LOGAN, Utah — Is the smallsat industry in the midst of a bubble? Yes and no, according to one group of experts.
A panel discussion about smallsat business and finance issues during the 31st Annual Conference on Small Satellites here Aug. 8 argued that while the recent surge of investment in small satellite ventures will likely lead to future consolidation, the underlying industry itself is not in danger of collapse.
“I think the trend is absolutely to smallsats,” said Randy Segal, senior partner at law firm Hogan and Lovells. “I think the existence of smallsats, going from big sats to smallsats, is not a bubble. It’s going to stay.”
Segal said smallsats made sense for an growing range of applications given their shorter development times and ability to more rapidly incorporate advanced technologies, as well as lower costs. “I think smallsats are here to stay,” she said.
That interest has also attracted the attention of venture capitalists, who have pumped funding into many early-stage companies planning to develop smallsats for Earth imaging, asset tracking, and other applications. That has, in turn, led to investment in related companies that can either make use of data provided by those small satellites, or provide launch or other services for smallsats.
Segal said that while the industry itself was not a bubble in danger of bursting, it likely cannot support all of these new companies. “We are in a huge bubble at this point as to the amount of startups in this area,” she said. “I think there will be a huge consolidation. Many will succeed, and many may not succeed. That part of it is inevitable.”
Stig-Are Thrana, head of the Silicon Valley office of ground station company Kongsberg Satellite Services, said his firm made a decision several years ago to get involved in supporting smallsat companies despite concerns that the industry might be in an unsustainable bubble.
“Even if it is [in a bubble], we put in money and consider it research and development,” he said. “We cannot afford to let this market go.”
One of those smallsat startups is Tyvak Nanosatellite Systems. However, unlike many others, the company has eschewed venture capital funding, seeking instead to achieve slower, but what the company believes is more sustainable, growth.
“We would not get money just for the sake of getting money, which is kind of counter to about 90 percent of the other companies that are in the same industry,” said Marco Villa, president and chief operating officer of Tyvak.
Villa said the company decided to build up its capabilities slowly, starting with components and, later, full satellites. That go-slow approach, gave the company time to figure out exactly what it wanted to do, rather than have to build up their company quickly if backed by venture capital investment. Such funding, he argued, “doesn’t give you breathing room to make mistakes.”
That slower approach, though, has its limits. Villa said the company eventually “hit a ceiling” that slowed growth because it didn’t have all the resources needed to deliver on its backlog. “We had to go out and seek help,” he said.
Tyvak decided to pursue strategic investors rather than venture capital funding. In June, Lockheed Martin Ventures announced a strategic investment in Tyvak’s parent company, Terran Orbital. The companies did not disclose the amount of the investment, but Lockheed Martin said that the deal “will create opportunities for the companies to share their expertise and customer relationships” to advance smallsat technologies.
“The growth that we’re measuring right now is exponential. It’s just incredible,” Villa said. “Planting seeds in the last year, and tending to them, has been exponentially more advantageous. The [return on investment] is so much higher this way than to try to get a big chunk of money in the hope that we’re going to execute a business plan.”
“My suggestion to everybody is don’t try to crash and burn,” he said. “Just be a little more patient and it’s going to pay off big time in the long run.”