Welcome to the 34th episode of Deep Tech Catalyst, the channel by
where science meets venture!Today, I'm thrilled to host Quentin Calleja, Senior Associate at Atlantic Labs!
In our chat, we explored the basics of the space tech value chain and delved into the main challenges and opportunities at the intersection of early-stage founders and VCs from a practical perspective.
Key Themes Covered:
🛰️ Exploring the Space Tech Value Chain: From Satellite Construction to In-Orbit Services
🚀 7 Critical Questions to Challenge Your Early-Stage Space Tech Venture
🧑🚀 4 Critical Features VCs Look for in Founding Teams
📈 Navigating Pre-Seed Space Tech: TRLs, Roadmap, and Milestones
🏭 Scaling Hardware in Space Tech: Challenges and Strategies
🎧 Prefer to Listen?
KEY INSIGHTS FROM THE EPISODE
🛰️ Exploring the Space Tech Value Chain: From Satellite Construction to In-Orbit Services
The easiest way to understand the space tech landscape is to look at the value chain, which is typically divided into 2 main components: upstream and downstream.
🔼 Upstream Activities
Upstream activities involve everything related to building and sending objects into space. This includes constructing satellites and their subcomponents, like propulsion systems and other subsystems such as payload antennas, solar panels, and more.
It also encompasses the production of launchers, the rockets used to send these satellites into orbit.
Another aspect of upstream is satellite constellations, which are groups of satellites operated together, primarily for telecommunications—accounting for about 80% of satellites—and Earth observation, which makes up about 20%.
In addition to hardware, the upstream category includes various software systems. These are used for designing and manufacturing hardware components and for facilitating the operation of the satellites themselves.
🔽 Downstream Activities
Moving to the downstream part of the space tech value chain, this involves utilizing the satellites primarily for Earth-based applications.
The major use cases include telecommunications, such as GPS and internet connectivity—Starlink is a well-known example here—as well as connecting IoT devices using satellite technology. These applications represent roughly 80% of satellites in orbit.
The other 20% are used for Earth observation, which involves analyzing satellite data to derive insights for various applications here on Earth. There are many companies in this sector, specializing in leveraging satellite data for specific applications such as agriculture, insurance, and forestry, among others.
🔄 The Emerging In-Space Economy
Lastly, there's an emerging third category: the in-space economy. This sector includes activities that occur outside the traditional domains of satellite operation and Earth observation.
Key areas of focus here are in-orbit services such as refueling, repurposing satellites, and debris removal—tasks aimed at maintaining and enhancing the usability of space assets.
Additionally, there are significant investments in space infrastructure like space stations.
Another vibrant aspect of the in-space economy involves R&D and manufacturing in microgravity environments, which are utilized for experiments and production processes that benefit from the unique conditions of space.
Beyond these practical applications, the in-space economy also encompasses more visionary pursuits like space tourism and asteroid mining.
🚀 Ready for Liftoff? 7 Critical Questions to Challenge Your Early-Stage Space Tech Venture
1. Market
Can this project become a massive company that could potentially yield a big return for an early-stage investor?
Founders must have a clear understanding of the market, whether it's an existing one or a newly created one, and provide a bottom-up analysis of its current size and potential growth.
2. Scalability
Can this project grow quickly enough to produce a significant return within the typical ten-year lifetime of a VC fund?
3. Technology
Is the product truly differentiated and defensible? Does it stand out enough to attract customers, and can it withstand potential competition now and in the future?
Moreover, founders should be careful about communication here. The rule of thumb is to provide enough detail to demonstrate how the technology is differentiated, without becoming overly technical. Remember, many people in VC aren't deeply technical, and even those who are might not have a PhD in your specific area.
4. Why now?
Why is this the best moment in history to start this company? What has changed compared to two or three years ago, and what might change in the next few years?
In the space sector, macro trends significantly impact the industry. However, beyond these macro trends, are there specific technological, regulatory, or other reasons that make this the ideal time to start such a company?
5. Collaborating with Space Agencies
Another key factor is whether a company in its business plan anticipates needing support from a local space agency. In many cases, this support can be instrumental in the development of startups. It’s important to know if they already have this support or, if not, what their plan is to secure it.
6. Competition
It’s crucial to give a clear overview of the competitive landscape, as this sets the context for your technology. Explain how it compares to the state-of-the-art, who the main players are, and so forth.
Moreover, in Europe, particularly, there are often US players already well-established and well-financed in many areas of space tech. A big question for European founders is how to compete with these giants. Are they going to compete directly, position themselves differently, or seek similar levels of funding? This aspect of strategy is vital when considering the broader context of entering or expanding within the space tech industry.
7. Team
Lastly, the focus at the pre-seed stage is often on the team. The qualities of the team are crucial; none of the other factors matter if the team isn't up to the task. It's vital for founders to take the time to explain who they are, their backgrounds, what sets them apart, and why they are uniquely qualified to build this business. This is often overlooked, yet it's the most critical element.
🧑🚀 4 Critical Features VCs Look for in Founding Teams
Founders should dedicate significant effort to perfecting their team slides. This is their chance to demonstrate why they are uniquely suited to lead the project. Investors often prioritize this section, as the team's capability is crucial in the early stages of a startup. Here are 4 key qualities VCs look for in an early-stage startup team:
In Deep Tech technical knowledge is paramount. The team must include those who have either developed the technology themselves or who have a profound understanding of it.
Industry experience is also vital, especially in markets that are complex and regulated, like space tech. Founders should know the industry, understand its constraints and regulations, and be adept at navigating this environment and selling within it.
Business acumen is the third pillar—having robust commercial skills is crucial.
Soft skills are essential. Traditional traits that we value in founders include high energy, relentless drive, and resilience.
📈 Navigating Pre-Seed Space Tech: TRLs, Roadmap, and Milestones
When it comes to KPIs at the pre-seed stage, particularly for Deep Tech and more so for Space Tech, there isn’t much to look at outside of the technology itself. Traditional metrics used in other sectors aren’t as applicable here.
Technology Readiness Levels (TRLs)
TRL is definitely a crucial indicator we pay a lot of attention to. The maturity of the technology is important.
TRL 3 is generally where venture capitalists start looking at potential investments because VCs typically are not keen on financing pure research. Beyond that stage, the closer the technology is to TRL 5—the stage of a full-scale prototype—the better.
VCs need to see that the technology is proven, that we are beyond the science phase and that it’s feasible to turn this technology into a product. This transition from science to engineering is critical.
Roadmap, Milestones, and Funding Rounds
You also mentioned the roadmap. This is indeed very important. We look for a structured roadmap where major milestones are set up to justify subsequent funding rounds.
This arrangement helps to organize both the development and funding plans in a way that each significant achievement can boost valuation and unlock further investment.
Specifically in space tech, one key milestone that often marks a key inflection point is the first in-orbit demonstration.
This is especially relevant for startups working with upstream hardware. For investors, seeing that technology not only works on Earth but also performs as expected in space is incredibly reassuring.
🏭 Scaling Hardware in Space Tech: Challenges and Strategies
Hardware inherently scales slower than software. For hardware, the most intuitive way to achieve scalability is by designing for efficient and rapid manufacturing. This might include planning the hardware so that subcomponents can be sold early on to generate revenue before the full systems are complete.
Integrating the manufacturing process from the beginning is another strategy to save time.
However, hardware development, particularly in space tech, is challenging. It’s usually a binary situation where the system is either operational in orbit or it isn’t, with few opportunities in between.
Growth trajectories for these companies are often flat, with no revenue for many years until a significant inflection point when the product is ready.
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