$3.5M Dollars - The true cost of launching Space Startups.
Dear Rocket Scientists, Aerospace Engineers, Material Scientists, Physicists, and the odd Data Scientist too, did you know that it takes $3.5M dollars and four plus years, for the average Spacepreneur to get their project to Phase I SBIR funding? For those of you interested in STTR funding, the dirty little secret is that your college or university will take 40% right off the top.
I know, it's unbelievable that your passion for changing the world (or making your family fabulously rich) costs money. Muchless $3.5M…just to get started. And so, as we are all women and men of science, albeit some of us the dismal science, we’ll break down a few of the costs for you so you can start debating and navigating your way to overnight startup success.
Space Startup Costs by the Numbers
3.5 - the average number of full-time employees in pre-seed startups. Assuming you all live indoors, eat and probably have student loans to pay off (STEM degrees aren’t cheap) even if you only require $100k a year that is $350k per year in payroll. Alas, as the actual age of the average startup Founder is 43 years old, you probably have kids, a spouse and the distinct need for health insurance. Hence why a more accurate figure of funding required for these 3.5 people is closer to $575k per year. You can of course bootstrap it. But have you ever tried to bootstrap just the cost of fuel to low earth orbit? While it can be done, you trade time for bootstrapping and we all know that in Space launch windows and timing can make or break your mission.
MVP - How much does it cost to DESIGN your Minimum Viable Product (MVP)? Not build it. Not test it on the ground. Not test it in launch. Not test it in flight. Not test it in orbit. How much does it cost to just design your MVP? The most expensive part of the design process for your MVP is the amount of time you’ll wait, waiting to access the right equipment, personal or talent to help you design it; assuming you can afford it. And that is all before you even get close to, not testing it, but building it. Because how much does it cost to build your MVP? Yes, costs vary, depending on what your ambitions are. If you plan on competing with SpaceX for launch services, your MVP has a few more zeros than if your business is eyeing disrupting Space Situational Awareness (SSA). Regardless, a forecast of $1.3M to $2M to bring your MVP to life for the majority of Space businesses is not unreasonable. PS, every year you’re not fully funded, add 8% to adjust for inflation.
Mission Support - No one is putting their spacepreneurship dreams into Orbital or Cislunar reality without expert help and guidance. Experts aren't free. Experts come in several different categories but to start with you'll be paying for a good accountant and ITAR lawyer, at the least. Your business plans might be to tap into what MilkyWayEconomy forecasts as the opportunities of the $4T Space Economy by the 2040s but you still must follow Earth business and legal rules wherever you are domiciled.
The $1M Dollar Rookie Tax - “Entrepreneurship is so hard, I only recommend it to my enemies” Samson Williams. Between feeding yourself as a Founder and your team, retaining experts, plus building your MVP, you’re at about $2.5 million dollars in sunk costs… And no one knows who you are and you don’t know that marketing your MVP will cost you about half as much as it cost to build your MVP. Alas, what you don’t know, you don’t know. That lesson is going to cost you all your life’s savings, your wife's / husband’s life savings, 401k, and retirement; plus probably a 2nd mortgage on your house and your kid’s college fund. Because the crazy thing about entrepreneurship in The Space Economy isn’t the tech, it's how important cash and network is to making your business a reality. From winning grants, to being selected for “impartial” contracts, to even being able to get incumbents and institutions with Space heritage to simply take your call, often success in Space comes down to Human-to-Human relationships as much as it can to the engineering of your technology. And so if you beat the 1 in 40 Million* odds of being a unicorn in Space, you will look back at your first three years and smile at how lucky you were to survive. This reflection period of course, doesn’t happen in year three. It happens closer to year twelve. As the key to any startup’s instant, overnight success is the first ten years.
47% of Series A startups spend $400k or more per month. Assuming you can raise your seed round of $3.5M dollars for an initial 24 month runway, build your MVP (but not feed yourself/team and build your MVP) and get the traction you need to be attractive to VCs, institutions and Uncle Sam, your Series A round will be somewhere in the ballpark of $22M dollars. On paper, that will give you about 4.5 years of runway. In reality, closer to three. Really two years and nine-months. If you use a cheaper engineering solution it’ll get you 18 months, as you realize 12 months into it that your cheaper solution got exactly what you paid for and you’ll have to start all the way over. PS - we should also mention that you’re going to raise about three rounds before you get your actual Series A funding. Minor, yet important detail for so many reasons.
As a Founder of any startup, especially a Space startup, your first and possibly only job is to raise money for your startup. It's not to build tech. It's not to lock yourself away in a garage engineering your soul’s perfection. Your first job is going out and meeting, greeting, engaging and wooing Shark, after VC, after Angel, after Whale, after Family Office, after crowdfunding campaign, after grant proposal to ensure that your company has the funds necessary to actually make it past the Funding Valley of Death. Also, this isn’t advice just for Spacepreneurs. This advice is for all Founders daring to pursue their dreams.
If you want to learn more about the true cost of launch your dreams, DM us. Sign up for our blog and follow us on social media @TheSpaceEconomy and we’ll trade you your email for a spreadsheet that you can play around with and learn what the sticker price for your dreams really are. Til then, see you in orbit and remember, 40% of VC funding goes back to Google, Twitter and social media in the form of marketing spends. So before you give up all that equity for popularity, consider the value of earned marketing.
*1 in 40M odds of being a Space Unicorn - So as we were writing this article we got distracted figuring out this math. So here it is. Fewer than 1% of startups get VC money. Only 1 in 40 VC Funded companies become unicorns. 1 in 10,000 companies are space or space related. Accounting for bias towards tech investments [ 2.5*10^(-8) to 1] that gets you to about 1 in 40M odds. Which is way better than your 1 in 300M odds of winning the Mega-Millions lottery.
About the Authors
Samson Williams and George Pullen are Co-Founders of the Washington, DC based think tank, MilkyWayEconomy, where they explore the future of The Space Economy. When not thinking about the future of technology and economics in Space they are adjunct professors at UNH School of Law and Columbia University in NYC. For business inquires reach out to them at email@example.com