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Space VC invests $20M Fund II in back-frontier technology founders from day zero

Gone are the days when space and defense were considered fundamentally antithetical to venture investment. Now, the nation’s largest venture capital firms are putting the bulk of their money into so-called hard tech startups at the early stage. That shift has some in the industry questioning whether smaller investment shops will be able to keep up with companies with more dry powder.

Not so for solo GP Jonathan Lacoste. space VC, an Austin-based microfund that invests in frontier technologies. 20 million on the premise that despite increased consolidation of multi-stage funds and increased participation in industrial startups in pre-seed and seed rounds, there is still significant opportunity for early-stage specialized companies. We just closed Dollar Fund II.

“We invest in zero-days, when founders are just starting their companies,” he said. “There is a much greater chance for a new fund with expertise to make an impact pre-seed than to launch a Series A fund and compete with all the big names that may be investing in the space. is.”

Starting the business very early, or “day zero,” as Lacoste puts it, is a cornerstone of Space VC’s strategy. Anything else, such as waiting until a company is established and then evaluating a seed round as a non-lead check, is likely a path to failure, he said.

Another moat for Space VC is its very high beliefs. The $20 million will be given to only 15-16 companies, and the check amounts will be between $500,000 and $1 million. In some ways, this part of the strategy is more contrarian than anything else, since VC is generally understood to be governed by the power law principle. But smaller funds don’t have the financial wherewithal to play the numbers game, especially when larger funds can afford to inflate valuations.

Mr. Lacoste acknowledged that the fund’s price can sometimes be taken out of rounds by larger companies in multiple tiers, but that a 50% price difference is not important to those companies. In many cases, the size of the first round must be determined by the entrepreneur, he said.

“There are always times when founders feel like they have two paths to choose from: raise a $2 million pre-seed, exit government financing, get traction with your first customers, or build your MVP in a truly frivolous way. “and then raise a larger round — that way you can avoid further dilution early on and raise more money,” he said. “As a venture capitalist, it’s hard to say one is the right way and the other way. But I truly believe that capital is constrained, frugal, and focused. . […] Generally leads to healthier habits, more enterprise, and better results. ”

He noted that portfolio companies True Anomaly and Castellion both raised relatively small initial rounds, but both have since closed larger rounds with participation from major multi-stage companies. (Space VC wrote his first check for Castelion, and also wrote first checks for Array Labs and UK-based Space Forge.)

Not everyone thinks this strategy will win. Jay Malik, the former sole GP of Countdown Capital, a fund focused on small industries, made headlines earlier this year when he announced in a letter that he planned to return the remainder of his second fund to LPs. is. He said in his letter that he had decided to downsize because the prospects for small businesses to generate the necessary profits were very low.

Lacoste clearly believes this is not the case. Although he didn’t specifically talk about a countdown, the company is looking to introduce customers, introduce capital to potential partners who could lead a Series A and beyond, and network with founders who are building similar platforms. He said he is trying to provide value beyond a check. company. In its early stages, the company could be a “sounding board” not only for entrepreneurs, but also for veterans and people outside the field who are considering a move into space or defense, he said.

“I think there is an opportunity for pre-seed funds to be in the idea generation and start-up stage, to be a sounding board to solidify that idea, and to provide industry connections for entrepreneurs. We spend a lot of time there. I think there’s ample opportunity for a specialist company like us to compete in these areas.”

Big bet in 3 years

Lacoste took an unconventional path to space and defense investing: He spent much of his adolescence playing for elite hockey teams, then founded Jebbit, a venture-backed enterprise software company, with a group of classmates at Boston University. (He dropped out after three semesters to grow the startup full time.) They exited after being acquired by billionaire Robert F. Smith’s Vista Equity Partners in early 2022.

The question “What’s next?” loomed large.

“I think my honest assessment is that I lacked impact. It wasn’t until I was in my late 20s that I began to question how I wanted to spend the next few decades.” he said. “For me, even if I was in data infrastructure, intellectually [and the] Although I worked in the software world for nearly a decade, it wasn’t where I envisioned my career path. I was more interested in government, foreign policy, defense, space, and frontier technology. ”

“When I had the time and money, I was going to jump into this industry. The question was how to jump in.”

He noticed a gap in the market. It was the role of a former founder turned investor who could invest very early in a highly technical field that venture capital was only just beginning to pay attention to. He raised his first fund in early 2021 and began allocating capital immediately.

Although Fund II is significantly larger than Fund I’s $3 million position, and the capital markets are much tougher, he says it was overall easier to raise this time. To raise his first fund, Limited had to ask his partners to bet on his vision and character. At that time, he didn’t have much of a track record.

“Some questions were raised as to why this software founder thought he could enter and control an early-stage space and defense venture. That was a legitimate question at the time. Even so, Fund I was difficult. It was difficult to answer that question without saying anything. Trust me, let my actions speak more than my pitch.”

Fund II’s anchor LP is a fund called a fund of funds. nomadis part of Hummingbird Ventures, which focuses on outstanding emerging managers. After a three-year journey and 15 public investments, Lacoste feels he has earned his place in the so-called hard tech ecosystem.

“I’ve spent four years in the space and defense field, and I don’t really feel like an outsider anymore. I’ve rolled up my sleeves. I’ve worked side-by-side with a lot of companies. …and I’ve felt like an extension of those founding teams. I don’t feel like a fish out of water software entrepreneur anymore.”


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