Downsizing, eliminating travel, and keeping employees flexible helps startups grow every dollar they raise
If it were easier to raise money, Plasmos might even have a facility dedicated to testing rocket engines. Instead, the payment startup rented a speedboat restoration shop east of Los Angeles.
There, “we were able to test something, and it was successful,” said Plasmos CEO Ali Bagchisara. “We were able to create a plasma in the engine and get a high rate of ionization using air.”
After years of skyrocketing valuations and competition among investors for stakes in the space’s most promising startups, high interest rates and the threat of a recession have made investors wary. In response to a lack of new funding sources, space startups are reducing hiring, cutting back on travel and giving up rented office space.
“Entrepreneurship is always a little bit of survival of the fittest,” said Jason Chen, founder and CEO of VentureScope, a McLean, Virginia, venture investment advisory firm that works with entrepreneurs. “This economy definitely tightens the belt a little bit, which makes the teams run more agile.”
Ukrainian startup Promin Aerospace has cut and doubled its engineering staff in 2022.
“Currently we have 13 full-time employees. There are ten of them in the engineering team in Dnipro, and three in the administrative team,” said Misha Rudominsky, CEO of Promin. “We had 16 employees before the war. We had an office manager and a contact person. We were building team for future growth.”
Instead of preparing to scale, which is a common approach in 2020 and 2021, startups are now focusing on increasing their burn rate, which means slowing the pace of spending.
At the same time, institutional investors are encouraging founders to “focus on and focus on their core competencies, no matter what unique value they provide,” said Chen, founder of four startups.
For Lunargistics, a startup in Woodland, Texas that provides mission guidance, launch integration and other space services, the economic downturn has meant fewer trips to conferences.
“So rewarding and rewarding to meet everyone in an industry where lunargistics and I are newcomers, but now is the time to help,” Logan Ryan Jollima, Lunargistics founder, chairman and chief executive officer, said in a tweet in November.
government life line
For some early-stage companies, government contracts or financing programs serve as a lifeline.
The most important piece of advice he gives startups right now, said Matt Kozloff, managing director of the TechStars Los Angeles accelerator, is to “relentlessly pursue, apply for, and win government contracts and grants whenever possible.”
The Department of Defense, Department of Energy, National Science Foundation, NASA and other government agencies are “an amazing source of capital and undiluted funding opportunities” as well as “extreme early verifications of both the company’s technical viability and potential interest” for government clients, Kozlov said via email.
After winning a government contract, one of the founders said, “It means we don’t have to lay off people, and we can continue to build the new things we want to build.”
Entrepreneurs, who enthusiastically share news of technological achievements and fundraising successes, are less eager to discuss financial problems and layoffs. Promising not to be named, they speak freely about the stark differences between 2021, a landmark year for space investment, and 2022.
“There is no doubt that the funding environment is tight at the moment,” said the startup founder. “We’ve seen that across the industry.”
Another founder said, “Entrepreneurs who raised money just three or four months ago, raised huge amounts of money on crazy valuations right off the bat.”
Capital expenditure cuts
The decline in angel, corporate, and venture capital money flowing into the space sector makes perseverance particularly difficult for startups that need significant funding before generating revenue.
SpaceLink was forced to wind down operations after its parent company, Electro Optic Systems Holdings Ltd. Australia is looking for outside investors willing to offer $70 million in the near term and $250 million in total for SpaceLink’s planned data relay suite in MEO.
While MEO is an excellent point of contact with satellites in low Earth orbit, SpaceLink CEO Dave Bettinger said: “Getting equipment, satellites, and launch capacity into MEO leads to an intense expenditure of capital.” before revenue.
Other entrepreneurial firms continued to operate while cutting back on capital-intensive projects.
In December, British cybersecurity software developer Arqit canceled plans for a space-based quantum cryptographic network, citing the cost and risks compared to building a terrestrial network.
In October, small-satellite specialist Terran Orbit canceled plans for its own aperture radar constellation, opting instead to build SAR satellites and sell them directly to commercial and government customers.
It is impossible to predict how long the current investment climate will last.
Space Capital cited roughly $300 billion in dry powder, investment dollars left on the sidelines, in its third-quarter report released in October.
“We are still waiting for the gates to open,” said Space Capital, with venture capital shifting from pure momentum investing to focusing more on judgment and price control.
Until the doors open, founders of early-stage startups like Los Angeles-based Plasmos are finding inexpensive solutions.
“Considering the constraints of fundraising in the market, we did things intermittently and low-cost,” Bagchhisara said.
Plasmos has a small staff, and the start-up technology, which combines chemical and electrical propulsion elements, is no match for common propulsion testing facilities.
To do this, Baghchehsara found a welder to build a missile test stand by advertising on Craigslist. One of the people who responded introduced Baghchehsara to GT Performance Engineering, which specializes in marine services in Upland, California.
One weekday, I “cautiously started using their very expensive equipment,” Bagchihsara said. “That same weekend we fired the engine because these guys were so familiar with the machines.”
Although the GT Performance Engineering staff had never worked on rocket engines, they were eager to help Plasmos run the tests.
“They call me the boom man,” he said bluntly. “Everyone come and help me.”
This article originally appeared in the January 2023 issue of SpaceNews