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Space IQ - Q3 2023

PUBLISHED
October 26, 2023
BY SPACE CAPITAL
PUBLISHED
October 26, 2023
BY SPACE CAPITAL
Chad Anderson, Space Capital Founder and Managing Partner, provides a short review of Q3 2023 startup activity and investment trends in the space economy, current market dynamics, and deep dives into specific themes with industry leaders.

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Space IQ - Q3 2023

Chad Anderson:

Welcome everyone and welcome to Space IQ, this is our opportunity to review the latest startup and investment trends in the space economy. And today we're doing something a little bit different. I am joined in the studio today with one of my partners, Justus Kilian. We have just published our Q3 Space Investment quarterly, and we're going to talk through some of the key themes and questions that came out of this report. To get things started, macro markets, we are 21 months into this sustained downturn, market dislocation, liquidity crunch, what do you want to call it? And we're not out of the woods yet. There are still some signs of headwinds, but venture broadly saw a wave of down rounds happen that we haven't seen on that level since 2017, which on the one hand is a negative, but on the other hand is a positive because we're finally seeing deals getting done. So it sort of feels like we're reaching this sort of equilibrium where down rounds are happening, but at least rounds are happening. What are you seeing in the broader market that sort of caught your attention?

Justus Kilian:

Yeah, last quarter we said that we'd seen signs of stabilization in the market. We gave a number of reasons why, capital flows and talent. I think this quarter it was really interesting to see deals getting done, waves of down rounds, valuations adjusting down, that creates a greater balance in the market, I think a lot of entrepreneurs had been sitting on a lot of dry powder and didn't want to go out and have to raise, but they were getting to that period of the end of runway, had to go back to the market and start to tap it. And frankly, I actually thought the volume of activity would be higher this quarter.

That was one of the things I was looking for, we've been talking to some of the companies we've invested in, talking to other investors, and one of the things we've consistently heard and expected was every company who raised 18 months ago would be trying to tap the markets again. And so you needed to get ahead of it, you needed to have these conversations, and we didn't see that mad rush back to investors to bring in capital, but people who are hitting their milestones, technical or revenue wise are going out and raising and you're just not seeing the jump in valuations that you did previously, markets are more discerning.

Chad Anderson:

So shifting over to space capital markets then, in these challenging economic times, we're seeing more and more companies chasing government dollars. So we're definitely seeing that play out in the space capital markets, one thing that really sort of stuck out to me is that we're looking at applications. Applications has generally made up the largest amount of capital into the space capital markets. We're following our frameworks from the GPS playbook. We talk about the space infrastructure, which is the satellites and the launch vehicles, that sort of thing. The hardware, the distribution layer of accessing the data that's coming off of those orbital assets and making them accessible to the tech community who's building software, generally applications on top of this really valuable data. So applications really, if you look at GPS and the GPS playbook, you got the GPS satellites, the commercial receivers built by Trimble and Garmin and others, and then you've got all the location-based services that we know and love.

Well, it's pretty obvious when you look at GPS to see where the value accrues and where a lot of the value and the investment dollars are going. But in this downturn, we've seen applications just fall off a cliff, there is no real applications rounds getting done. Meanwhile, infrastructure companies are seeing continued growth and the infrastructure investment in 2023 through three quarters is already bigger than it was in full year 2022, and why is that? It's sort of counterintuitive because you think these companies they have high CapEx requirements, they have long timelines to revenue, so you think certainly in a market like this, there's a flight to quality and I think that, that's still the case, but there's also you think that investors would be putting all of their money to work in low CapEx software solutions, and that's exactly the opposite of what's happening. So anyway, digging into that was really fun to do this quarter, would love to get some thoughts from you on what you're seeing there.

Justus Kilian:

Yeah, we spent a lot of time as a team talking about this. Oftentimes the data leads us in directions we just don't fully expect. And that framework infrastructure distribution applications is really interesting and really helps us quite a bit. And so to your point on the application side, those end customers are typically consumers, A lot of them are B2B, but ultimately interfacing with an end consumer. And so that behavior, that customer segment typically is way more cyclical. So it's expected that post pandemic, those companies would start to have a tougher time raising and growth at any cost was much more challenging. So that isn't completely surprising, especially with some of the tourist investments that were funding this crazy growth and with them pulling out, there's just been a total lack of capital to step in and fill the gap.

What's, I think way more interesting is the fact that infrastructure, which I think is really aptly named, is this critical capability largely serving governments and enterprises, long time horizons, like you said, that's actually becoming a sort of moat or defensive barrier to other companies trying to get into the game. And by raising capital and serving a niche market and really building ties into the government, you can build and grow a business in an uncertain and challenging market for the next five years. And that's sort of where investors are thinking and what they're looking at. And we've seen the flow of capital into those infrastructure companies really grow. And we're all sort of surprised by that.

Chad Anderson:

The world seems to be awakening to the importance of space technologies and we're seeing governments around the world prioritize their protection, seeing a lot of work happening in situational awareness and space traffic management, understanding where things are and how to coordinate amongst satellite operators. And this is one of the White House's, top three priorities, it was the number one topic of conversation at the last G7 summit, there's a bill in the house that is deeming space assets as critical national infrastructure. So very, very important to the economic stability and national security for the US and every other country in the world.

So government dollars are continuing to get spent, and I think that's one of the main reasons why we're seeing investment into the space economy is proven to be resilient across market cycles. We're seeing that in our portfolio it was a huge quarter for our portfolio companies, we had Impulse, Kayhan, HawkEye 360, GHGSAT, Krucial, we've got a couple of others who still haven't announced their funding rounds yet, but that's a good number of companies just in our portfolio that are able to successfully go out and raise in this market. And I think a lot of that has to do with the government dollars that are available, the enterprise dollars. And in addition to the things that you said, the competitive moats, you've got the advantage of more resilient revenue streams also.

Justus Kilian:

Yeah, I think that flight to quality and uncertainty in the road ahead, I think that's what's sort of characterizing the market right now and predictability from government revenue is very, very attractive to investors, even investors that haven't invested in space, typically. You see them coming in and writing checks and getting excited about it. And I mean that's important for the continued development and growth of this ecosystem, so I think it's really important.

Chad Anderson:

That's a key takeaway for the quarter is that VCs have generally shied away from defense tech or purely government markets or... And that's not what we're talking about in this case, but there is certainly a lot of government dollars in the space economy. So VCs have historically shied away from these, talk about being counterintuitive, there is a sort of massive shift where everyone is chasing these government dollars now, so it will be interesting. This doesn't feel like it's a thing that's happening in one moment in time, it feels like there is a shift happening underway in the venture markets, and this is going to be stick with us for some time.

Justus Kilian:

But I think what we're talking about here is largely the growth and later stage investments. The earlier stage investments, which we specialize, I think have held up quite well throughout the last 21 months or several years. In this quarter in particular, we saw series A within our space market, outperform the broader venture ecosystem. I don't know, I'd be curious to get your take, what do you think the technical milestones, the financial milestones, what are these companies achieving that's helping them go out and raise where other companies may be having challenges?

Chad Anderson:

Yeah so I mean, it's no secret that public markets affect private markets. And so at the very beginning when the public markets began to tank in the beginning of 2022, that started to affect the private markets. I mean, because that's setting the price for which you can exit your investments, so public markets think late stage private markets follow shortly thereafter, and it sort of trickles down until you get down to seed investing. And you've got this sort of interesting situation where nobody has any price discovery on what the exit prices are, and so no deals are getting done. Meanwhile, through the market run-up, all these VCs had raised this record amounts of capital and they're sitting on records amount of dry powder that they're not deploying. And so you kind of got this interesting situation.

So they needed to do something, everyone needs to do something. So seed deals continued to get done, everyone was like, okay, let's continue investing, but in the thing that's farthest removed from the public markets. So seed deals continue to get done and that's where we've been playing and we've been investing in some really interesting companies, there has been no shortage of innovation and interesting things happening. Where you start to see it play out is-

Chad Anderson:

And interesting things happening. Where you start to see it play out is actually in that next step, right in the series A. And so to your point, that was a real key takeaway from the data is if you look at venture markets more broadly, I think it was like 10% or 12% or something of seed companies that were able to go out and raise a series A and get the cash they need to continue to grow. That is like nothing, right? The series A market is basically shut down.

Meanwhile, in the space markets, I think the number was 24% or something like that. So it made up a quarter of all deals that were done this year, year to date. So that is a big difference, and I think we're chewing through the data and trying to see where the clues lead us. Also, why is it that space companies are able to raise at a 2X rate of companies in the general venture market? And I think it has to do with the fact that there are a lot of government dollars here and that they're building businesses in an area that is critical to enterprise and government operations and there's government dollars that are available to them. And so they have proven themselves over these last couple of years that they are highly resilient through market cycles, and that's really attractive to investors in this market.

Justus Kilian:

And I think that there's been a raising of the bar in terms of quality, how founders are using capital, where they're focusing. There was a lot of satellites launched in the last 3, 4, 5 years. That first satellite never saw first light. It just didn't turn on. And so the people who are able to raise capital and who are getting ready to go to that series A, they're operating in a different bar. And when you execute and hit your milestones, technically that unlocks your financial capabilities. And that's what investors are looking for. Pathway to real revenue, positive unit economics.

Chad Anderson:

Yeah. And I know that what we're starting to see.

Justus Kilian:

Yeah, I mean, 100% the ability to execute. It's we're at the moment of truth sort of, right? We've gone through the infancy, the adolescence, and now these sort of growing pains. And we are at this period where it's kind of time to put up the SpaceX makes launch look really easy, but it's not. And we've seen that from all the other companies that have tried to do the same thing. And we've seen the same thing in satellites where we saw all these founders that were going out and raising capital saying, it's easy. We're going to do the same thing that Planet Labs did. And they sort of helped perpetuate this myth. We launched an iPhone and it worked. And that's not exactly the whole story, but people went out and fundraised based on that story and now that it's time to execute, and we're actually seeing those satellites get built, launched, and then they're not working.

I mean, there's a small group of people in the world who can make rockets that fly and satellites that work. So execution is key, and people are now starting to shake out and we're starting to see people willing to pay a premium for those teams that can execute.

Chad Anderson:

We were closely following a group of satellites that were coming online. I think it was about 10 companies, and I think almost all of them failed on their first light. It's really hard. There's not many that can sort of cross that chasm. So when Muon did it from back of an envelope to first light in under two years, I mean that's a great example of execution also bringing along some great contracts along the way.

Justus Kilian:

Absolutely.

Chad Anderson:

Okay, so another interesting insight that came from this Q3 data is emerging industries. So that's what we call emerging industries, space stations, logistics, so space traffic management and on-orbit servicing, manufacturing and orbit, that sort of thing, these new markets, which are really a subset of infrastructure. And so we're seeing continued growth in infrastructure investment, highly resilient. The same thing as playing out in emerging industries. Again, sort of counterintuitive, you'd think that there'd be a flight to things that people know, proven markets, low CapEx. But in this case, we're seeing continued growth in emerging industries which are very risky government-led markets, new technology.

Justus Kilian:

And they've only represented about 2% of all the investment in the past.

Chad Anderson:

Right. But it's growing because a couple quarters ago, it was 1%. So it's actually, it's growing as a portion of investor interest and activity of what's going on here.

So we're looking at emerging industries and we're saying there was a couple of mega rounds that were done in space stations this last quarter, and it caused us, this is sort of this thing that's a splinter in our mind the last couple of quarters, but that has really sort of came out in the numbers this quarter, looking at all of this investment, we're seeing huge sums being invested into space stations. And we're like, well, how big is that market? There's a lot of questions in our mind about how big the market is and the longevity of the market, particularly with new alternatives coming online to the space station. The space station is going to be retired at some point in the future.

Right now it's seven years from now. What does that mean? Do we need a replacement space station? Do we need a replacement space station but maybe not as big and maybe less international partners, fully commercial or not? So we've got alternatives that are coming online, but it made us ask the question, how big is this market? And you look at the commercial, the dollars that are available, and it's pretty easy to size up a commercial market because you can go comb through government documents and see their budgets ... I mean, a very small amount of dollars available for commercial stations, CLD commercial, low-earth orbit destinations, a lot of investment dollars, small amount of market potential. You look at Lunar, there's a small amount of investment dollars, relatively speaking, and 20 times that amount in market size.

Logistics is something similar. It is like a small amount of investment in logistics. Despite the growing need for space situational awareness and space traffic management that we covered earlier, impulse space and what they're doing and the tugboats, the tug spacecraft that can take you to different orbits and things, despite all of the need for all of that and the importance there, we're seeing small amount of investment dollars there, but again, much, much larger market. So anyway, fascinating for me to sort of look at those numbers and see the discrepancy, sort of the dislocation between investors, what they're thinking and where the actual market is.

Justus Kilian:

Anytime we see capital flows, we want to try to understand why people are making the decisions they're making. And the one that's been really tough for us is within space stations. So the ISS, one of the most costly human endeavors ever. How do you plan for a replacement of that? Well, the commercial LEO destinations funding is a way in which NASA's trying to help bridge that gap from public to private. And this quarter with Axiom raising their series C and Sierra Space raising their series B significant checks here.

Chad Anderson:

At significant valuations.

Justus Kilian:

At very significant valuations. And the first way that we try to understand this is, okay, well who are the investors that are leading these rounds and sort of setting that price and setting ... and what are their incentives here? Because investing is more than just a return on investment. There's other ways you generate returns. And so in the case of Axiom, the Saudi government led that investment. In the case of Sierra Space, it was Japanese strategics. And while we don't know this, you can see some sort of strategic benefit accruing to these governments and sort of strategic partners that are being a part of innovative technology working with the United States.

It's putting large-budget commitments into the future of this, and it helps build strategic relationships, build allies, create ties, shows that you're doing innovative work and it may not be a great investment and they don't really care. So that could be one of the motivations here for the reason that these got written to a price that seems a little bit out of whack. The next lens by which we approach this is trying to then actually look at the size of the market. And it really, in this case, is really only NASA. There could be some commercial interest at some point, cloud computing and manufacturing and biotech, none of that's really known or sized or there's not real clarity on what that is.

So what you can measure directly is the commercial LEO destinations in the NASA budget for the next five years. And I mean, it's dismal compared to the amount of equity financing these companies have raised. And so it's going to be a long time before the ISS actually shifts away and that bigger budget becomes unlocked for whoever the winners are. And so how are these companies going to get funded the next round? It's a big question for us.

Chad Anderson:

Yeah, I mean the big question for me too is will those funds become available just because they're paying two to $3 billion in servicing per year, now maybe they're looking at that and saying, why are we paying two to $3 billion a year now? Isn't there a better way of doing this? And I think that there is weak justification for the International Space Station all the way back from its founding.

Talked about this in the book a little bit about how it came about and how people were like, it was an excuse, it was built to give the space shuttle something to do. And I don't know that I've heard many other great examples, use cases since then. It's still, it feels like I haven't heard a great, great reason for going, but I mean, let's just take the first few, right? You've got tourism, for example. Starship is coming online. Do you really need a permanent space station for tourists to go to? It seems like Starship could do that and could do it better because you've got ... The vehicle is big enough to be a space station. You could just have Marriott or some other hotel chain come out and design it and build it the way that they want for their clientele, launch them and bring them back down whenever they want. You're sort of cutting out the middleman. Why have ... because those commercial space stations would have to go to SpaceX anyway for the launch.

Same thing applies to manufacturing. You could come and bring your equipment and install your equipment and have your people operate your equipment and avoid all of the costly astronaut time and everything else. It seems like, again, you would be cutting out multiple middlemen in that case. Not just the destination, but also the people working on it.

So anyway, it sort of feels like you've got technology is coming on that's going to leapfrog and sort of make a lot of this existing infrastructure and investments obsolete. Meanwhile, you've also got Varda who's focusing on the pharmaceutical side that's offering a very relatively low cost better solution to what exists in the International Space Station today. So you start to think about the long-term longevity of this market, and you're like, where is that demand going to come from and is a permanent station in orbit, the best solution given the way that technology's evolving, and it’s just in orbit, like the best solution given the way that technology's evolving. And anyway, big question marks.

Justus Kilian:

Yeah, we've talked about this a lot. It seems like there needs to be a radical rethinking of the way you build habitats to make it commercially viable. The Starship equation is a really, really interesting one, and the ability to potentially repurpose that for use to me seems like a radical rethinking of the way space stations are built. So, challenging competition there for sure.

Chad Anderson:

It's been really interesting to see too, you mentioned that most of this funding is NASA driven. actually in emerging industries the geographical breakup is really interesting as well. The US, 81% of dollars that are going into these emerging industries, are going to US companies. And the second is also an interesting one, with Japan there making up 13%. So that is the majority of dollars, investment dollars, and who are building solutions in this market is the US and then Japan. Which is really fascinating because most of what's happening is US centric. Think about the other couple of areas in which we're talking about here. So in lunar we've got two portfolio companies, Astrobotic and Lunar Outpost. Both are racing for the title to be the first commercial lander on the moon. Maybe we'll see that later this year?

Justus Kilian:

Hopefully by the end of the year.

Chad Anderson:

In the logistics space, so we've got our investment in LeoLabs and space situational awareness, providing really great information about where things are in orbit, operational satellites and debris. Our recent investment in Kayhan Space, that is the software interface that's enabling satellites to operators to coordinate amongst themselves. And Impulse, which is basically taking everything that Starship is dropping off in low Earth orbit, will be dropping off, and taking them where they want to go.

Justus Kilian:

So I mean, we've been way more active in those two markets. That's where we're investing. And the depth of those markets, we think is way more compelling and way more interesting. So logistics, just as sort of a starting point, that's where we made a couple investments recently. It's the most developed of these emerging markets. It's sort of the next step past launch when you start to think about an economy on orbit, what comes next. And so from a defense standpoint, you have funding from the Space Force, DIU, NRO, AFRL, DARPA. They are all looking at what happens in low Earth orbit and beyond, figuring out how to protect existing assets, figuring out what happens with new actors coming up, whether it be commercial or large government constellations from foreign adversaries. So there's a real interest there that's anchored across multiple agencies.

You then have scientific budget that's also thinking about some longer term opportunities and continuing to monitor NASA's assets. And then you have the Department of Commerce that's really thinking about the commercial foundation of tracking what's up there. So that's the US multiple agencies, multiple different objectives, allocating funding to this area. And then you have other governments around the world that are willing to allocate capital to this area to monitor their own assets and think about it. And so it's not just the US that's anchoring this year from a customer perspective. There are other governments that are willing to play. That doesn't include then the commercial market that we're seeing a willingness to pay from launch providers, from satellite owners and operators, from the insurers, that are proving that there is a commercially viable market in addition to government funding. So that's why we've written multiple checks into this area. We actually think that it's a robust and sort of developing market.

And you contrast that with the lunar market, which is really interesting. We were one of the earliest investors I think out there to write a check in into this. And it is a long shot. It's very ambitious to think that commercial companies are really going to pave the way, but that is the roadmap that NASA's put in place. The entire market is being defined by NASA, the Artemis, the Eclipse program. And there's a lot of money out there available for it. And it's being competitively bid. Primes are going to go after this as well. But there's a lot of commercial startups that are also going to be able to compete for this. And we know directly that smaller companies are bidding for billion plus contracts in this area. Where else can you say that? I mean, it's really impressive.

So before any type of real commercial or human activity happens, it's going to be landers and rovers that go out there and build the physical infrastructure for anything to happen. And it's going to lay the foundation for any other sort of activity to happen off planet. So it's incredibly compelling, I think it's incredibly interesting, and there's really good line of sight. And there's other governments around the world that are willing to support and have signed up to the Artemis Accords. And they're small relative to what the US is willing to commit, but it's not just the US alone.

Chad Anderson:

Okay, so we've talked a lot now about emerging industries, which I mean it's some really interesting data coming out of Q3, so that's why we've spent some time here. I think it's worth sort of stepping back and saying that most of the opportunity in the space economy today is in satellites, GPS, geospatial intelligence, satellite communications, the three key satellite technology stacks that we are investing in. These are orbital assets that are providing data, valuable essential data, to enterprises and governments. That's where 90% of the space economy is today. That's where 90% of the investment dollars, the $280 billion that has been invested into nearly 2000 space companies, that's where the dollars are going. That's where the opportunity is. That's where we're really focused, at space capital and deploying our capital. But there is some really interesting opportunities in some of these emerging areas and it was worth taking a sidebar to talk about that.

Another area that has captured the imagination of investors recently is in artificial intelligence. And they are enhancing capabilities across the space economy. I mean, this is a horizontal technology that cuts across everything. Next gen manufacturing, supply chain management, satellite design and operations, deeper and more actionable intelligence, clearly, satellite communications, network management. But AI use cases in the space economy are really nothing new. Our portfolio companies have been applying AI, machine learning, computer vision, to their solutions for a long time, and particularly in geospatial intelligence.

And the reason for this is because there's just too much data. We've been pulling down all of these images from satellites for decades now. It's too much for any human or team of humans to sort through and annotate and make sense of. So all of these sort of techniques have been applied here for a long time. And so it's interesting to see that this is now an interesting area of opportunity for investors. Lots of money being thrown around here. Throughout this market downturn, it's actually been propping up, investment dollars have been going in chasing these AI companies. So interested to talk about this a little bit. AI in the space economy, how that's impacting our portfolio companies? Would like to dive into that a little bit.

Justus Kilian:

Yeah, the world of aerospace and sort of the hardware infrastructure development has typically operated in a silo. "It's hard. Leave it to us. We'll figure it out. We'll build the full stack and deliver the solution or the intelligence and just give it to you." The tech community is sort agnostic in where it gets data. It's just happy to suck up any information and find better ways to process it. And so those two worlds don't naturally come together and haven't naturally collaborated in a great way. I mean GPS was a great example of when that does happen, how much value can actually be created.

We get super excited about this intersection between the space hardware and the tech software. And that's really where AI is showing up, AI within distribution, where I think it's particularly interesting in several areas I've been following. And so most recently Mapbox came out with the MapGPT. It's in-depth conversation about directions, landmarks, roads, and sort of other highly dynamic aspects of the world that can be integrated into a mapping experience. And when you start to think of spatial computing, the ability to bring contextually relevant information to you wherever you're at, whatever you're doing, at the right moment? This is a great early example of how that could actually show up in a mapping experience. So that was just recently announced. I actually think that falls into Q4, but it was worth highlighting because I think it's the first example we've seen.

At the end of the quarter, we saw IBM and NASA announce an open source geospatial AI foundation model, watsonx.ai. I don't know a lot of people that are working with it yet. It got announced. I think it's perked some people's attention. But that's going to be really interesting to watch. The fact that IBM is doing this work, it's open source, it's all built on NASA data. The focus for them with this model really is on climate, creating a foundation of transparency and greater usability, because it's incredibly important across multiple industries today. And we want to build more applications on top of it. So that's one that's worth watching.

One that I think is a great example of the way we think about geospatial is Meta's Segment Anything model. And so this is, you can literally cut out an object or an image from a single click. You can search for something. You can highlight relevant images and then have that replicated throughout a much larger image. And the ability to do this from imagery on a handheld camera, all the way to a satellite, it doesn't really matter what platform is capturing it, you can apply this model and abstract insight and segment what you're looking for. I mean, that's incredible. It's a wonderful generalization tool and I think there's a lot of values coming. So it's cool to see Meta doing that work and the broad applicability that it brings. And we've already seen it get embedded into a number of geospatial communities and tools.

Planet, so they've announced their hyperspectral satellites. Space has often been an early adopter of AI and data tools to understand what a sensor is going to do when it actually gets into orbit. You can't change it once it's up there so you have to sort of train your models and understand what it's going to do. And so Planet announced a partnership with one of our portfolio companies, Rendered, to build customer value from these hyperspectral constellations before it launches, really tuning their sensors using synthetic data. I would love to get your thoughts on this because closer to this one than I am, but I think it's a really interesting example.

Chad Anderson:

Yeah, I mean, synthetic data has become an essential tool for the advancement of AI and ML, without a doubt. And it's the advancement of AI and ML without a doubt. And it's so interesting because everyone's talking about AI now. AI is just software. It's software that you train with data. The issue is is that there's real world data has a lot of limitations. It either doesn't exist or it doesn't exist in large enough quantities or it's too expensive, there's privacy issues, you name it. There's a lot of reasons why real world data might not be feasible. But you've got folks in the geospatial community who have been, again, working with very large data sets and working with AI for a number of years that recognize the value in synthetic data, the ability to use physics-based synthetic data to generate data based on real world physics to train your AI.

One of the largest providers of Earth imagery to the US intelligence agencies and the US government has said that synthetic data is the new gold. And the reason for that is because they've got a constellation of satellites. They've got a new next gen version of satellites that are going up, new sensors, all the bells and whistles. The way that it would work before is you'd launch these satellites, they get into orbit, you'd turn them on, you start to get data down, and as you got that data down, you use that to train your AI and then eventually you'd have enough, critical mass, to be able to sell that as a product. Meanwhile, you've lost a couple of years of potential revenue.

So the idea here is that you use synthetic data to train your AI based on the data that you expect to get back, and then as soon as you turn those satellites on, you can start generating revenue. And that's what Planet is doing here. They've got their next generation satellites that have hyperspectral sensors on them, and they need to be having conversations with folks early on about who's going to buy this, why you would need to buy this, and help them sort of understand the value of this new dataset. And they can do that by using physics-based synthetic data.

There's also examples of when the data just doesn't exist. When the intelligence community knows about some new weapon or something like that and they want to know when it pops up on anywhere in the world. Well, if you want your satellite to be able to identify that and give you an alert, you need to generate synthetic data to train your AI to look for that. And then there's also the use case of, as the world relies more on Earth observation data, radar imagery has become very important because half the time it's night and then there's clouds a lot of the time, which you can't see through if you're just using a camera. So radar can. Radar imagery is great. The intelligence community has known the value of it for a long time for these reasons, and commercial entities are starting to realize how valuable it is also. The challenge is that it's super expensive.

So if you were to train your, and this is a real use case where someone wanted to train their AI using real synthetic aperture radar data. The project that they were looking at was going to cost them on the order of $10 million. You can do that with synthetic data for like 1% of that cost. So there's a ton of advantages here to using synthetic data. Synthetic data is powering our AI future. Like without it, not enough real world data exists. So we're super bullish on Rendered, we're bullish on that recent announcement that you talked about with Planet, and they're working with a number of other companies across geospatial intelligence and AI out in the world more broadly, not even in Space Tech.

So I mean, what gets me so excited about AI and what's going on here is that out of all the growth that we've seen, it is not as widely adopted as it will be, not even by a long shot. We are still in the early innings here. So I think that's why we're all excited about what's happening in the space economy. AI is just sort of an enabler to that horizontal that's powering a lot of the companies that we're looking at.

Justus Kilian:

Yeah, space economy has been an early adopter of these techniques, and now they're being utilized across the value chain, across different industries, and it's unlocking more and more value. It's incredibly exciting.

Chad Anderson:

To wrap this up, I just want to say that the world is, despite what's going on in the financial markets, the world is waking up to the importance of space technologies and they are a critical part of our economy. They are the invisible backbone that's powering all of the major industries today and they're going to play an increasingly important role in the global economy as we go forward. We've been saying that for many quarters, several years. Every time we put out one of these reports, I think we've got some reference to that. So just to sort of end it on that note, more companies are chasing government dollars in this challenging market environment. We are seeing continued growth in space infrastructure, and in some of these emerging areas, there is a difference between the amount of investment dollars that are going into some of these newer areas in particular than the size of the markets, which I think reflects how new and early we are, early innings here, that there is some misunderstanding in the market.

And I think it's really important to understand that in any of these new areas, it's not just enough to identify, hey, there's an investment opportunity here. You need to understand the market dynamics and the category enough to be able to sort through and pick out the winners. AI is playing an increasingly important role. It has played an important role in space technologies and a number of the companies that we've invested in. It's a horizontal that's cutting across the space economy and is going to play an increasingly important role in the development of this category. Space technologies as a whole are continuing to play an incredibly important role in the global economy and are going to continue to transform the world's largest industries for decades to come. I think that the data's proving that out. I think that the innovation that we're seeing at the front lines, investing in these companies at the earliest stages, seeing these companies go on and raise follow on capital and build these solutions that are solving global challenges I think is testament to that. So any last thoughts before we close it out?

Justus Kilian:

Yeah. It's good to see the government acting as an anchor customer across this infrastructure that's being built. And I think without it, without that clarity, without that commitment, without that continued investment, it becomes harder for the US to continue to play a leading role. With the tensions and the shift in the global power dynamics that we're seeing today, it's incredibly important that these budgets continue to be set, that they grow, and that we continue to lead in this area if we're going to really capture the value that is going to come from this incredibly large emerging market. And so the markets are responding to that, entrepreneurs are responding to that, we need the government to continue to be consistent with the way that they act and see the long-term potential here. If that's the case, I mean, there's a tremendous amount of value to be created and realized back here on earth. And I mean, it's exciting to be a part of that and we're helping build that every day.

Chad Anderson:

Great. We'll leave it there. Thanks everyone for paying attention, and we will see you next quarter. Thanks for tuning into the Space Capital Podcast. If you enjoyed this episode, please leave us a review and subscribe to make sure you never miss an episode. And if you're interested in learning more about investing in the space economy, I invite you to visit our website, spacecapital.com, where you can get access to more industry leading insights and learn how you can join the entrepreneurial space age.