IQT Explains: Space Origins and the Startup Ecosystem

Transcript

[Music] a revolution is happening in the commercial space industry in the past seven years we've seen dozens of startup companies raise funding and begin deploying constellations of satellites into low earth orbit space which used to be a domain only accessible by superpower nations is now becoming a new platform for innovation from the best and brightest in silicon valley and around the world welcome to the iqt podcast today we kick off a three-part series where we will explore the history of space and how iqt's investments and insights have helped advise and shape the technology to help enhance national security on today's episode we'll focus on iqt's origin story in the history of space i'm your host vishal sandusera and joining me today are dave labosco and tom gillespie dave leads a team responsible for identifying and executing investments across a wide range of technologies including space technology autonomous vehicles robotics advanced manufacturing and power and energy prior to joining iqt in 2014 dave was a senior principal engineer at orbital sciences corporation at orbital dave worked on small satellite development and demonstration programs for national security applications dave received a bs and ms in aeronautics and astronautics from the massachusetts institute of technology tom serves as a managing partner in inqtel's investment team and as an investment lead for ncutel's field technologies practice where he is responsible for identifying technologies that address challenges faced by the intelligence community dave and tom welcome to the show great to have you thanks paul good to be here tom why don't we start with you you and i've had this conversation uh in years prior you've been around since from the very beginning when inquitel started to look into space as a potential for investment and further research and insight why you know and you were of course part and parcel to to this you and your colleagues why is it that nutella started to look at this uh domain in the first place when it did so you know certainly why and when i think are important dimensions to sort of uncover uh and what are the opportunities that we sort of saw at that time yeah sure um so it's a really interesting story and it's one that we haven't been really able to tell in full detail but um we started uh really looking seriously at the sector back in about 2014 um prior to that we'd done a few space-related investments they were sort of opportunistic yeah they weren't really part of an overall strategy what we saw was happening in i'd say kind of late 2013 early 2014 was the venture capital market was trying to pay attention to this is the sector not a ton of investors but we started to see some really interesting investments along the way there um and that plus you know the small set revolution so you know what you can do with satellites how much they cost how easy it was to get them to space all of that was changing and so um that together allowed us to get into some deals that we thought were were pretty interesting for our customers and um and made a lot of sense to start looking at the sector so that those are the origins at that point um what we really started doing was um scanning the whole sector at that point in time so it wasn't that big um it was probably 50 or 60 companies we went and talked to almost every one of them at the time um we went and talked to all the active investors in space which again was not that long on the list and we started engaging customers about what we saw was happening in the commercial sector and trying to you know start getting them up to speed and interested in at least following it um so that's kind of how we got started and i'll turn it back over to you that the origin story uh really begins in that sort of late 2013 early 2014 timeline and the open question to either uh either dave or tom what is it that you sort of noted in the early days what were the good old days like i mean you know speaking from a perspective of someone who's really started focusing in on this in the present i myself have uh been privy to all the stories of story building our space race uh the evolution and advancement of space tourism sort of the consumerization i guess you know is where my interests lie only because of my exposure but what was it like uh in the time frames that you're all talking about and during the origin times and thereafter what were the things that were of interest what were people talking about where was the money flowing uh and what is that you know our customers cared about the most sure i can jump here in here you know at that point we were looking at cubesats as a big trend um even in your intro michelle you talked about how previously the domain of space was uh super powers large nation states to get into space but in the early 2000s there was mostly universities uh hobbyists looking could you build a cubesat the size of a loaf of bread launch it into space prove that it could send a little beep back down to earth that it that it made into space but around that time in that 2013-2014 time they're actually companies forming using that cubesat small sat technology and actually building businesses around them rather than just being a hobby so we took note of that and started looking at it pretty seriously to see if one could these businesses become real and make money and two could our partners in the us government take advantage of that technology to purchase that data coming from those satellites to help uh augment their capabilities for their national security mission and you did you mentioned cubesats and small sets i assume those are maybe synonymous or or perhaps exactly the same thing could you for on behalf of myself and our listeners could you explain what a cubesat is and how it might be different uh than some of the satellites that we've perhaps heard about anecdotally in the news and and just by way of you know science class sure yeah so a cubesat actually has a definition a 1u cubesat is 10 centimeters cubed in a size so you could fit it you know kind of in your hands hold it in the palm of your hand there's also different sizes 1u 2u 3u 3u being more like the size of a loaf of bread or a bottle of wine very very small whereas traditional satellites you know from the 70s 80s 90s were the size of a school bus so much smaller you know much more modest capabilities but that's the idea of a cubesat a small set we sort of think about as being a little bit bigger more like the size of a two-drawer file cabinet you can fit a little bit more in there you can actually fit a telescope in there if you want to do an earth imaging mission uh with decent resolution somewhere in between that cubesat and the really big traditional satellite and what is it that drives the miniaturization of satellites in the first place uh i you know i will very analogously and naively suggest that perhaps technology is advanced things get smaller cheaper faster better uh is it the same answer there and if if not what else what else happened that made these small sets become more popular or even available yeah a lot of it is sort of the uh the byproduct of all the investment that went into mobile phone technologies so the the higher power processors that are more power efficient um the better battery technologies that you can have you know more juice in a small battery that lasts longer and the communications technology so it's really everything that's sort of been driven by the computer industry the mobile phone industry that allowed these uh these folks to build these smaller satellites i see and tom as we think about the historical uh involvement that thank you tell us had by way of investments technologies and capabilities that we're most interested in um what were some of the the most important uh aspects related to this industry that we we as iqt focused on when it came to uh looking out at this at this domain on behalf of our our national security partners yeah so picking on the day's points um you know when you've got these small satellites that are much much cheaper and easier to get to space um it changes the paradigm which you can do with with satellites so one of the interesting things you can do is put a lot of them up cheaply and you know get better coverage of what's happening around the globe so um your temporal resolution so how fast you can cover things that are happening around the world you know that changes if you have a lot of different sensors up there so we start looking pretty seriously at a bunch of different types of small sac constellations um optical synthetic aperture radar rf you know all of these different areas we're seeing multiple companies kind of springing up that looked at leveraging small stats to use those modalities and do different types of sensing um in order to get those up there we looked at you know even back then the large number of small set launch vehicles that we're starting to see so you know launch this part of the story um early on we we um we made i should mention we made an investment rocket lab uh met them in 2014 closed to deal with them in early 2015 i think and they've been certainly a leader in that in that sector so launch is a key brother story as well and i think the third part of it was um remote sensing analytics so we started to look at you know once you have all this data coming off these sensors how do you um really make that useful uh for the government or for commercial markets and so we did do investments in companies like orbital insight that worked with remote sensing data to uh to bring answers to interesting business questions tom you mentioned uh rocket lab and orbital insight uh might be a good time for us to talk a little bit more about some of the early investments that you tell me that we're uh what we're sort of most proud of um can you talk in both of you perhaps talk a little bit about some of the early investments how those investments may have uh helped shape or influence those companies but more so uh help shape and uh change the perspectives on some of the customers or partners that we made those investments on behalf of yeah so so um a little more in some of the investment history as tom mentioned you know we've been a very active investor uh going back to 2013 even earlier um and some of these these uh these deals have been announced that we can talk about rock lab of course being a key enabler with low-cost small launch vehicle but we've also looked at some other enabling technologies in addition to launch around communications so antenna technologies both on the ground and the space side different steering techniques electronically steerable mechanically steerable higher band with lower bandwidth to provide that connectivity so that once the satellites are in orbit how do you get the data back down and disseminate it to the people that need them in terms of the satellites on orbit the constellations certainly we've looked at all the different modalities imaging uh the temperature radar rf sensing communications a couple interesting ones to mention are two deals we did in synthetic aperture radar both domestically and internationally um so investments in uh capella space here in the u.s and isi based in finland one of the things we really um take to heart is that the us doesn't have a monopoly on innovation we want to make sure we're supporting domestic technologies the best we can but we also want to realize that there's there's really good tech coming from different places around the world that uh our partners in the us government should be able to take advantage of so that's one of the areas we've done that is looking for the best coming out of any any sector um any part of the world that we can work with um and leveraging that tech for for our partners in the u.s government so one thing i think i should mention too is that after we did that initial survey of companies back in 2014 one of the things we did was put together a framework for investment so um the the deals that dave and i have been talking about were not done in a vacuum it really was kind of a systematic strategic look at you know what was in the market um what was most relevant to our government customers and how do we think about the things that we want to do in the commercial sector to to address those needs um and so it really was a strategy we put together from early on uh and that's that framework that we created back then has morphed over the course of time and it still exists in a much more detailed fashion but that was really how we started coming at it back even back then it's along the lines of the of the framework and sort of the way the framework may have looked back back then tom did you get the sense that inquitel was uh early on uh in in in comparison to say other venture money or other venture investors in looking in this in this domain in the way that we did uh and or did you get the sense that we were sort of syndicate investors with along with others who is sort of leading the charge from your perspective at this time yep um so as you know our model really requires us to co-invest and so we're always on the lookout for um you know for co-investors we like you know we think are on the leading edge and doing good deals so uh some of those in this sector have included uh bessemer adventures our even rre ventures lux coastal ventures just to name a few of them um and so getting in with with really good partners it really allowed us to you know find the good deals make them successful and i think that was really key did you ever get the either of you ever get the sense from anybody else at the time you you all are crazy what are you why are you looking into this space were there any antibodies that you dealt with were some of the common sort of uh i don't know uh negative uh negative comments you might even endured when you were when you were sort of forging this path for inqtel so i'll go first i'm sure dave has a long list too um yes all over the place so you know on the investment side people are looking at this going you know this will never make money i don't know what you guys are doing um so you know there were a few people who were just investing but there are a lot of people that were like i'm not i'm not going to touch a space deal i don't see how or when this is going to make money uh on the government customer side i think you know we've gone through a cycle maybe um 15 years before where it looked like the commercial market was starting to build and then it just kind of fell apart and i think there are a lot of people within the government who looked at this and said you know same story all over again i'm not going to get engaged so you know that's changed in the years since then but early on i think there are large portions of the government that really didn't think we needed to pay too much attention to the sector yeah and i think just to go back to the the cubesat idea earlier you know a lot of folks thought that was just a hobby you know toys people were playing with and didn't realize that the technology had matured enough that you could collect really meaningful data even from these these cubesats or small sets did you get the sense that uh perhaps uh if if the money came other investors would follow maybe some of the antibody comments would would subside uh and if so when and and how did you get a sense that this industry is making money we should we we've made the right bets we should double down did that time ever come or do you think it will come you know especially at vis-a-vis like the specs that we're seeing in in in this space as well we could do a whole podcast on specs um so uh um yeah it's been interesting one of the trends of this this sector in general is that really until the last year or so there haven't been that many financial exits there have been a few and they've been relatively modest um and then the specs you know this back trend really started probably late um late 2020 really in earnest i know there were a few before that but you know as the as that started getting rolling i think that that created exits and then behind that uh it created a lot of private rounds that got done because of the anticipation that these things could eventually you know go go after us back so that's really changed kind of the perception of you know whether or not you're going to get a return to this market as you see these things go out get big valuations that's brought tons of investors into the market um i think some of them will come in and out pretty quickly but um you know i like to say like five six years ago you could put all the space investors in basically one small room and we all knew each other and uh and that's not true now it's you know people from all directions coming into the sector as a strategic investor uh iqt is primarily motivated by mission impact that you know what is it that we can invest in that actually makes an impact for our national security partners how can we bring to bear technology and capabilities that that help mission could either of you talk a little bit about this concept of the equity only investment and how that lends itself well to sort of that kind of an outcome again not being primarily financially motivated of course secondary or tertiarily concerned uh but really the equity investment is being a tool to sort of deliver value to our government partners um any thoughts there on how that that is an appropriate vehicle or an appropriate choice yeah so some thoughts and definitely i know tom will have some additional ideas to offer this is a tool that we've used really well in space investing you know a lot of these companies were very uh early stage and we started to get to know them it wasn't clear how long it would take the technology to mature it wasn't clear how long it would take our partners in government to um get comfortable with the idea of leveraging this commercial technology so we in most cases with these investments we started with a very small equity-only investment affords us a board observer seek it's a relationship with the company but we kind of help build that relationship give them some advice of where they should go and track their progress as they mature and many of these have we follow that up with one of our more traditional investments we call it a work program where there's some funding to adapt or enhance the technology in some way to make it a little bit more applicable to a government use case but it's also very squarely on their commercial roadmap so they see the benefit from the commercial side um so yeah so that that equity only is a good stepping stone to track progress get them a little further along and then we can follow it up with our more traditional model which is now is providing impact for our partners in government yeah i say of the 25 portfolio companies we have in the space sector a really high percentage of those started with equity only deals um and and i think that was very helpful for us i was going to refer back to one interesting case study is rocket lab where you know i mentioned the timeline and that one we we started that with an equity-only deal and we literally couldn't do a larger deal on a development-focused deal until later on because they had to sign a treaty between the new zealand government and the united states government in order for us to be able to fully engage and talk about the the details of their technology so in the meantime though we are we're already in that deal for at least a year and a half and you know kind of exposed the company to our government customers and got dialogue going and that was just really helpful to be able to do that even though we couldn't come in you know couldn't jump in with both feet until that tree got signed yep you we mentioned a few of our portfolio cameras i'd like to quickly dedicate a little bit of a shout out to some of the more notable ones uh in in the space uh think common 2008 dssp 2011 rocket lab 2015 we mentioned that one orbital insight dave very familiar to you of course 2015 uh isaiah 2016 and compelled space and cape analytics 2017 were some of our our early investments uh in in the space pun intended and i want to stress that that and and pregnant if i'm wrong uh both of you but that we were actually early investors in many of these we were sort of early money in and that gave us sort of a strategic advantage i'd say uh on behalf of how we were able to bring the bear the capabilities that these companies offered and technologies that they offered to to our government partners uh tom and dave i think i believe in 2016 you all convened uh a group of space investors um tell us a little bit about how that was were there a lot of people not a lot of people how does that compare to sort of the early days one time when you were first sort of starting out dealing with a bunch of people telling you you're a crazy person uh what do things look like in 2016 when uh everyone sort of gathered after after a few years uh of of trying out the thesis yeah again that that was still relatively early so it was not a um it was everyone frankly that i knew pretty much that was in a deal with us uh that was just in the space sector and we were in a lot of the deals uh but it was still only probably 20 people or so and we had you know really interesting dialogue around where we thought the market was going um how this is adventure play and how we saw kind of things playing out along the way but you know core group of really good investors but not a long list um and so as we talked about earlier that that clearly has changed quite a bit um i will say that you know those are all people that we're still very much in touch with um and so that core group still is out there still pushing uh pushing deals in the sector and really kind of underpinning what's happening um and if i could just riff for a second here i think that was one of the one of the nice things about um when we got involved and how we got involved in the sector uh was the people we're dealing with not just internally guitar as we kind of created the strategy but but externally with with folks like that it's a really you know entrepreneurial group of investors i guess um uh passionate about the sector realistic though about the the business um and they've been great partners let's switch gears for a moment uh and talk in addition to investments incutal has dedicated quite a few resources by way of uh of research uh and also you know producing quality data sets and things to help support the the nascent industry at the time uh let's let's talk specifically about uh the commercial space market survey this is a this is a 2014 framework and sort of landscape research that market landscape research that was conducted um that that sort of influenced not only the thesis around the investments but also helped us better align our internal resources i think you tell uh to conduct far-reaching and sort of more forward-leaning research on behalf of our partners any comments uh or or or highlights from that that you'd like to talk about yeah i kind of alluded to this earlier but that was really what got us started we saw what was happening in the market we said we better go out and systematically you know take a look at this and so we did and that was really in the form of that survey and i should mention my colleagues on that survey that included uh ryan lewis todd stavish and devin brand uh all the four of us worked together on that survey and um you know talked to a lot of companies and a lot of people in general and created that initial piece of what we were doing next uh and created that the initial framework um we were a little bit scared when a few months later uh an actual aerospace engineer showed up and uh in the part of the table of moscow and we weren't sure what he's gonna say about all the stuff we've been doing but i think it turned out all right that's great absolutely in addition uh we dave sorry to interrupt you i was just gonna say uh you know the the market there was a great sort of starting point but we've done um at least two more of those since then uh every two years i mean the industry hasn't stayed stagnant and it's continued to evolve we did another one in 2016 i think more of a global competitive analysis view of what was happening in commercial space technology and more recently which i think one of our future podcasts is going to touch on is kind of where space is today what are the new markets developing around that of sort of these space auxiliary services or in-space support technologies in addition to the the constellations that are doing the earth imaging it's more that space focused economy that's coming next that's right and let me be a second to plug shamelessly that uh if you're enjoying the conversation today we encourage you to check out the the rest of this trilogy uh of the history of uh history in the current and then the future associated um activities i think you tell related space uh it's worth mentioning um a remote sensing lab uh tom i believe shortly after uh you and then and the colleagues you mentioned started looking into this into this arena we also i think utel started a research lab around remote sensing technologies and how best to sort of leverage some of the commercial capabilities there could either be comment on on cosmic works and sort of how that how that how that went and where how it's going currently yes cosmic works um you know what effectively happened was that that core group i just mentioned sort of split in two and some of us stayed with the deal side and some of us went to cosmo courts um and cosmic was really set up to um to illustrate the art of the possible and what's happening commercial space to our customers you know here's what's happening here's how you might use this data productively in different ways um and really kind of show the way and that's that's what that group did it was not a big group um uh and i think they were highly successful in you know engaging with a variety of different parts of our customer base and uh and demonstrating kind of what was happening and how it might be relevant to their their uh capabilities uh dave and tom i wanna be cognizant of our time we're almost approaching uh the end of our our uh our recording session here are there are there any are there any other matters or highlights that you'd like to discuss when it comes to the involvement of link utel uh in the space domain historically i i guess one parting thought i'd have is that it you know it was a really exciting time you know in that 2014 15 1516 doing that first set of investments in these small stack constellations low-cost launch the analytics tools um we started a brief pause slow down not really a pause to kind of see how those panned out and it's been great to see a lot of those coming uh on on orbit coming online providing uh data to the commercial world as well as to our our partners in government and starting to provide that impact that we talked about um after that brief pause we continued to look for new things and are continuing to invest in space technology and other areas that that we see as uh sort of new business opportunities to leverage and new opportunities for our our partners to take advantage of for their national security mission yeah i'd say just to add to that i mean um you look back in the early days of what we did um you know we we were kind of guessing at a thesis and it turned out to be i think we made a lot of good debt um and so you know we're pretty proud of the work we've done at this point uh it continues i mean we see a lot of activity in the sector as we talked about the government customers are starting to really wipe down the commercial base in a way that they wouldn't have a few years ago um and so it's it's really uh we're building on what we did in those years but um we are you know still really active we see a lot of stuff going on the government's engaged more than they have been the investment sector is uh you know as we talked about really really engaged so uh it's gonna be exciting to see what happens in the next few years that's real promising tom and dave i wanna thank you both for being the mavericks uh when it comes to inquitel in space you and your colleagues special thanks for getting us into a domain that i think has proven to be very fruitful both strategically as well as financially and uh will likely continue to be so into the future uh for our listeners in case you'd like to learn more about um incutel's involvement in the space domain our investments uh and any of the capabilities that we've sort of discussed during the course of this discussion uh please visit our blog at iqt.org front blog and you can also tune in next week where we will continue our three-part series and explore more recent iqt efforts in space technology and beyond again tom dave thank you for your time really great talking to you and appreciate you being here [Music] you