Space executive: government can’t save all startups but can do a lot

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Josh Brost, Vice President of Relativity Space: “The most impactful thing government can do is buy services from startups. “

WASHINGTON – As space investors become more conservative during the current economic downturn, they are less inclined to fund long-term businesses and more likely to support businesses that have a contract with the government.

Even in today’s environment, “there are still investors with capital they are looking to deploy to big ideas,” said Josh Brost, vice president of business development and government affairs at Relativity Space. .

But these investors are looking for more than promising ideas. “What they want to see is if there’s a government use case at the end of this,” Brost said on April 30 during a webinar hosted by Aviation and Space Technology Week.

Relativity Space is a Californian startup that uses 3D printing to make small launchers.

Pentagon officials have raised concerns about the economic impact of the pandemic on commercial vendors, including space companies that depend on private investors and may not have enough cash to weather the crisis. The small space launches sector has been identified as one of the most vulnerable.

Brost said government loans or direct aid can help bridge the gap for a few months, but “the most impactful thing the government can do is actually buy services from these startups,” he said. -he declares.

With a signed government contract in hand, “then startups can go back to their investors and say, ‘Now we know there is a use case for this and the government is going to be a big player in the future for us. »Said Brost. “We can raise capital from this. “

Startups struggle to get loans

The reality is that many space startups are struggling, said Eric Stallmer, president of the Commercial Spaceflight Federation. The group lobbied to change the rules that currently disqualify many startups from coronavirus relief loan programs because of how the Small Business Administration defines “small business.”

Most startups are funded by venture capital firms who typically invest in a portfolio of companies. To be eligible for the SBA loan program, a business must have fewer than 500 employees. When defining a small business, the SBA applies an “affiliation rule”, requiring companies to include in their employee count all employees of companies with which they are “affiliated”.

The CSF and other industry groups have raised this issue and “the government just has not responded despite addressing it and pointing out that it is a major issue”, Stallmer said during the webinar.

The DoD has taken action to help the industry, Stallmer said. But many companies won’t survive unless the government changes the rule that makes venture-backed startups ineligible for stimulus loans, he said.

“When startups get started, are commercial banks going to lend them based on this great idea they have? No. Banks are conservative lenders, which is why we have relied so heavily on the venture capital community, and they have done us a favor, ”said Stallmer.

As venture capital funds retreat, access to loans is essential, he said.

Foreign investment worries

The pandemic has fueled Pentagon concerns that companies that develop critical national security technologies and are now in financial difficulty could become targets for Chinese investors.

It’s been a problem for years, said Carissa Christensen, CEO of Bryce Space and Technology. But the current crisis has raised new concerns within the US government about China’s exploitation of fragile businesses.

“China is very interested in space and its space sector is growing, it is a national priority,” she said. But China’s own economy and space industry are under pressure, so the country will focus on its own businesses first. “I believe there are, have been and will continue to be Chinese interested in investing in space companies globally, as well as an interest in investing in space companies in China.”

Christensen warned that the US government should not ban foreign investment altogether, as it could push companies to export technological developments abroad. “If you limit investment in American companies, then those companies are pressured or forced to shut down or find investors elsewhere – and if they can’t do it as American companies, they will do it as companies. European or Japanese or as corporate enterprises based in countries of the Middle East.

Successful industrial technology policy “comes down to ensuring that we retain the advantage of the United States, which means more companies, more startups, more investments, a more robust venture capital ecosystem and a more robust venture capital ecosystem. much more robust space startup ecosystem than any other country in the world. “

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