Star gazing. Space start-ups can give 30-times returns: Michael Mealling of US-based Starbridge Venture Capital

The Indian space community is very entrepreneurial, educated, and, most importantly, energetic and eager. Starbridge has been monitoring the Indian space sector since 2018 for the right companies to fit our investment thesis.

We have spoken to a few companies, but for timing reasons, a deal couldn’t happen. Venture funds go through cycles of raising money and then investing. There are cases where a company is raising money in between those cycles so it may be difficult for the VC to meet the deal deadlines. 

The Indian market does suffer from the same challenge as the US market: start-ups that focus on their technology rather than what problem a customer actually wants to solve. This is not unique to India and it is not unique to the space sector.

All across the technology world, we run into start-ups run by engineers focused on the technology rather than the customer. I made that mistake myself with my first start-up which failed. 

One of the features of the Indian market that makes it attractive is the sheer size of the in-country market. Much like in China, if a company can build a product that has wide adoption, profitability and scale can happen incredibly quickly. 

Thirty per cent Internal Rate of Return (IRR) is the minimum return that a venture fund should return to its investors to be competitive. In order to achieve that we invest in companies that can return at least 10 times the investment within ten years (we do prefer higher returns).

VCs expect a certain number of their investments to fail completely so the final result at the end of the ten years should be a 30 per cent net IRR. For example, 100 invested for ten years should become 1,400 by year ten.

The general rule of thumb is since half of your investments will fail and out of the other half, most will return 1X or 2X their investment, the bulk of our return to our investors will actually return 30 times their investment. We call that ‘making’ the fund.

That’s why we expect all of our investments to generate that kind of return if they succeed. So, the simple answer to your question is that we think that space start-ups (US, India, or elsewhere) can return 30 times our investment over ten years. Obviously, the earlier the returns show up the better, but we do target that ten-year limit.  

We think that is primarily due to India being able to look at what happened in the US with NASA and seeing proof that the commercial sector can be trusted with space (both commercially and with national security interests). Existence proofs always help. While each country is different, I would say that ISRO and the Indian government are definitely going in the right direction.  

That said, one area of improvement we would like to see is that regulatory processes be time-limited and transparent (for example, “the process will take no more than 30 days, the criteria are clear and concrete, and you will receive regular updates on the progress”).

A start-up company needs to be able to plan around when the regulatory process will end and should be able to learn if there are any issues as early as possible. Opaque regulatory processes have killed young companies in the US; it is one of the core risks. 

We don’t do (invest in) launch vehicles. There are 176 launch vehicle start-ups in the world, most of them without any orders. We like space applications, such as companies like SatSure (a satellite imagery company). 

They don’t have a round open.