A Momentus Space artist concept of the Vigoride orbital transfer vehicle.

The NewSpace sector is expected to grow from a $350 billion global industry in 2018 to a trillion dollar one by 2040, according to a Morgan Stanley report. Given these forecasts it is not clear how the market will expand, will there be more mergers and acquisitions, initial public offerings, initial coin offerings or just companies remaining private?

Venture capitalists are expecting exits in the five- to seven-year horizon and the space industry historically hasn’t shown this return on investment; but this is changing rapidly. There have been a handful of successful exits such as the Millennium Space acquisition by Boeing and Google acquiring Skybox or SSTL acquired by Airbus; and everyone is betting on who will be next.

Most NewSpace firms are not publicly traded and won’t be for a while. One exception is DigitalGlobe, since merged with Maxar Technologies. DigitalGlobe, originally called World View Imaging Corp., started like numerous other startups in the Bay Area, and it was only due to laser-sharp focus on their goal to map the globe in very high-resolution imagery with their anchor customer (the U.S. government) that they were able to have a successful IPO in 2009. This is a great story to tell all the new startups in space: start with acquiring an anchor customer and then expand your market to other segments; don’t diversify your offerings until you’ve successfully cornered one part of the market and created differentiation for your company through patented technologies, proving your product market fit and delivering hardware in space. Pivots are necessary but shouldn’t involve adding additional products and items that can remove the focus of the company from its ultimate goal of finding its niche.

Millennium is a perfect example of the laser-type focus it will take for a healthy ecosystem. Their product filled a niche for providing low-cost, reliable smallsats to the U.S.

At Momentus, we are pioneering a new reality for what’s commonly referred to in the industry as “space tugs.” If we suddenly decided to get into smallsat manufacturing, it would have a detrimental effect on our business. The key to success is focusing on becoming the first to market for cost-effective in-space transportation services that are faster than the alternative modes of transportation. Focus is key for startups in their early stages and that is something that will set them apart in the race to market.

As for SpaceX, Elon Musk has said he won’t take the startup public until it is regularly achieving trips to Mars—which will likely take at least another 15 years or so. They are extremely focused on reaching Mars, which has been one of the keys to their success. Imagine starting every meeting with the question, “is this product or service we’re building helping us get to Mars? If not, we shouldn’t be holding this meeting.” These are the lessons that NewSpace startups should learn from their predecessors such as SpaceX.

Boeing, Lockheed Martin, and Northrop Grumman are all established companies that already have a toehold in commercial space, with wider interests beyond the sectors they already dominate. Boeing is the prime contractor for the International Space Station and competes against companies like SpaceX for NASA contracts to develop crewed spacecraft vehicles. All the startups that are looking for a quick exit could and should consider these heritage players as means for exiting.

Growing interest from well-established, traditional VCs that financed a chunk of deals in NewSpace is now supported by new breeds of  funds focused exclusively on space such as Seraphim Capital, Starbridge, Space Fund and Space Angels. This interest is shared by starting corporate VC arms such as Airbus Ventures, Boeing HorizonX Ventures and Lockheed Martin Ventures.

The fact remains that after receiving funding, many smaller players should try to grab the attention of larger legacy players through marketing and positioning for a possible acquisition and be guided to do so by their lead investors. The fastest means for a startup to exit is by merger or acquisition and now the older space companies are starting to see the value in these new innovative companies by expediting their R&D cycles and addressing the new burgeoning markets including the constellation customers. There are numerous examples beyond Millenium Space Systems such as Lockheed Martin investing in Tyvak, Airbus Ventures investment in SpinLaunch and Thales Alenia Space investing in LeoStella. These examples are indicative of a large shift in the way that the primes are viewing the NewSpace market. They all want a part of the pie and they have found that acquiring this knowledge and expertise via M&A or investing in the capitalization table to be the most effective means of capturing this market.

According to a Space Angels report, between 2009 and 2018, venture capital funds invested $4.2 billion into space companies, with 70 percent of that capital deployed in just the last three years. According to the same report, 114 VC funds made their first space investment just last year, bringing the total number of VCs with a space investment to 534. We are fortunate for such a prime deal-funnel taking shape, but if startups don’t double down on their value add, rather than diversifying offerings, we will stagnate.

Negar Feher is vice president of product and business development at Momentus Space.

Negar Feher is vice president of product and business development at Momentus Space.