A Closer Look at Which Space Companies U.S. VC’s are Investing in

Falcon 9 launches the Dragon CRS-9 mission to the International Space Station. (Credit: NASA)
Falcon 9 launches the Dragon CRS-9 mission to the International Space Station. (Credit: NASA)

NASA’s new publication, “Economic Development of Low Earth Orbit,” consists of a series of papers that examines a number of important policy questions that will be of rising importance as NASA transitions human spaceflight in LEO to the private sector.

One of the papers, “Venture Capital Activity in the Low-Earth Orbit Sector,”
has detailed information on what U.S. venture capitalists have invested in. Key excerpts from the paper follow.

Excerpts From

Venture Capital Activity in the Low-Earth Orbit Sector
by Josh Lerner, Ann Leamon, and Andrew Speen

A. Number of Companies/Transactions and Amount Invested in LEO Sector (All Dates)

Number of Companies/Transactions

Our research suggests that 18 U.S. LEO-related companies have received VC financ­ing to date, in a total of 37 transactions (including what appear to be three round extensions). Some companies were only involved in one transaction, others in sev­eral. As noted previously, we excluded leveraged buyout (LBO) deals from our data­set—for example, Thermo Capital Partners’ acquisition of satellite communications company Globalstar in 2003 and Artemis Capital Partners’ acquisition of sun sensor supplier Adcole Corporation in 2014. We also omitted investments solely by angels/ angel networks and investments in non-U.S. LEO companies, such as UrtheCast, a Canadian company.

Figure 4.1 tracks VC transactions in the LEO sector and illustrates the growing interest in the sector. The red bars indicate the first identified transaction for the 18 U.S. companies, while the black bars include all 37 identified transactions (including three round extensions).115 From 1983 to 1999, we identified only three companies received VC funding. Between 2000 and 2007, five firms were funded—more than in the prior 17 years. That number doubled to 10 from 2008 to just January 2015. Looking instead at all identified transactions (including round extensions) we find a similar pattern: four transactions from 1983 to 1999, nine transactions from 2000 to 2007, and 24 from 2008 to January 20, 2015.

VC_LEO_transactions_number
Figure 4.1: U.S. Venture Capital Transactions in LEO Sector, as at Jan. 20, 2015

115 We identify round extensions as investments that do not represent full funding rounds. If not explicitly stated, these typically are deals by current investors and represent insignificant amounts relative to the previous round.

Amount Invested

Among the subset of deals with transaction sizes disclosed (32 of 37), VC investment in the U.S. LEO sector totaled $1.64 billion (see Figure 4.2).116 Given the small sample size, a few investments make up the majority of this figure (most notably, a $1 billion investment in SpaceX in 2015). Still, we find that in each five-year increment since 2000, aggregate transaction amounts have steadily increased: $89 million from 2000–2004; $184 million from 2005–2009; and $284 million from 2010–2014. In the first month of 2015, LEO investment levels skyrocketed as a result of Google and Fidelity’s $1 billion investment in SpaceX. The SpaceX investment round accounts for over 60 percent of all VC funding to date in the U.S. LEO sector.117

VC_LEO_investment_value

Figure 4.2: U.S. Venture Capital Transaction Value in LEO Sector,
as at January 20, 2015

116 Transaction values are missing in 2006, 2008, 2012, 2013, and 2014.
117 We include Google and Fidelity’s $1 billion investment in SpaceX since appears to be structured as a standard VC deal and is reflective of rising VC interest.

B. LEO Subsectors of Current Interest to VC Firms (2008–Jan. 20, 2015)

In this section, we take a closer look at the U.S. LEO companies in which VC firms have invested. The LEO sector can be broken down into a number of subsectors: satellites of varying sizes (e.g., nanosats, microsats) and for varying purposes (e.g., communication, Earth monitoring, space tourism); launch vehicles; commercial space services and scientific experimentation; propulsion; and asteroid mining. To see which of these subsectors has attracted the most attention from VCs, we break down deals and investment dollars by subsector since 2008.

Figure 4.3A charts the proportion of U.S. LEO VC deals by subsector. Because of a small sample size, we exclude deals that appear to be “round extensions,” as they do not reflect the same type of VC interest as a full financing round.118 We find that separate transactions in nanosatellites (Spire, Planet Labs) and microsatellites (Skybox) make up eight of the 21 deals, or 38 percent. We find another eight transactions in launch vehicles (SpaceX, Rocket Lab, Xcor Aerospace 119), two in commercial laboratory services/microgravity-enabled technologies (NanoRacks; ACME Advancement Materials);120 one in propulsion (Accion Systems); and two in asteroid mining (Planetary Resources).121

VC_LEO_proportion_chart

Figure 4.3A: Proportion of U.S. LEO VC Transactions (ex. Round Extensions), by LEO Subsector, 2008–January 20, 2015

118 We identify “round extensions” as investments that do not represent full funding rounds. If not explicitly stated in reports/databases as such, we define round extensions as deals by current investors that represent insignificant amounts relative to the previous round.
119 We note that Xcor is also developing rocket propulsion systems.
120 After the date of this analysis, Spaceflight Industries, a launch service provider, announced a $20 million Series B funding round (March 2015) from RRE Venture Capital, Vulcan Capital, and Razor’s Edge Ventures. Prior to this announcement, however, Series A funding ($7.5 million from Chugach Alaska Corporation and Apogee) appears to have been undisclosed.
121 Planetary Resources’ financing history is not entirely transparent. We find it unclear as to whether the firm had two separate financing transactions in July 2013, as the company report­edly raised $1.5 million in a crowdfunding effort, as well as $1.5 million in “seed” funding during the same month from the investors noted in Appendix A.

In Figure 4.3B we break down VC activity by deal value. For consistency, we exclude round extensions, although they made up a trivial portion (less than 1 per­cent). It is important to note that Planetary Resources, Rocket Lab, Xcor Aerospace, and ACME Advancement Systems have not disclosed their respective VC funding amounts and thus are not included in Figure 4.3B.

VC_proportion_figure43b
Figure 4.3B: Proportion of U.S. LEO VC Investments ($M; Ex. Round Extensions), by LEO Subsector, 2008–January 20, 2015

Among the 17 remaining deals, launch vehicles make up 82 percent of all deal value since 2008. We note, however, that this largely stems from SpaceX’s $1 billion deal led by Google and Fidelity. Excluding this deal, nanosats and microsats represent 63 percent of investment dol­lars, launch vehicles account for 36 percent, and commercial lab facilities/microgravi­ty-related products, propulsion, and asteroid mining under two percent combined.122

122 We again note that after the date of this analysis (March 2015), Spaceflight Industries, a launch service provider, announced a $20 million Series B funding round from RRE Venture Capital, Vulcan Capital, and Razor’s Edge Ventures. Prior to this announcement, however, Series A funding ($7.5 million from Chugach Alaska Corporation and Apogee) appears to have been undisclosed.

C. Key VC Firms Active in the LEO Sector

The VC backers of LEO companies have been dominated by six main groups: Bes­semer Venture Partners, Draper Fisher Jurvetson (DFJ); Khosla Ventures; Founders Fund; E-Merge; and RRE Ventures. With the exception of Bessemer Venture Part­ners, each of these groups has reported at least two deals since 2008 in the LEO sec­tor. While Bessemer Venture Partners (BVP) has only disclosed one deal to date, they are rumored to be involved in at least one other LEO company.123

Table 4.1 compares the industry preferences of these LEO-oriented VC firms. To do so, we tracked the proportion of deals since 2007 within Preqin’s industry categories (which admittedly are slightly ambiguous). We find that these VC groups typically invest in Internet- and software-related companies. Among all deals from 2007 to present, the VC firms invested roughly 32 percent on average in “Internet” companies and 23 percent in “software and related” companies.124 To put this into context, Preqin reported that among North American VC deals from 2008 to February 20, 2013, roughly 24 percent of deals were in “Internet” and 18 percent of deals were in “software and related” companies.125 While the time periods do not align precisely, these figures suggest that the industry preferences of LEO-oriented VC firms may make them keenly alert to opportunities at the intersection in these sectors.

In Table 4.1 we note the partners from the firms who serve on the board of direc­tors of their respective portfolio companies. Our research suggests that much interest among these firms in the LEO sector often originates from individual partners. One interviewee brought up the apparently personal nature of VC investing in LEO, not­ing, “It’s not really that a firm has a practice in it. There is one partner who’s inter­ested in it.” This toe-in-the-water approach is similar to the way in which many VC firms became involved in such then-unknown sectors as the nascent Internet in the early 1990s.

VCs_LEO_Market

a After date of this analysis BVP led Series B financing with Rocket Lab, which was announced on March 2, 2015.
b Lamond formally left Khosla Ventures in June 2014.
c As previously noted, after the date of this analysis (March 2015), Spaceflight Industries, a launch service provider, announced a $20 million Series B funding round from RRE Venture Capital, Vulcan Capital, and Razor’s Edge Ventures. Prior to this announcement, however, Series A funding from Chugach Alaska Corporation and Apogee appears to have been undisclosed.

We find evidence of this phenomenon in our analysis: Khosla Venture’s 2009 investment in nascent Skybox Imaging was primarily the work of then-Partner Pierre Lamond. One source commented that Lamond invested the first $3 million in Sky­box Imaging after being charged by Vinod Khosla, founder of Khosla Ventures, to identify high-risk science ventures in which the firm could invest a quarter of its $1 billion fund.127 In addition, Steve Jurvetson—a long-time rocket enthusiast—rep­resents Draper Fisher Jurvetson (DFJ) on the board of its two LEO sector investments. In fact, at the 2014 “Small Satellite Conference,” Jurvetson explained that out of “personal curiosity” he had been meeting with entrepreneurs in the space-related industries for 10 years before DFJ’s investment in SpaceX.128

We do find, however, recent trends suggesting that the space sector is becoming more a firm-wide area of focus. In one such example, Bessemer Venture Partners, backers of SkyBox and, recently, Rocket Lab, has announced a “spacetech” practice that includes David Cowan, Sunil Nagaraj, and Scott Smith, the COO and board member of Iridium Communications.129

123 Indeed, after date of this analysis BVP led Series B financing with Rocket Lab, which was announced on March 2, 2015.
124 These percentages represent a simple average since 2007 (i.e., average the proportion in these indus­tries among the six groups). If we instead take a pooled average (i.e., dividing the total number of “Internet” and “software and related” deals among the six VC firms since 2007 by the total num­ber of transactions during this period), we find that “Internet” companies composed 28 percent of transactions and software & related companies composed 18 percent of transactions.
125 Gemma Morris. “Venture Capital Deals: Industry Trends.” In Private Equity Spotlight, March 2013: Preqin, 2013, Figure 4.|
126 Deal count data from Preqin, accessed January 19, 2015. Deal counts may not be exhaustive.
127 David Samuels. “Inside a Startup’s Plan to Turn a Swarm of DIY Satellites into an all-Seeing Eye.” Wired.com (June 18, 2013).
128 See “Small Sat 2014: Keynote Steve Jurvetson.” YouTube video, 1:08:27. Posted by Small Sat Conference, August 18, 2014. https://www.youtube.com/watch?v=qzudBqGyPTY#t=340 [5:40–8:00].
129 “Iridium COO Scott Smith Joins Bessemer Venture Partners as an Operating Partner.” Business­Wire (March 2, 2015).

Save

4.3 Performance of Recent U.S. LEO Companies (2008–2014)

Table 4.2 summarizes the performance of recent LEO deals (excluding round exten­sions). Because of the unclear nature of its funding and contradictory media reports, we exclude Planetary Resources from this analysis. We find that of the remaining eight companies that received VC funding between 2008 and 2014, five (SpaceX, Skybox Imaging, Spire, Planet Labs, and Xcor Aerospace) have raised additional VC funding as of Jan. 20, 2015.143. We also note that all three deals without follow-on funding took place in 2013 or 2014, giving them a lower probability of second rounds within the sample. We find that the size of the transaction generally increased in sequential rounds.

Furthermore, the companies that have yet to receive an additional round of VC funding have either received other types of funding or achieved significant milestones that validate their technology:

  • NanoRacks helped validate its technology by successfully deploying Planet Labs’ Flock 1 CubeSats from the ISS in February 2014.144;
  • Rocket Lab has received grants from the New Zealand government in January 2014 and completed an important developmental step for its carbon composite Electron rocket, in September 2014.145
  • ACME Advancement Materials (A2M), which “ … develops and produces unique materials in a microgravity environment,” announced the ability to produce its Silicon Carbide wafers in “commercially viable quantities” in October 2014.

We also find one exit via strategic acquisition, which suggests viability in the sec­tor for venture capitalists. We emphasize that Google’s acquisition of SkyBox demon­strates large-scale commercial applications of the type of data small satellites can acquire and will likely serve as a benchmark against which other satellite companies can be assessed.

VC_investment_rounds

a For more details on Xcor Aerospace’s VC funding, see Appendix A.
b As previously noted, Rocket Lab indeed received Series B financing in a round led by BVP announced on March 2, 2015.
c Kevin Robinson-Avila. “Made in Space.” Albuquerque Journal (October 13, 2014).

143 We note that Xcor Aerospace’s second deal was not from a traditional VC group. See Appendix A for more details.
144 Irene Klotz. “Satellite ‘Flock’ Launched from ISS Cubesat Cannon: Photos.” News.Discovery. com (February 18, 2014).
145 “NZ Govt. Funding Secured.” RocklabUSA.com (January 2014). See also, “First Off-Tool Fairing Complete.” RocklabUSA.com (September 2014).

Appendix A

VC Involvement in U.S. LEO Sector as of January 20, 2015 (Excluding Round Extensions)a

Note: While every effort was taken to identify all U.S. VC investments in LEO to date, certain investments may not have been identified given little public disclosure. Other startups may have been missed due to difficulty in identifying their involvement in LEO. Explanations of ambiguities within certain deals are described in footnotes.

VC_investment_space_companies

a Data obtained from press releases, news articles, company websites, industry reports, CrunchBase, Preqin, and Thomson ONE.
b Orbital Sciences Corporation also raised $50 million from LPs to finance the TOS vehicle in 1984/85.
c While only the September 1997 has explicitly been made public, media releases in September 1997 noted that, “SpaceVest originally invested $2.5 million in the 6-year-old company [Constellation Communications] last year and the year before. Now the fund supplied another $2.5 million.” While the language is slightly ambiguous, we interpreted this as a single investment of $2.5 million occurring in two tranches in 1995/96. See Bob Starzynski. “SpaceVest Adds $2.5M to Constellation Coffers.” Bizjournals.com (September 22, 1997).
d This investment was atypical in the sense the Syncom and other investors acquired the entirety of Motorola-backed Iridium, which declared bankruptcy in 1999. The investors also added another $130 million in commitments to recapitalize Iridium. In September 2009, investment bank Greenhill & Company (GHL) acquired Iridium for $560 million. For more information, see Frank McCoy. “The Art of Turning $25 Million Into $560 Million.” Theroot.com (January 25, 2010).
e CartaSite secured seed financing of $1.2 million in 2004, though no investors were disclosed. We presume the financing came from individuals. There is conflicting data as to whether CartaSite also received a $3.2 million investment in April 2006.
f ORBCOMM also received investments from Silver Canyon Group and Centripetal Capital Partners, though it is unclear as to whether these investments were separate from or part of the deals listed in Appendix A.
g Xcor Aerospace reported additional funding rounds of an undisclosed amount in June 2007 and $5 million in February 2012. We note, however, that the June 2007 investment appears to be solely from an angel network (Boston Harbor Angels). See, Xcor Aerospace. “Boston Harbor Angels Invests in XCOR Aerospace: Investment Fuels Expansion into New Markets.” (June 7, 2007). The February 2012 investment was reportedly from angel investors and former venture capitalists, not traditional VC firms. See, Xcor Aerospace. “XCOR Aerospace Closes $5 Million Round of Investment Capital.” (February 27, 2012). While we cannot be sure if other institutional investors were involved, the majority of funding seemed to be from individual investors/angel networks. We therefore do not include these as VC funding. We also note that Xcor’s Series B round was not from a traditional VC group, but Space Expedition Corporation appears to have taken a minority stake and two of its officers joined Xcor’s board. Xcor later acquired all operational subsidiaries of SXC in June 2014, while the parent SXC company remained a “passive investment holding company.” See, Jeff Foust. “XCOR Acquires One of its Investors’ Subsidiaries (Updated).” NewSpace Journal (July 1, 2014).
h While reports had circulated that SpaceX raised an additional $200 million in August 2014, SpaceX representatives have refuted these claims. See Alan Ohnsman. “Musk’s SpaceX Denies Blog Report of Capital Raising Plan.” Bloomberg Businessweek (August 19, 2014).
i Planetary Resources’ financing history is not entirely transparent. We find it unclear as to whether the firm had two separate financing transactions in July 2013, as the company reportedly raised $1.5 million in a crowdfunding effort, as well as $1.5 million in “seed” funding during the same month from the investors noted in Appendix A.
j “Russia-linked Company Invests in Asteroid Mining.” Moscow Times (August 17, 2012).
k We note that Rocket Lab is a U.S. corporation, but is based in New Zealand. For details, see Doug Messier. “A Closer Look at Rocket Labs’ Technical Development.” Parabolicarc. com (August 1, 2014).

Save

Save

Save

Save

Save

Save

Save

Save

Save

Save

Save

Save

Save

Save

Save

Save

Save

Save

Save

  • John_The_Duke_Wayne

    Wow, amazing to see how much investments in LEO have grown since the early 80’s and 90’s. a lot of the funding reported here appears to have gone towards small satellite developers too, good news for companies like Firefly and Rocketlab.