Foust Forward | Space startups face new competition for investment dollars — or bitcoins

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“Foust Forward” appears in every issue of SpaceNews magazine. This column ran in the Jan. 29, 2018 issue.

Attendees of the Space Tech Summit conference in Silicon Valley Jan. 23 could be excused if they thought they had wandered into an episode of HBO’s “Silicon Valley.”

“Space, right? Like, that’s a thing,” Adam Draper, founder and managing director of startup accelerator Boost VC, said to kick off his talk at the conference. Wearing a t-shirt and a hoodie, he was dressed like the stereotypical Silicon Valley entrepreneur, albeit one also wearing a pair of bright orange pants.

The title of his talk was “Bubbles in Space,” and many in the audience thought that meant addressing the nagging worry in the space industry that the growing number of startups in small launch vehicles, satellites constellations and other fields was unsustainable: a bubble that would soon burst.

Adam Draper, founder and managing director of startup accelerator Boost VC
Adam Draper, founder and managing director of startup accelerator
Boost VC

Draper had other ideas. He said he’s received 40 to 50 pitches for space-related startups, usually led by “crazy smart” people. “I ask them all one question. I say, ‘Can there be bubbles in space?’” Yes, literal bubbles in space. “Logically, this is an idiotic question,” he acknowledged, “but I get the best conversations out of this question, and we go on tangents that go on for hours.”

Later, though, the talk took a serious turn. Asked about financial space bubbles, he offered a contrarian answer. The problem he sees is not one of too much investment in too many startups, but not enough money.

“I actually think money is moving away from everything else in early stage right now and moving to crypto,” he said. “Suddenly, all the money is pouring into crypto-related projects.”

By “crypto,” Draper was referring to the burst in interest not just in bitcoin, but other cryptocurrencies and related technologies, like blockchain. Such companies have attracted a lot of attention and money recently, including from Draper’s firm. That’s drying up funding, he argues, from other technology startups, including space ones.

The growth of crypto was a theme at the conference, as other speakers discussed its implications for the investment market in general. It was a new, and puzzling, experience for some in the space industry, for whom ICO is a failed communications satellite venture and not “Initial Coin Offering,” a way some startups are raising money through cryptocurrencies.

One venture that gave a talk at the conference, Space Chain, is seeking to combine space and crypto through projects that range from blockchain nodes in space to its own cryptocurrency, SpaceCash. Draper, though, warned other ventures from trying to turn their space technology ventures into something related to crypto.

“All the money is pouring into crypto-related projects, so the space industry is trying to evolve and say, ‘Hey, we’re actually crypto,’” he said, although he didn’t give any examples of space-turned-crypto companies. “That’s not the long-term play, so don’t do that.”

Even without grasping the ins and outs of cryptocurrencies, it’s easy to understand why investors might be more interested in such startups versus space. In other panels at the conference, investors and other financial experts lamented the lack of exits so far for space startups.

“We think it will be a fruitful industry and will have a wonderful return on investment, but what are those scenarios going to be?” said Tess Hatch of Bessemer Venture Partners, who has invested in Rocket Lab and Spire. “Are they going to be acquired? Are they going to go public? How are these space startups going to take the next step?”

Draper urged caution, predicting the current mania around cryptocurrencies will subside.

“Right now, I don’t think space is going to take off this year,” he said. “I think we need to lay the groundwork to get ready for it to take off in three to five years.”

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Jeff Foust writes about space policy, commercial space, and related topics for SpaceNews. His Foust Forward column appears in every issue of the magazine.