hard to overstate the extent to which Southern California was built on aerospace and defense spending.

Because of that deep history, many of the biggest aerospace companies such as Northrop Grumman, Boeing, Lockheed Martin, JPL, Raytheon and others all have a major presence in the Los Angeles region. In addition to the traditional aerospace giants, many of the more recent aerospace companies call LA home as well. SpaceX is headquartered in Hawthorne, Rocket Labs in Huntington Beach and Virgin Galactic also has a presence in the city of angels.

Density of Aerospace Companies

It’s not enough to simply have companies based in a certain geography, they have to be actively participating in the ecosystem for it to have any value. In LA, these large aerospace corporations are doing just that.

First, many of these traditional companies have started investing directly into startups. Having realized the pace of innovation is accelerating and they can’t keep up with internal efforts alone, Boeing, Lockheed and others have corporate venture capital initiatives. These CVC arms are actively deploying capital into startups. Others such as NASA and JPL, have partnered with Starburst, an accelerator focused exclusively on aerospace startups.

Second, having these organizations local helps facilitate commercial and distribution relationships with startups. The easier it is to get more exposure to what startups are working on the more likely startups and large organizations can find ways to collaborate. Being able to secure partnerships, distribution deals or commercial agreements easier gives LA aerospace entrepreneurs a leg up on their competition.

Third, the close proximity provides easy access to advisors and mentors for aerospace startups. Having a pool of accessible, experienced individuals that can open doors, provide insights into the market, and give advice is invaluable for a founder as she navigates the uncertain waters of building a company from scratch. Having a large pool of these individuals already located in Los Angeles is yet another advantage an aerospace startup based in LA will have over other regions.

Finally, all of these traditional companies are potential acquirers for aerospace startups. Increases in defense spending are fueling expectations of increased M&A activity. It’s my expectation that these aerospace companies will increase both the volume and size of acquisitions in the coming years.

Geography

LA also has a geographic advantage that few other locations can match. Southern California has a rare combination of urban density, large desert that allows for rocket testing, an Air Force Base and an operational space port all within a few hours’ drive.

Mojave Air and Space Port is an active space port and testing facility located two hours from downtown Los Angeles. For years, Mojave has been a go-to location for small companies needing a place to develop space technologies. Mojave Spaceport has been a test site for several teams in the Ansari X Prize, most notably the Scaled Composites Space ShipOne, which conducted the first privately funded human sub-orbital flight on June 21, 2004.

Southern California is also home to Vandenberg Air Force Base. Located in Santa Barbara, Vandenberg is a Department of Defense space and missile testing base. In addition to its military mission, the base also leases launch pad facilities to SpaceX and was the location for SpaceX’s launch and return of the Falcon 9 rocket in October 2018.

With a vibrant city located close to two launch facilities and large tracts of desert land for testing, aerospace startups based in LA have inherent advantages over companies started elsewhere.

Talent

Let’s start with the fact that Los Angeles graduates more engineers than any other region in the US. Universities such as Cal Tech, USC, UCLA, Harvey Mudd, LMU and more are all producing elite talent. In previous years, much of this talent would migrate to the Bay Area but as the ecosystem has continued to evolve and the cost of living in the Bay Area has skyrocketed, more talent is staying here.

In addition to graduates, there is a large pool of experienced talent that startups can hire from. As mentioned above, there are a plethora of experienced aerospace veterans that have spent their careers at Boeing, Northrup, Lockheed, and JPL designing products. There are a number of talented individuals, having done stints at SpaceX or Rocket Labs looking to work at the next great space company. Thousands more work at similar enterprises large and small, giving the greater Los Angeles area an edge when it comes to aerospace workforce.

I also believe we will start to see aerospace startups begin to pull talent from other industries. Large data sets are enticing for any machine learning expert to work with and as I argued in my last post, data collected from satellites is the largest untapped data source. If this proves to be true, this should attract more traditional AI and ML talent to the industry.

Funding

The cost of launching aerospace startups is dropping dramatically, making it more practical for incubators, accelerators and seed funds to support aerospace startups. LA investors are beginning to recognize this trend and have started deploying capital into this industry.

Founded in 2012, Starburst Accelerator is focused exclusively on aviation and aerospace tech startups. The organization has a few locations, Los Angeles being one of them, and a $200m fund they closed in 2016 that invests in follow on financings. In addition to Starburst, I know of at least one other LA based aerospace focused accelerator set to launch in 2019.

In addition to accelerators, VC funds in LA have started deploying capital into aerospace companies. Sway is a co-investor with a few LA seed funds in Slingshot Aerospace which graduated from the Techstars LA accelerator. I know of a few other LA based funds that have made investments in aerospace companies as well, indicating there is a growing recognition and appetite to fund aerospace startups in LA.

Diversity of Industry

My thesis that the volume and type of data collected from space will expand exponentially thus making it possible, with the use of Machine Leaning, to unlock new applications across numerous verticals that were never before feasible. These use cases won’t just be applicable for the defense industry but across a wide variety of industries including ecommerce, finance, real estate, supply chains, transportation and more. LA is home to content creators, gaming publishers, direct to consumer startups, retail businesses, and enterprise companies. What new products might be created by adding aerial data to these industries? Having a cross disciplined talent pool gives LA a competitive advantage as some of the most interesting products get built when there is blending of knowledge from different sectors.

I generally believe that access to talent, funding and knowledge is being democratized across geographies, thus leading to entrepreneurs being able to build startups just about anywhere. However, with regards to the aerospace industry in particular, Los Angeles has a number of inherent, structural advantages over other regions. While it still ultimately comes down to execution, aerospace companies started in LA will have a distinct edge over their competition and in time I believe that will lead to LA becoming the hub of the next wave of aerospace companies.