Having Space in the Fund with Rob Coneybeer (Shasta Ventures), Tess Hatch (Bessemer Venture Partners) and Matt Ocko (DCVC) | Disrupt SF (Day 2)
2:49AM Sep 7, 2018
low earth orbit
We're going to hear from Rob Coneybeer from Shasta ventures from Tess Hatch who from Bessemer Venture Partners and from Matt oke Ocko from DC VC and to converse, converse with them about the subject is Danny Crichton Editorial Manager for TechCrunch round of applause. Everybody. Thank you so much.
All right. I am so excited for this panel today. I I came up with the title for this panel of having space in the Fund, which is my favorite pun of TechCrunch Disrupt San Francisco 2018. Today we're going to talk about space it's not the final frontier VCs are investing every single day into multiple companies. And we have some of the most qualified people in Silicon Valley today on stage. Tess, I want to start with you. You wrote on TechCrunch an essay about sort of the space market and some of your thoughts here. And I wanted to ask why is space and investable area today?
Yeah, this article you mentioned is titled space is open for business. And it goes into how the ecosystem has evolved from these massive school bus sized satellites and geostationary orbit which is 35,000 kilometers around the equator to these small cube sats, which are tissue box sized satellites in low Earth orbit which is 500 to 1200 kilometers
and this invention of the CubeSat form factor people can throw commercial off the shelf sensors whether it's Earth observation or communication sensors and distribute them the constellation around the world and provide ubiquitous coverage of the earth or communication of the earth and this sa spaces open for business really shows the the space stack and the ecosystem now of space companies focused on various parts of this fragmented ecosystem to support one another.
Rob, why is space invest Blair for you today?
Well, when you take a look at the areas I started in the space industry a long time ago. So when you talk about the school bus is that in geostationary orbit? I worked on one of the first a 2100 spacecraft and it's pretty telling for existing the existing space industry that that platform is still being built today.
So when you look at typical incumbent behavior, it's very similar. They're building a lot of the same stuff they built before but in that 25 years, we've had 25 years of Moore's law and we've had all this stuff that's happened with the smartphone
so when you take a look at all the sensors and computation and communication protocols that now can fit into a cell phone that were the size of a school bus before it opens up a whole new area. So when you look at the most interesting areas for investment, they're ones that tend to be enabled by Moore's law. Because if you have a business model that's just starting to work, now, it's going to get to x better every 18 months.
Absolutely. And Matt, what about you?
I mean, I'd have to agree with both Rob and Tess. I think one of the nuances of the Moore's Law
forcing function is that space is is not a point problems, you're gonna have the most sophisticated satellite in the world, whether it's the size of this bottle of water or the size of a bus, but they're generating massive amounts of data. And so you need Moore's Law improvements in downlink and the ability to transmit data down from space which have happened exponentially.
You need things that look like AWS and Google Compute and Azure to be able to store and process especially for AI and machine learning algorithms, the massive amounts of data to get any signal out of it.
And so when we look at a space company, whether it's it's Planet Labs, where we're an anchor, or Jupiter intelligence, which, for example, does real time climate risk prediction out to 50 years in the future, we look at whether they've solved the distributed problem.
If the improvements that the ROB talks about and that test talks about hasn't happened, none of those companies would be possible. What excites us is that the pace of innovation, what happens five years out from now.
And when we ask you, what are some of the key kind of enabling technologies in this space? I mean, is it like sort of these science projects coming out of universities are there other startups are sort of creating the infrastructure for space that's allowing them to grow?
Well, in general, a lot of it is around the sensing technologies and the communications technologies.
So I come back to Moore's law. It's really mainstream. It's not just the universities, but it's places like Qualcomm, it's the people that are building, the chipsets and the people that are making the processors that are just getting smaller and smaller and smaller. And the other thing that's happening is there's this virtuous cycle, which is the reason that spacecraft for out and what's called geostationary orbit is because it would revolve around the Earth once a day. But it's a long ways out there, and it's outside the radiation belts of the US or excuse me, of the world, so they're not protected.
So when you get into low Earth orbit, which is just above the atmosphere, you find that all of those components are still protected by the Earth's magnetic field. So you can use off the shelf components. So there are all these things that are coming together to make it possible and a lot of it has to do with commercial breakthroughs as much as anything you'd find in a university.
Yeah, I think there are two specific things Sir inventions that have really catalyzed in Brighton momentum to the new space, ecosystem or space to point out. The first is the invention of the CubeSat, which, like Matt said, could be the size of a water bottle.
And once this was established these sensors you can throw into this CubeSat,
there wasn't really a way to get them to their designated orbit and low Earth orbit. I was a Mission Manager at SpaceX and I would see tech secondary and tertiary payloads be bumped from mission to mission because our focus was the primary. So the second invention or
event was the invention of the low Earth orbit launch vehicle. And Matt and I are involved and invested in a company called rocket lab, which really has democratized access for these small satellites to get to their perfect orbit in low Earth orbit. And then based off of those two trends looking for for future events.
Whether its manufacturing in space or mining and space or space tourism. Now that space really has democratized and the bottleneck of launch, which really was restricting the entire industry from moving forward has been opened.
I tend to look at something that's a little bit unglamorous but does get back actually, to this Moore's Law
positive gradient, which is simulation and engineering software. So to quiet revolutions have happened over the last 20 years, the the cost of simulating complex aerospace projects, whether they're supersonic aircraft like boom is building or
more than supersonic rockets like rocket is building the engine components whether these consumer grade electronics can survive complex multi dimensional em fields.
20 years ago that would have cost something on the order of 30 or $40 million of super computer baby super computer hardware from proprietary manufacturers, and you would have had to get a license from somebody like so for another multiple multiple millions of dollars, and then a tiny handful of engineers would be able to use it.
The the essentially advent of elastic supercomputer actually one of one of our companies Freescale offers this junction with with cheaper simulation
and open source simulation software has meant that four young women from University of Birmingham can wake up decide that they hate their PhD supervisor and attack and incredibly complex aerospace project and that democratization of of the ability to do rigorous engineering
And moreover, to do fast turns 20 years ago, you couldn't iterate as Rob
would tell you iterate equals getting fired
also means that you can do this remarkably inexpensively and stage your progress out in a way that is amenable to venture financing, which I think address.
and I think that that's the next question. I mean, all three of you work at very prestigious venture firms. Howdy, how do you think about it as an investable category? And not just from you know, raising capital and finding follow ons, but also from the exit perspective I mean, it's a very spaces not had a lot of exits are some very valuable companies like SpaceX that are what the almost nine, you know, figures and valuation but now how do you are 10 figures and valuation? How do you how do you think about that?
Well, really quickly, when you look at SpaceX, from what I understand they're very significant revenue, somewhat predictable Revenue and they've just chosen not to go public for a variety of reasons. There's actually a fair amount of liquidity if you're in SpaceX and you want to get out and the other way around. So I would say that's a great example.
As far as investment, I always find it funny how people talk about areas like this. And they talked about how capital intensive is, and then they turn around and invest in a SAS company that takes 100 to 150 million get to cash flow, break even. So in terms of the capital that it really takes to get there, it's remarkably similar. You see it in startup after startup. The difference is, you end up spending the money on different things, and you may spend more of it up front.
But once we have a rocket that works, or once you have some sort of product that works, you have a very ready market that can scale without the Salesforce that you need to have for, say, an enterprise SAS company.
Let me ask, you know, when you think about the round structures, I mean, how do you get to what what does an MVP look like in space? I mean it particularly on the hardware side, you're trying to put a rocket into orbit or something like this. I mean, what what does that mean for a series A or Series B? Like what are the milestones you kind of it
I'll dive in. If you don't want to immediately test
for for us. I would say that
MVP for a satellite company is actually remarkably inexpensive to both tests and Rob's point whether the sensors work. Whether the data transmission for the amounts of data being sub subject are produced by sensor fusion have been space can be delivered,
whether storage and compute can be made in a compact enough form factor. You can actually test that on earth and then rent you know, an aging you to and you know, the distance between, you know, 3030 miles up and or 20 miles up and 200 miles up isn't that much.
If is working from 20 miles up, it's probably going to work from 200 miles up at least enough to spend risk capital on it. So when we see that level of emerging technical credibility for examples we did with a company we did with spark capital called Capella and Capella said, Hey guys, we're gonna build a synthetic aperture radar satellite that can see three meters into the ground anywhere on the planet, more or less in real time build a constellation of them and Oh yeah, by the way, it's going to have insane resolution so you can even see metal fatigue happening in a bridge and we said that sounds good if you have any evidence for that and they showed us the they showed us the power amps and the radar architecture and pretty convincing early data that said they could do this
and factor was so persuasive that the Department of Defense wrote them a huge check even before they launched in anticipation of keeping an eye on bad guys like North Korea. So they're going to have to do, you're gonna have to launch they're gonna have to do other stuff. But you can stage it
Tess using the same patterns?
Well, back to the Yeah, the question regarding SpaceX still being a private Yeah. And there has only been one space liquidation event which is when Google acquired skybox. We were early investors and skybox and now it's part of Planet Labs is as Terra Bella and other than Google acquiring skybox. There have not been other space startups or any liquidation event in the industry. And I think the inflection point for there to be more movement will be once the space ecosystem expands beyond selling to one another. Right now we have rocket company selling satellite companies to launch
satellites and it's all within the space stack. And once it's opened to agriculture, oil and gas, other industries will see more liquidation events and exits in the space industry.
Let me ask, you know, obviously, there's a lot of founders in the room and online, what are the qualifications to do a rocket style, you know, a startup today? I mean, do you have to be a rocket scientist, so to speak? Is it helpful to have an agricultural background or or vertical background? I mean, what what do you need to the API, so to speak strong enough to be able to just launch it if you know nothing?
Well, I think one of the skills you really need to have on the team is mechanical engineering skills of some sort. So the you understand the interaction between electrical engineering civil engineering your vibrations when you're going up on a spacecraft, so you don't absolutely need to have it as the founder but to have an understanding of it's important. Now, what's nice about space is that it's very logical.
The challenge is that it's also weird at the same time, because everything you think about in terms of your conventional, everyday life, like how things heat and cool etc, are colored by the fact that we live in an atmosphere. So when you pull it away, it's very easy to predict what it's going to be. But you have to take aside all the assumptions you have. So when you're building a team, you don't, you don't have to have an aerospace background. But you really should have at least somebody on your founding team or the initial team that really understands how orbital mechanics works and how the space environment works.
Matt also take that?
I would say, actually, thanks to some of the stuff that we've all done up here on our stage on stage and some of the companies that our peers have had the courage to invest in, we are tiptoeing towards a very rough approximation of AWS for space rocket lab is charter to launch every 72 hours. There are a few people chasing it who may or may not be successful but if they are that just expands the market for getting into space remarkably cheaply. So we can envision a world where you know having the beginning or even a complete constellation of satellites is in the high single digit to low double digit millions of dollars which is well within the eccentric billionaire rain
and it's getting getting down to the grumpy or eccentric millionaire, grumpy VC range. Um, I think you will, I think you will see this combination of fast, inexpensive launch of people leasing portions of their constellation
and again of widespread distributed high performance compute on the ground combining to enable more almost pure software companies that are selling to some of the customers that tests
Agriculture oil and gas, we already have companies like that. And I know my my colleagues do here. I think the the inflection point is is is very close. The corollary of that is that,
you know, at a certain point, momentum and success and revenue stand on their own to Rob's point SpaceX could be
could be public tomorrow you know and I kind of think of you know investors sitting around a boardroom going your steel will never buy those crazy until guys
disruptive companies that are making a mark on their own don't look like no brainer exit candidates to the establishment but to the people in the sausage factory. It looks like a future of you know, dominant sausage. oligopoly
Exactly. Let me ask you, when you look at your your venture investments, I mean, are they mostly space infrastructure is called the AWS layer, or are they more on the application side, sort of collecting the data using that data and industry? How do you how do you think about? Tess, maybe we'll start with you from Bessemer perspective. I mean, are you on the infrastructure side? Or are you thinking more on the applications are both
Yeah, I think a healthy combination of the both or investments are and rocket lab so a low Earth orbit launch vehicle and spire a general purpose CubeSat constellation for and this is where the the services aspect it's a is for naval tracking, or a DSP for playing tracking and GPS radio application for weather data in a variety of other sensors. You can use this constellation of satellites. So while I do see it's important to have the hardware to get this information it's also important to analyze the information coming down from the sensors as well. So vertically integrating and owning multiple parts the stack.
Yeah, what about you? I'd say the industry is still nascent enough from a startup point of view that it's hard to specialize in one area. So I think a lot of people tend to have rifle shots in terms of the areas that they like. So for us, we're also investors inspire we're investors in vector launch systems, which is a low Earth orbit launch vehicle, very, very low cost. And then we're also investors in ACCION, which is in space propulsion, which is a very different problem, very different approach that you can take. And oddly, it's actually very capital efficient to build a company doing that because the propulsion elements are so small and then we also think communications is interesting. So I think it's hard as an investor to go in and say I want to go long on Earth observation taking pictures of the ground and do a portfolio of that right now and now about you for dcvc
uh, you know, we we kind of look at stuff that has self reinforcing, sustainable advantage that at its heart is driven by
proprietary algorithms and unique access to data that ideally is embodied in the real world. Whether it's a rocket or a prediction that a certain block of New York is going to be underwater. We want life or death outcomes because I like to joke you know we're, we're courageous cowards.
If you don't have a company that's selling an absolute must have
you don't know what your outcome will be. For example, 450 million dollars was poured this morning into a Chinese fruit delivery company that terrifies me I don't know whether people want on demand mangoes and
butter from Earth orbit lower Arabic exactly so we're co investors with with tests and rocket lab where anchor investors and planet which it has a 200 satellites in in part thanks to
exactly so we're co investors with with tests and rocket lab where anchor investors and planet which it has a 200 satellites in in part thanks to Bessemer is investments in Capella, which in skybox losing track which they acquired. So that's the entire Earth every day.
We're investors in Capella space the radar satellite constellation. I mentioned Kosh, which does high bandwidth communications infrastructure. But on the other side we're investors in Cape analytics, which can score the insurance risk of any home in the United States from space and real time in Jupiter intelligence which can score the climate risk, flood fire when you name it of a single block anywhere in the world from tomorrow out to 50 years, and a couple of other stealth companies like that. So, you know,
we think the pie always gets bigger. So actually we want to encourage our peers to invest along with us and to do more we think there are opportunities on you know
All sides of the table. And as Rob said, it's pretty early to to specialize.
obviously loves doing websites get a good comment.
He was interesting as as were mentioning the investments are firms have made space investments and Rob alluded to this but the communications market being really making Earth observation seems small and none of us mentioned any of those and I just want to know that I think that in the next term is the largest opportunity and the space ecosystem is a constellation and and not on the SpaceX on web one website of triple or quadruple digit number of satellites to provide Internet connectivity you were mentioning earlier but the low latency machine to machine communication of tweet like whether it's a soil moisture sensor in and farm or a
location of a cargo that data is a really wonderful opportunity in the space ecosystem that I would predict seen by venture capital investment and a year ago.
So you all are super excited about the space. What I'm always interested in is the connection to science fiction. And when you start to think about, you know, we're putting satellites in orbit we're talking about going to Mars and colonizing and terraforming and, and changing agriculture. I mean, it is really inspirational. We have about a minute 30 left. So I would love to hear, you know, what has been the piece whether it was fiction, nonfiction, you know what it's been like the inspiration that has most infected you're investing in this category. Now, Matt, maybe we'll start with you. You've had quite a few sources.
I would say we're, we're driven by the the dark and light poles of cyphy. You know, on the one hand, Star Trek is a very optimistic vision of the future. On the other hand, Elisa is a disturbingly realistic vision of the future and you could say that we are investing to generate a very high return for our LPs moving the world, closer to Star Trek and further away from Elisa.
And the reason that we were focused on space is in a very, very rapidly changing world you need the high ground you need intelligence about what's going on on every square meter of the planet. And if you don't have that the human ability to respond to bad change continues to go linearly and bad stuff happens exponentially or even asymptotically and as long as we can make a lot of money by improving human knowledge and capacity there were we're gonna keep doing.
a test the title, I most impactful piece of sci fi or or anything.
I like to say that I invest in what used to be science fiction a few years ago that is becoming a reality today and my personal passion and goal in life is to travel to space I've been applying to NASA astronaut program for years. With degrees in aeronautics and astronautics with a private pilot's license. I'm still being rejected so I don't know who I need to speak to but I hope to go as a space tourists soon.
Robert I'll talk about what's real quick Title
X yeah ultra series where you have a friendly interplay between AI and humans flying through space.
Amazing. I'm looking super forward to all of your investments. Thank you so much for the panel.
Thank you Danny.