In the second of three articles focused on the Nano / Micro Satellite market, Corentin Guillo, Head of Missions at the Satellite Applications Catapult, looks at the ingredients for achieving funding.
The Lean Startup Concept applied to Space
At the very popular Small Sat Conference organised last summer in Logan, UT, USA, Steve Jurvetson (The “J” from the venture capital firm DFJ4) delivered an inspirational keynote. It followed the recent success of companies backed by DFJ Venture (namely Planet Labs and Space X) which could be summarised in one sentence: “Instead of ‘failure can’t be an option’, fail fast and often”.
And this is exactly what Planet Labs has been doing for the past couple of years. The well-known NewSpace start-up, based in Silicon Valley, has launched an incredible 121 Doves (3 unit CubeSats) since April 2013 (34 of those have been lost in launch failure). However, the most remarkable aspect of Planet Labs is its application of Lean Startup concept to satellite development. Basically, what Planet Labs did since its creation was to build a first Minimum Viable Product (Dove) with off-the-shelf technology, launch it, learn from its failure, and improve the next one in the same way a software company would do with new releases. They have now been doing this for almost two years at an unprecedented pace – new build every 6 weeks, with more than a dozen flight models.
This approach and agility is pushing the concept of customer and product development to its limit in the difficult space environment. The result is that their image products are more and more mature, and always gaining in commercial value. Planet Labs has just hit their milestones and are now closing a planned third round of funding worth $93m, in addition to a debt facility of $25m. Pretty soon, we will see if they succeed in their exit via an initial public offering or by being bought out by a larger player.
Investing in NewSpace Start-ups
This last cashing-out criteria is very important for NewSpace entrepreneurs and their investors. While space starts to be more interesting for private investment (Angels or Venture Capital), the creation of new markets and successful exit strategy still need to be proven.
The paradigm shift between multinational space organisations focusing mainly on upstream markets (satellite manufacture) towards NewSpace start-ups focusing on downstream markets (exploitation of space assets for big data or business intelligence applications) is mainly enabled by the fast development of the companies and technologies which enable a return on investment within three to five years. The greatest example demonstrating private venture investment into a NewSpace start-up is Skybox Imaging.
Skybox Imaging was founded in early 2009 and quickly raised $3m of private investment from two Venture Capital firms. They used this to demonstrate that they could design a satellite which would achieve HD video and sub-metre image resolution for a fraction of the price of existing space assets from larger organisations. A year later, following the successful achievement of the detailed design review, they secured a second round of investment worth $18m to build the first two technology demonstration satellites (SkySat-1 & 2).
Finally, in May 2012, before launching their first satellite SkySat-1 on 21 November 2013, they raised $70m of funding to scale up their constellation. On 10 June 2014 – a month before launching their second satellite SkySat-2 – Skybox Imaging announced their acquisition by Google for $500m.
This successful liquidity event is remarkable for two main reasons: Firstly because it is the very first high profile successful exit for a NewSpace start-up (5 years, $91m investment, $500m cash-out), a secondly because this acquisition is from a non-space industry giant. This demonstrates that space is no longer a niche sector, but a high-growth opportunity in the big data and business intelligence sector.
Looking at the evolution of space companies, we can clearly see an initial gap which is filling-up between ‘Incumbent Companies’ and ‘NewSpace Companies’. Incumbents are mainly large multi-national organisations which have been strongly supported over several decades by governmental and institutional customers looking at delivering very high resolution imagery for wealthy industrial customers, but moving to new commercial opportunities. Meanwhile, NewSpace organisations are focusing on an applications market which will consume data and cut back satellite manufacturing as a means to delivering business intelligence and big data-related services.