It’s belt time for space startups

Downsizing Facilities, Canceling Travel, and Downsizing Help Startups Maximize Every Dollar Raised

Credit: SpaceNews Midday illustration

If fundraising were easier, Plasmos might have a dedicated facility for testing rocket engines. Instead, the propulsion startup has leased a speedboat restoration shop east of Los Angeles.

There, “we managed to test something, and it was successful,” said Plasmos CEO Ali Baghchehsara. “We managed to create plasma in the engine and achieve high ionization using air.”

After years of sky-high valuations and investor competition for shares of promising space startups, high interest rates and the threat of recession have made investors cautious. In response to the lack of new funding sources, space startups are cutting back on hiring, reducing travel, and ditching rented office space.

“Entrepreneurship is always a bit about the survival of the fittest,” said Jason Chen, founder and CEO of VentureScope, a McLean, Va.-based venture capital advisory and investment firm that works with entrepreneurs. “This saving definitely tightens the belt a bit, which makes teams feel lighter.”

TIME TO DELIVER

Ukrainian startup Promin Aerospace downsized and doubled engineering in 2022.

“We currently have 13 full-time employees. Ten of them are part of the engineering team at Dnipro and three are part of the administrative team,” said Promin CEO Misha Rudominski. “We had 16 employees before the war. We had an office manager and a communications person. We were building the team for future growth.

Instead of building a dedicated facility, Plasmos tested engine technology at GT Performance Engineering in Upland, California. At one point, Plasmos CEO Ali Baghchehera drove a forklift to move concrete blocks around the test bed. Credit: Plasmos

Instead of preparing for expansion, a popular approach in 2020 and 2021, startups are now focusing on extending their burn rate, which means slowing the pace of spending.

Investors, meanwhile, encourage founders to “focus on their core competencies, regardless of their unique value proposition,” said Chen, founder of four startups.

For Lunargistics, a Woodland, Texas startup that offers mission advice, launch integration and other space services, the economic downturn has meant fewer trips to conferences.

“It’s been successful and enlightening to meet everyone in an industry that @lunargistics and I are new to, but now is the time to deliver,” tweeted Logan Ryan Golema, Founder, President and CEO of Lunargistics in November. .

GOVERNMENT LIFELINE

For some start-ups, government contracts or funding programs serve as a lifeline.

Matt Kozlov, managing director of accelerator TechStars Los Angeles, said the most important advice he gives to startups right now is “to follow relentlessly, apply, and win contracts and government grants every time. as possible”.

The Department of Defense, Department of Energy, National Science Foundation, NASA and other government agencies are “an excellent source of capital, non-dilutive funding opportunities” as well as “phenomenal early validations of the technical viability of a business and potential interest” from government customers, Kozlov said via email.

After winning a government contract, a founder said, “It means we don’t have to lay off people and we can keep building the new things we want to build.”

Entrepreneurs, who enthusiastically share news about technology achievements and fundraising success, are much less eager to discuss financial issues and layoffs. When they promised they would not be named by name, however, they speak freely of the stark differences between 2021, a record year for space investment, and 2022.

“There’s no doubt that the funding environment is tight right now,” said one startup founder. “We’ve seen that across the industry.”

Another founder said, “Entrepreneurs who raised three or four months before us, raised insane amounts on insane valuations from the start.”

CAPITAL EXPENDITURE CUTS

Shrinking angel, corporate, and venture capital investment in the space sector makes perseverance especially difficult for startups that need significant funding before generating revenue.

SpaceLink was forced to shut down after its parent company, Australia-based Electro Optic Systems Holdings Ltd., found itself empty in its search for outside investors willing to provide $70 million in the short term and $250 million dollars in total for SpaceLink’s planned data relay constellation in medium Earth orbit.

While Medium Earth Orbit is an excellent vantage point to communicate with Low Earth Orbit satellites, “obtaining equipment, satellites and launch capability at MEO entails high pre-revenue expenditures. capital intensity,” said SpaceLink CEO Dave Bettinger.

Other entrepreneurial ventures continued to operate while reducing capital-intensive projects.

In December, British cybersecurity software developer Arqit scrapped plans for a space-based quantum encryption network, citing the cost and risk compared to establishing a ground-based network.

In October, small satellite specialist Terran Orbit canceled plans for its own synthetic aperture radar constellation, opting instead to build SAR satellites and sell them directly to commercial and government customers.

WORKAROUNDS

It is impossible to predict how long the current investment climate will last.

Credit: SpaceNews Midday illustration

Space Capital noted nearly $300 billion in dry powder, investment dollars remaining on the sidelines, in its third-quarter report released in October.

“We’re still waiting for the floodgates to open,” Space Capital said, as VCs shift from purely momentum investing to a greater focus on due diligence and price control.

Until the floodgates open, founders of early-stage startups like Los Angeles-based Plasmos are finding inexpensive workarounds.

“Given the fundraising constraints in the market, we did things in a rush and at low cost,” Baghchehsara said.

Plasmos has few employees and the startup’s technology, which combines chemical and electric propulsion elements, is not suitable for common propulsion test facilities.

To get by, Baghchehsara found a welder to build a rocket test rig by advertising on Craigslist. One of the people who responded introduced Baghchehsara to GT Performance Engineering, a marine services specialist in Upland, California.

One weekend, “I started to carefully use their expensive machines,” Baghchehsara said. “That same weekend, we turned on the engine because these people were extremely skilled in machining.”

Even though GT Performance Engineering employees had never worked on rocket engines, they were eager to help Plasmos with testing.

“They call me the boomer,” Baghchehsara said. “Everyone comes and helps me.”

This article originally appeared in the January 2023 issue of SpaceNews magazine

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