Space Investing: The opportunity for early-stage investing lies in radical innovation. Following on years of riding the internet technology diffusion curve to maturity, venture capital has become too focused on incremental innovation, too risk-averse, which has led to decades of anemic returns. Because of this, Angels have been growing in importance and crowdfunding may well grow too.
Growth can only lead to outsized returns when the future is uncertain. If the growth rate of an industry is known, then that safety and security will be built into the price and there will be no opportunity for above market returns. Transitional economies, technologies, and markets provide an opportunity for above market returns precisely because there is uncertainty of the amount and timing of future growth. Incremental innovation is generally viewed negatively by early-stage capital because it is often the symptom of an unnecessarily stagnating industry, focused on reliable returns. If an industry is not meeting its innovation potential and is focusing on incremental innovation to the detriment of novel new developments, then action may be needed.
A great example of action is impact investing, which is an investment approach that intentionally seeks to create both financial return and positive social impact that is actively measured. Impact investors are blowing open an entirely new market, by bridging the gap between philanthropy and business. The first step is always the hardest, but once this radical innovation was discovered everyone else jumped in (200 impact investment funds worldwide; all major banks are now members of GIIN). The risk of investing in radical social innovation didn't seem as high to impact investors because they value social returns, in addition to financial return on investment.
While private equity is common in established sectors with demonstrated revenue streams, the high capital costs and long technology development lead times of industries such as commercial space typically rely on government funding initially. Similarly, venture capital or angel investment that might promote innovation is often lacking in these types of industries. However, similar to impact investors in the social sector, pioneer investors are now blowing open the commercial space sector, bridging the gap between government and business. They are able to spur radical innovation by investing in ventures outside the risk threshold of most early-stage investors because they too are focused on multi-dimensional returns, creating something truly novel.
In a call to entrepreneurs, Elon Musk brought this point home, “I’d advise that people consider arenas outside the internet. There’s a lot of opportunity in other industries, especially ones that have been dominated by a monopoly or oligarchy. Innovation comes from new entrants. When an industry has had an absence of new entrants, then it has a lack of innovation, and that opens up opportunities for new players to come in and shake things up. The internet, by contrast, is already well-saturated with startups, to the point where innovation starts to mean tiny, incremental things like animated GIFs and photos that self-destruct after viewing.”
We can do bigger. We can do better. And we can make a lot of money doing it.
There’s never been a better time to get involved in commercial space. If you’re ready to start investing in private space companies, we invite you to apply for membership to Space Angels.