It’s belt-cinching time for space startups

Cutting back on facilities, canceling travel and keeping staff lean helps startups stretch every dollar they raise.

Credit: SpaceNews Midjourney illustration

If it were easier to raise money, Plasmos might have a dedicated rocket engine testing facility. Instead, the propulsion startup leased a speedboat restoration shop in East Los Angeles.

“We managed to test something and it was successful,” said Plasmos CEO Ali Bagche Sera. We succeeded in creating plasma in the engine and obtained high ionization using air.

After years of high valuations and investor competition for shares of promising space startups, high interest rates and the risk of a recession have made investors wary. In response to a lack of new funding, space startups are cutting back on hiring, cutting back on travel and shedding leased office space.

“Entrepreneurship is always a little survival of the fittest,” said Jason Chen, founder and CEO of VentureScope, a McLean, Va.-based venture capital and consulting firm that works with entrepreneurs. “This economy definitely tightens the belt a little bit and makes teams perform less.”

Time for delivery

Ukrainian startup Promin Aerospace has cut its staff and doubled engineering by 2022.

We currently have 13 full-time employees. Ten of them are in the engineering team in Dnipro and three in the administrative team. We had 16 employees before the war. We had an office manager and a liaison. We were building the team for future growth.”

Instead of building a dedicated facility, Plasmos tested the engine technology at GT Performance Engineering in Upland, California. At one point, Plasmos CEO Ali Baghchehre moved concrete blocks around the test site with a forklift. Credit: Plasmos

Rather than gearing up for expansion, a popular approach in 2020 and 2021, startups are now focusing on increasing their fuel rates, i.e. slowing costs.

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Chen, the founder of four startups, said investors, meanwhile, encourage founders to “focus on their core competencies, whatever their unique value is.”

For Lunargistics, a Woodland, Texas startup that provides mission guidance, launch integration and other space services, the recession has meant fewer trips to conferences.

Lunargistics founder, chairman and CEO Logan Ryan Golma tweeted in November: “It’s been rewarding and enlightening to meet everyone in an industry that @lunargistics and I are new to, but now is the time.” .

The lifeline of the government

For some early-stage companies, government contracts or funding programs act as a lifeline.

Matt Kozloff, director of the TechStars Los Angeles accelerator, said the most important advice he gives startups right now is to “pursue relentlessly, apply for and receive contracts and government grants whenever possible.”

The Department of Defense, the Department of Energy, the National Science Foundation, NASA, and other government agencies are “excellent sources of capital, non-dilutive financing opportunities” plus “tremendous early confirmations of the company’s technical viability and potential benefits” are government customers. Kozlov said via email.

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

Entrepreneurs who eagerly share news of technological breakthroughs and fundraising success are far less eager to discuss financial problems and layoffs. However, when promised anonymity, they talk freely about the stark differences between 2021, the year for space investment, and 2022.

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“There is no doubt that the financial environment is tight right now,” says one of the startup’s founders. “We’ve seen it across the industry.”

“Entrepreneurs who were raising money just three or four months before us raised money from the very beginning at stupid valuations,” said another founder.

Reduce capital costs

A decline in angel, corporate and venture capital dollars pouring into the space sector is making it difficult for startups that need significant funding before generating revenue to persevere.

SpaceLink was forced out of business after its parent company, Electro Optic Systems Holdings Ltd., sought outside investors willing to provide $70 million short-term and $250 million total for SpaceLink’s planned data relay suite. stop yourself Medium Earth orbit

While the medium-Earth orbit is the vantage point for communicating with satellites in low-Earth orbit, “getting the equipment, satellites and launch capability to MEO results in some capital costs before revenue,” said SpaceLink CEO Dave Bettinger. ».

Other entrepreneurial companies have continued to operate while scaling back capital-intensive projects.

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

In October, small-satellite specialist Terran Orbit scrapped its synthetic aperture radar constellation plans and decided instead to build SAR satellites and sell them directly to commercial and government customers.

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solution

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

Credit: SpaceNews Midjourney illustration

In its third-quarter report released in October, Space Capital cited nearly $300 billion in dry powder as investment dollars left on the sidelines.

“We’re still waiting for the floodgates to open as VCs shift from pure investment to a greater focus on precision and price control,” Space Capital said.

Until the floodgates open, founders of early-stage startups like Los Angeles-based Plasmos are finding low-cost solutions.

Bahche Sera said: Due to the limitations of attracting capital in the market, we have done the work incompletely and at low cost.

Plasmos has few employees, and the startup’s technology, which combines elements of chemical and electric propulsion, doesn’t fit into conventional propulsion testing facilities.

To do this, Baghche Sera found a welder to build a rocket test stand by advertising on Craigslist. One of the people who answered referred Bagcheh Sera to GT Performance Engineering, a marine service specialist in Upland, California.

One weekend, “I carefully used their expensive cars,” said Baghesera. “That weekend we fired the engine because these guys were very knowledgeable in machining.”

Although GT Performance Engineering employees had never worked on rocket engines, they were eager to help Plasmos conduct the tests.

“They call me Boom Boy,” Bagche Sera said. “Everyone comes and helps me.”

This article was originally published in the January 2023 issue of SpaceNews magazine

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