Two years ago, I left my engineering position at Iceye to join a pre-seed space startup consisting of two people, one of which was me. As a newly minted CTO at a startup lacking capital, I was thrust into the fundraising game — with no deeper understanding of finance or business strategy than you’d expect of the average 40-year-old engineer with an oscilloscope.
Daunted but undeterred, I set off into the depths of venture capitalism, strategy, marketing, pitches, PowerPoint slides, NewSpace, small talk, zero-sum games, and artificial politeness.
What follows is a sort of paper trail for those coming from similar places and thinking of embarking on the same adventure. It’s also a reflection (more than a criticism) on the things that must change.
Here’s the story. As I started pitching investors, my first impression was that there was no ‘manual’ with rules for playing the game. For an engineer like me with a mind shaped by equations, this was particularly unsettling as I was struggling to find clues in a field riddled with jargon like USPs, pre-money, post-money, dilution, moats, seed stage, Series A through D and exit.
It turns out, there were some rules. Unwritten, highly dynamic rules, though. The right strategy for approaching one venture capital fund might be the opposite of what’s worked with another fund. For this VC, press the guy with calls. For that one, let the guy alone to make him feel the fear of missing out. For this one, moats were the single most important thing ever. For that other one, it was the charisma of the startup’s founders.
This feverish quest for funding can frequently lead to polite rejection. Reasons vary:
- The VC wants to wait until your business is more mature
- Your differentiation is weak (bigger, deeper moats would help)
- Your revenues are too “lumpy” (hey, good that we have any revenues at all in these times, no?)
- Your revenues are not recurring enough
In the VC universe, cause and effect might be easily interchangeable. If you read the rejection reasons above, you can quickly see that most of those (lack of recurring revenues, lack of maturity) are typical for early stage startups. After all, you are fundraising because you want to increase your maturity and improve your revenues. Therefore, the investors are disappointed at the lack of precisely what you aim to accomplish with their money. Unless, of course, the polite rejections above are just euphemisms for hidden, more subtle things such as “I just don’t like your face,” or “I’m not vibin’ with your idea.”
Fair enough.
In any case, VCs who provide honest feedback and not just polite excuses are more helpful because startup founders can use that feedback to correct the trajectory and retry again later. Most of the VC tales we tend to hear are success stories told by those who got and continue to get funded. They make it sound so easy. The more valuable stories come from those who failed miserably, for their experience can depict the quirks of the process like success stories cannot. Survivorship bias at its best.
Expectations and Wrong Yardsticks
While machine learning and artificial intelligence are the darlings of our post-industrial economy, fundraising is an extremely human-oriented, analog activity whose methods probably haven’t changed in the last 50 years. There is very little reliance on data, despite most VC websites claiming they are “data-driven.” There’s a lot of talking, endless presentations, body language — you can tell how excited a VC is from how they sit — and autocratic decision-making structures.
There’s also a generous dose of bluffing from every side: startups trying to look bigger than they are; markets presented as more attractive than they are; investors trying to look more successful than they are; technical reviewers trying to sound more accomplished than they are. In my experience, there are two kinds of tech reviewers:
- The friendly “gray beard” who worked in many classified projects during the 1970s and spends half of the meetings bragging about how much he cannot tell you about those projects because tOp sEcReT. The last microprocessor he worked with was a Z80.
- The unfriendly young reviewer who hasn’t launched anything to space in their life but has secured a salary by making everyone believe they know everything about space tech and scaling organizations. This kind of reviewer is especially aggressive during calls and pitches because they want to make clear they know better.
All this leads to one of the biggest problems present in the space VC sector: a lack of space technology knowledge. There is a concerning knowledge gap — a politer term than ignorance — about space systems engineering. VC partners, associates, and investment assistants are all similarly bewildered about what satellites are made of, the complexities behind developing them, and the applications they can unlock. This is true even for those who brand themselves as ‘space investors.’ The knowledge gap results in industrial quantities of time wasted by startup founders having to educate prospective investors about basics like why satellites don’t fall back to earth, how antennas work and what flight software is for. This is time that could be spent building the technology before the runway—that is, the money left in the bank account—fades away.
True story: one investor I had been pitching went down the rabbit hole and bought seven books about space. Looking at that pile of books on his desk was very visual feedback on how badly I had overdosed the guy with unfamiliar concepts. Point taken.
Wherever there is ignorance, there is also someone ready to take advantage of the ignorant. Therefore, consultants and advisers with dubious credentials spring up like mushrooms, and investors are frequently misled to perform half-baked assessments using the wrong yardsticks or bizarre metrics such as the infamous Elon Musk factor.
For space VCs, the SpaceX founder and Tesla chief executive is the gold standard. When space VCs talk to you, they are secretly (even openly!) gauging if they feel the “Elon vibe.” That is, assessing if any of the company’s founders can be “the next Elon Musk.” Which is ridiculous: they are comparing early ideas with a 20-year-old company whose undeniable success is precisely based on solid engineering and resilience from failure, and whose support from its early investors — who probably did not get hung up assessing whether young Elon was the next Steve Jobs or whoever — made it possible for SpaceX to be what it is today. Doing good engineering takes time, effort and a fair amount of failure. Plans for colonizing other planets are making lots of headlines these days, but serious space exploration cannot be done on crappy technology whose accidental reliability makes you want to cross your fingers before launch. You can’t go to space on a Ford Pinto.
It’s all understood: limited partners — the money behind the VCs — want their returns, and VCs try their best to please them and in the process earn substantial commissions. The current VC game is short-termist by design: throw money at a startup based on qualitative things such as the founders’ charisma (the “future Elons” whose management skills stop scaling beyond 30 people); sit on their boards to steer their strategy to balloon valuations while consistently neglecting the technology; exit, profit and repeat. The result? NewSpace is slowly becoming a synonym for “crap space technology,” where rockets flying sideways are celebrated as wins worthy of an IPO.
Failing is part of the game, and you may fail many times, but failure is the foundation of consistent victory. Engineers shouldn’t be checking their company’s share price as they design.
This boring engineer’s fundraising adventure provided an obvious takeaway: the current model is broken. Something else needs to materialize; something genuinely data-driven—more quantitative—and with patience built in to let tech mature at its right pace. Something to help build companies that can last 20,50, or 100 years — the time scales compatible with what it will take to make human presence on other planets a reality.
Ignacio Chechile is the chief technology officer at Reorbit, a Helsinki, Finland-based startup “exploring novel space architectures beyond LEO.” He previously was vice president of spacecraft engineering at Iceye.
This article originally appeared in the October 2022 issue of SpaceNews magazine.
