The rise of space startups has not gone unnoticed by the U.S. Space Force. Just in the third quarter of 2021, investors poured $8.7 billion into 112 space companies, according to the market research firm Space Capital. Private investment has been brisk over the past decade, with $231 billion of equity going to 1,654 businesses in the space economy.

The acceleration of venture capital and technological innovation in the space industry has created a huge opportunity for the U.S. government to tap into this ecosystem as the strategic space race with China picks up pace.

The flip side, for the Defense Department in particular, is that it has to rethink how it works with the space sector.

DoD for decades was the primary customer of the aerospace industry dominated by a handful of big primes. Now the Space Force is one among many customers of commercial space companies, and is trying to figure out how to engage with nontraditional players such as venture-funded startups.

In that vein, the Space Force’s technology arm called SpaceWERX announced last month it signed a Cooperative Research and Development Agreement (CRADA) with a venture capital firm, Embedded Ventures.

Military R&D organizations routinely sign CRADAs with companies that are developing sought-after technologies and in exchange offer valuable access to government expertise and facilities.

A CRADA with a venture capital firm, however, is a new thing. The Space Force said the agreement with Embedded Ventures is a pilot effort and more CRADAs could be signed in the future with other VCs. The point is to learn about each other’s processes, define some measures of merit and see what may work for implementation in a future program.

Aerospace Corp., a nonprofit that advises defense and intelligence agencies, helped the Space Force flesh out the concept of using a CRADA to connect defense buyers and VCs.

“SpaceWERX is working to gain insight into how VCs make investment decisions and manage portfolios, plus what’s on their investment roadmap,” said Randy Kendall, Aerospace vice president of launch and enterprise operations.

At the same time, “the government’s goal is to better leverage the VC community for more capital to go into technologies that fill U.S. Space Force architecture gaps,” Kendall told SpaceNews.

For example, SpaceWERX may ask a VC for a review of the commercialization plan and business team for a given startup. The VC in turn gains insight into what SpaceWERX is likely to be buying in the coming years, thereby informing portfolio investment decisions.

Kendall argued this is a win-win deal. “This should speed technology development and time-to-market, reduce cost to the government, demonstrate the attractiveness of participating in U.S. government programs, and deliver on the promise of innovation from the nontraditional U.S. industrial base,” he said.

Mandy Vaughn, a veteran space industry executive and now an operating partner at Embedded Ventures, said many startups and investors are eager to work with the government despite concerns about slow moving bureaucracies.

From the government perspective, this makes for a balancing act. There is a community of startups and VCs that is “definitely excited to participate and looking for more feedback and understanding of how to effectively participate,” Vaughn said during a recent TechCrunch forum.

On the other hand, the government can’t change course too drastically as many of the space industry’s new entrants are unproven, may not have security clearances and are offering higher risk technologies that haven’t been deployed.

That said, now is the time to begin pivoting in a new direction, she said.

“The Space Force acquisition community is working within a system that was largely constructed over time starting about 50 years ago with the birth of the space industry,” said Vaughn. “They need to retool how they do business.”

Sandra Erwin

Sandra Erwin covers military space for SpaceNews. She is a veteran national security journalist and former editor of National Defense magazine.

“On National Security” appears in every issue of SpaceNews magazine. This column ran in the November 2021 issue.

Sandra Erwin writes about military space programs, policy, technology and the industry that supports this sector. She has covered the military, the Pentagon, Congress and the defense industry for nearly two decades as editor of NDIA’s National Defense...