The New Frontier: Exploring the Growing Space Investment Sector and Key Companies Leading the Charge

Macro Tech Titan on July 25, 2024

Introduction

The space industry, once the exclusive domain of government agencies and large aerospace contractors, is undergoing a transformation. The burgeoning field of space investment has attracted significant interest from private investors, venture capitalists, and tech entrepreneurs. This growing sector encompasses a wide range of activities, from satellite communications and space tourism to asteroid mining and interplanetary exploration. Key companies are driving innovation and expanding the possibilities of what can be achieved in space. This article explores the evolving space investment landscape, highlights leading companies, and examines their groundbreaking projects.

The Rise of Space Investment

The space sector’s expansion is fueled by several factors, including advancements in technology, decreasing launch costs, and a growing recognition of the economic potential of space-based activities. Innovations in rocket technology, satellite miniaturization, and propulsion systems have reduced the barriers to entry, making space more accessible to private enterprises. Additionally, the increasing reliance on satellite-based services, such as telecommunications, weather forecasting, and Earth observation, has created a robust market for space infrastructure and services.

The global space economy is projected to exceed $1 trillion by 2040, driven by a diverse array of industries including satellite manufacturing, launch services, space tourism, and planetary exploration. This growth presents lucrative opportunities for investors and has led to a surge in funding for space startups and established companies alike.

Key Players in the Space Investment Sector

Several companies are at the forefront of the space investment boom, each contributing to different aspects of the space economy. These companies range from well-established aerospace giants to innovative startups, all of whom are pushing the boundaries of space exploration and commercialization.

  1. SpaceX

Founded by Elon Musk, SpaceX is perhaps the most well-known private space company. SpaceX has revolutionized the space industry with its reusable rocket technology, significantly reducing the cost of launching payloads into space. The company’s Falcon 9 rocket is a workhorse for delivering satellites to orbit, resupplying the International Space Station (ISS), and launching crewed missions. SpaceX’s Starlink project aims to provide global high-speed internet access through a constellation of thousands of low Earth orbit (LEO) satellites.

SpaceX is also pioneering efforts in space exploration with its Starship vehicle, designed for missions to the Moon, Mars, and beyond. The company’s ambitious vision includes establishing a human presence on Mars and transforming humanity into a multi-planetary species.

  1. Blue Origin

Founded by Amazon’s Jeff Bezos, Blue Origin is another major player in the private space sector. The company’s motto, “Gradatim Ferociter” (Step by Step, Ferociously), reflects its methodical approach to advancing space technology. Blue Origin’s New Shepard suborbital rocket is designed for space tourism, offering passengers short trips to the edge of space with a few minutes of weightlessness. The company is also developing the New Glenn orbital rocket, which aims to compete with SpaceX for satellite launches and other missions.

Blue Origin is actively involved in NASA’s Artemis program, which seeks to return humans to the Moon. The company’s Blue Moon lunar lander is a key component of these efforts, with the goal of facilitating a sustainable human presence on the Moon.

  1. OneWeb

OneWeb is a global communications company that focuses on providing internet connectivity through a constellation of LEO satellites. Like SpaceX’s Starlink, OneWeb aims to bridge the digital divide by offering high-speed internet access to remote and underserved areas around the world. The company’s satellite network will also support applications in various sectors, including aviation, maritime, and defense.

Despite financial challenges, OneWeb has continued to advance its satellite deployment, with plans to offer global coverage by 2022. The company has received backing from major investors, including the UK government and Bharti Global, highlighting the strategic importance of satellite-based internet services.

  1. Virgin Galactic

Virgin Galactic, founded by Sir Richard Branson, is a pioneer in the emerging space tourism market. The company’s SpaceShipTwo vehicle is designed to take passengers on suborbital flights, offering a few minutes of weightlessness and breathtaking views of Earth. Virgin Galactic aims to make space travel more accessible to the public, with plans to expand its fleet and increase flight frequency.

In addition to space tourism, Virgin Galactic is exploring other commercial opportunities, such as high-speed point-to-point travel and scientific research missions. The company is positioning itself as a leader in the commercial spaceflight industry, with the potential to revolutionize air travel and open new frontiers for research.

  1. Planet Labs

Planet Labs is a leading player in the Earth observation sector, specializing in high-resolution satellite imagery. The company operates a constellation of small satellites, known as Doves, which capture daily images of the Earth’s surface. These images are used for various applications, including agriculture, environmental monitoring, disaster response, and urban planning.

Planet Labs’ data services provide valuable insights for governments, businesses, and non-profits, helping them make informed decisions and address global challenges. The company’s innovative use of small satellite technology demonstrates the growing importance of Earth observation in the space economy.

Emerging Trends and Future Prospects

The space investment sector is characterized by rapid innovation and a dynamic landscape. Several emerging trends are shaping the future of the industry:

  1. Commercial Space Stations and Habitats: Companies like Axiom Space and Bigelow Aerospace are developing commercial space stations and habitats for research, tourism, and industrial activities. These platforms could serve as hubs for in-space manufacturing, biotechnology research, and other commercial ventures.
  2. Space Mining and Resource Utilization: The concept of mining asteroids and other celestial bodies for valuable resources, such as water, metals, and rare minerals, is gaining traction. Companies like Planetary Resources and Deep Space Industries are exploring technologies for extracting and processing these resources, potentially supporting long-term space exploration and settlement.
  3. Space-Based Solar Power: The idea of harnessing solar energy in space and transmitting it to Earth via microwave or laser beams is being investigated as a potential solution for clean, abundant energy. While still in the early stages, this concept could revolutionize the energy industry and reduce reliance on fossil fuels.
  4. In-Orbit Servicing and Debris Removal: As the number of satellites in orbit increases, so does the need for services like satellite maintenance, refueling, and debris removal. Companies like Northrop Grumman and Astroscale are developing technologies for in-orbit servicing, which could extend the lifespan of satellites and mitigate the growing issue of space debris.

Conclusion

The space investment sector is experiencing unprecedented growth and innovation, driven by advances in technology and a growing recognition of the economic potential of space. Key companies like SpaceX, Blue Origin, OneWeb, Virgin Galactic, and Planet Labs are leading the charge, each contributing to different aspects of the space economy. As new trends emerge and the industry continues to evolve, the possibilities for space exploration and commercialization are expanding, offering exciting opportunities for investors and society at large. The future of space investment promises to be as vast and boundless as space itself, with the potential to transform our world and beyond.

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Pre-IPO Private Markets Investing: An In-Depth Exploration

Macro Tech Titan on July 20, 2024

Pre-IPO Private Markets Investing: An In-Depth Exploration

Introduction

Pre-IPO (Initial Public Offering) private markets investing involves purchasing shares of a company before it becomes publicly traded. This investment strategy offers unique opportunities and risks, attracting institutional investors, high-net-worth individuals, and increasingly, retail investors. With the potential for substantial returns, pre-IPO investing has become a significant component of modern financial markets.

The Mechanics of Pre-IPO Investing

Pre-IPO investments are typically facilitated through private placements, secondary markets, or venture capital (VC) and private equity (PE) funds.

  1. Private Placements: Companies offer shares directly to select investors, usually institutional investors or accredited individuals. These placements often occur during funding rounds, such as Series A, B, or C, where companies seek capital to expand operations, develop products, or enter new markets.
  2. Secondary Markets: These platforms allow investors to buy and sell shares of private companies from existing shareholders. This market provides liquidity to early investors, employees, and other shareholders before the company goes public.
  3. Venture Capital and Private Equity Funds: VC and PE funds pool capital from multiple investors to invest in promising private companies. These funds offer diversification and professional management, reducing the risks associated with investing in single companies.

Advantages of Pre-IPO Investing

  1. High Return Potential: Pre-IPO investments can yield significant returns if the company experiences substantial growth post-IPO. Early investors in companies like Facebook, Google, and Amazon realized substantial gains when these companies went public.
  2. Access to Innovation: Pre-IPO investors often gain exposure to cutting-edge technologies and business models, investing in sectors poised for disruption and growth.
  3. Valuation Arbitrage: Pre-IPO shares are typically priced lower than public shares, offering investors the opportunity to capitalize on the difference once the company goes public.
  4. Portfolio Diversification: Including pre-IPO investments in a portfolio can enhance diversification, as these assets often have low correlation with traditional public market securities.

Risks and Challenges

  1. Illiquidity: Pre-IPO investments are generally illiquid, meaning investors may have to hold onto their shares for an extended period before realizing any returns. This lack of liquidity can be a significant drawback compared to publicly traded stocks.
  2. Valuation Uncertainty: Private companies do not have the same disclosure requirements as public companies, making it challenging to accurately assess their value. Investors must rely on limited financial information and management projections.
  3. Regulatory Risks: Changes in regulations can impact the pre-IPO market. For instance, modifications to the accreditation criteria for investors or changes in tax laws can affect the attractiveness and accessibility of these investments.
  4. Business Risks: Investing in private companies involves significant business risks, including the potential for business failure, competition, and market volatility. Not all pre-IPO investments will result in successful IPOs or acquisitions.

Strategies for Successful Pre-IPO Investing

  1. Thorough Due Diligence: Investors must conduct comprehensive due diligence to assess the financial health, business model, market potential, and management team of the target company. This process often involves reviewing financial statements, market research, and interviewing company executives.
  2. Diversification: To mitigate risks, investors should diversify their pre-IPO investments across different sectors, stages of development, and geographic regions. This approach can help balance the high-risk nature of individual investments.
  3. Long-Term Perspective: Pre-IPO investments often require a long-term investment horizon. Investors should be prepared to hold their shares for several years to maximize potential returns.
  4. Engage with Professional Networks: Leveraging professional networks, such as VC and PE funds, can provide access to high-quality investment opportunities and valuable insights. These networks often have extensive experience and resources to identify and evaluate potential investments.

Regulatory Landscape and Trends

The regulatory environment for pre-IPO investing has evolved significantly in recent years. Key regulations and trends include:

  1. JOBS Act: The Jumpstart Our Business Startups (JOBS) Act, enacted in 2012, eased regulatory requirements for private companies, making it easier for them to raise capital from a broader range of investors. The Act also facilitated equity crowdfunding, allowing non-accredited investors to participate in pre-IPO investments.
  2. Accredited Investor Definition: The U.S. Securities and Exchange Commission (SEC) periodically reviews and updates the definition of an accredited investor, which impacts who can participate in private placements. Recent changes have expanded the criteria, allowing more individuals to qualify based on financial sophistication rather than just income or net worth.
  3. Increased Transparency: There is a growing trend towards increased transparency and standardization in the pre-IPO market. Secondary market platforms and regulatory initiatives aim to provide better information and protection for investors, improving market efficiency.

Case Studies: Successful Pre-IPO Investments

  1. Facebook: Early investors in Facebook, such as Peter Thiel and Accel Partners, invested in the company during its early funding rounds. When Facebook went public in 2012, these investors realized significant returns, with the company’s market capitalization exceeding $100 billion at the time of the IPO.
  2. Uber: Early investments in Uber by VC firms like Benchmark Capital and First Round Capital provided substantial returns when the company went public in 2019. Despite initial post-IPO volatility, these early investors capitalized on Uber’s growth and market dominance.
  3. Airbnb: Investors who participated in Airbnb’s early funding rounds, including Sequoia Capital and Andreessen Horowitz, benefited from the company’s successful IPO in 2020. Airbnb’s innovative business model and market expansion contributed to its strong performance.

Future Outlook

The future of pre-IPO investing looks promising, driven by several factors:

  1. Technological Advancements: Innovations in fintech, blockchain, and AI are transforming the pre-IPO landscape, making it easier for investors to access, evaluate, and manage investments.
  2. Globalization: As global markets continue to integrate, pre-IPO opportunities are expanding beyond traditional hubs like Silicon Valley. Emerging markets and international startups offer new investment prospects.
  3. Retail Investor Participation: The democratization of pre-IPO investing through platforms like equity crowdfunding and secondary markets is enabling more retail investors to participate in this asset class.
  4. Sustainable and Impact Investing: There is a growing focus on sustainable and impact investing in the pre-IPO space. Investors are increasingly seeking opportunities that align with their values and contribute to positive social and environmental outcomes.

Conclusion

Pre-IPO private markets investing offers a compelling opportunity for investors to access high-growth companies before they become publicly traded. While the potential for substantial returns exists, it is accompanied by significant risks and challenges. Successful pre-IPO investing requires thorough due diligence, diversification, a long-term perspective, and engagement with professional networks. As the regulatory landscape evolves and technological advancements continue, the pre-IPO market is poised for further growth and innovation, providing new opportunities for investors worldwide.

Security Forward Agreements: Understanding and Application in Venture Capital

Macro Tech Titan on July 10, 2024

In the realm of finance, Security Forward Agreements stand as pivotal instruments for managing risk, hedging against price fluctuations, and facilitating strategic investments. This comprehensive exploration delves into the intricacies of Security Forward Agreements, particularly in the context of venture capital. We will elucidate their fundamental concepts, mechanics, benefits, risks, and specific applications within the venture capital landscape.

Understanding Security Forward Agreements

Definition and Components

A Security Forward Agreement, often simply referred to as a forward contract, is a financial derivative contract between two parties where they agree to exchange a specific asset (the underlying security) at a predetermined price (the forward price) on a future date (the maturity date). Unlike options, which provide the buyer with the right but not the obligation to buy or sell the underlying asset, forwards bind both parties to fulfill the contract.

The agreement typically includes:

  • Underlying Asset: This can be any financial instrument, commodity, or security whose price can be determined and agreed upon.
  • Forward Price: The price at which the asset will be exchanged in the future.
  • Maturity Date: The date when the exchange of the asset occurs.

Forward contracts are customized agreements traded over-the-counter (OTC), which means they are not standardized and can be tailored to meet the specific needs of the parties involved. This flexibility allows for a wide range of applications across different sectors of finance.

Mechanics of a Security Forward Agreement

To grasp the mechanics of a Security Forward Agreement, consider the following example involving a venture capital scenario:

Imagine a venture capitalist (VC) firm is interested in investing in a promising startup that plans to go public in the next two years. The VC firm anticipates significant growth in the startup’s valuation upon its IPO but is concerned about potential fluctuations in the stock price post-IPO. To mitigate this risk, the VC firm enters into a Security Forward Agreement with a counterparty, agreeing to purchase a certain number of shares of the startup at a predetermined price per share on the IPO date.

Let’s break down the steps involved:

  1. Agreement Initiation: The VC firm and the counterparty negotiate and agree on the terms of the forward contract. This includes specifying the number of shares, the forward price per share, and the maturity date (the IPO date).
  2. Execution: On the IPO date, regardless of the actual market price of the shares, the VC firm is obligated to purchase the agreed-upon number of shares from the counterparty at the predetermined forward price.
  3. Settlement: Settlement of the contract occurs either through physical delivery of the shares and payment of the agreed-upon price or through a cash settlement, where the difference between the forward price and the actual market price on the IPO date is settled financially.
  4. Purpose: The primary purpose of this forward contract is for the VC firm to hedge against potential price volatility post-IPO. By locking in a purchase price now, the firm can protect itself from adverse price movements and potentially capitalize on expected gains in the startup’s valuation.

Benefits of Security Forward Agreements

Security Forward Agreements offer several advantages to participants in venture capital and other financial markets:

  1. Risk Management: They provide a tool for hedging against price fluctuations, thereby reducing exposure to market volatility.
  2. Price Discovery: Forward contracts facilitate price discovery by allowing parties to agree upon a future price today, based on their expectations of market movements and fundamentals.
  3. Customization: Contracts can be customized to fit specific needs and circumstances, making them versatile instruments in portfolio management and strategic investment planning.
  4. Liquidity Management: For venture capital firms and other institutional investors, forward contracts help manage liquidity by allowing them to plan and allocate funds effectively over time.
  5. Speculation: They can also be used for speculative purposes, allowing investors to take positions on future price movements of assets without needing to own them outright.

Application in Venture Capital

Risk Mitigation in Pre-IPO Investments

Venture capital firms often face substantial risks when investing in startups, particularly those that are not yet publicly traded. These risks include uncertainty about the startup’s future valuation, market conditions post-IPO, and liquidity concerns. Security Forward Agreements can be instrumental in mitigating some of these risks:

  • Valuation Stability: By entering into forward contracts prior to an IPO, venture capitalists can secure a purchase price for shares of the startup, thereby stabilizing their investment valuation against potential market fluctuations.
  • Liquidity Planning: Forward contracts allow VC firms to plan their cash flows and liquidity needs more effectively, as they know in advance the amount and timing of their financial obligations related to the investment.
  • Exit Strategy Enhancement: For venture capital funds nearing the end of their investment horizon, forward contracts can facilitate smoother exits from portfolio companies by locking in exit prices and mitigating the impact of market volatility.

Strategic Investment Planning

Beyond risk management, Security Forward Agreements play a strategic role in the investment planning of venture capital firms:

  • Portfolio Diversification: They enable VCs to diversify their portfolios and manage exposure to specific sectors or types of startups without being overly dependent on the timing and conditions of public market exits.
  • Enhanced Return Potential: By leveraging forward contracts, venture capitalists can potentially enhance their returns by capitalizing on anticipated growth in startup valuations while protecting against downside risks.
  • Long-Term Investment Planning: Forward contracts support long-term investment planning by providing VCs with a structured approach to managing their investments across different stages of a startup’s lifecycle—from early-stage financing to eventual exit strategies.

Practical Considerations and Risks

While Security Forward Agreements offer numerous benefits, they also come with inherent risks and considerations:

  • Counterparty Risk: There is always a risk that the counterparty may default on its obligations under the forward contract, leading to financial losses or legal disputes.
  • Market Risk: If market conditions deviate significantly from expectations, the benefits of hedging through forward contracts may be diminished, and parties could incur opportunity costs.
  • Regulatory Considerations: Forward contracts are subject to regulatory oversight, and changes in regulatory requirements or interpretations could impact their use and effectiveness.
  • Cost Considerations: Depending on market conditions and the specific terms of the contract, entering into forward agreements may involve costs such as margin requirements or transaction fees.

Conclusion

Security Forward Agreements represent a powerful tool in the arsenal of financial instruments available to venture capital firms and institutional investors. By allowing parties to hedge against price fluctuations, manage risk, and strategically plan their investments, these contracts facilitate smoother and more efficient operations in both stable and volatile market conditions.

In the dynamic and competitive world of venture capital, where uncertainty and opportunity coexist, forward contracts provide a structured approach to navigating risks while pursuing investment opportunities with confidence. As the financial landscape evolves, understanding and effectively utilizing Security Forward Agreements will continue to be essential for achieving optimal portfolio performance and sustaining growth in the venture capital sector.

References

  1. Hull, John C. Options, Futures, and Other Derivatives. 10th ed., Pearson, 2017.
  2. Chance, Don M., and Roberts Brooks. Introduction to Derivatives and Risk Management. 10th ed., Cengage Learning, 2015.
  3. Lerner, Joshua. “Venture Capital’s Role in Financing Innovation: What We Know and How Much We Still Need to Learn.” Journal of Economic Perspectives, vol. 23, no. 3, 2009, pp. 3-23. JSTOR, www.jstor.org/stable/27735786.
  4. Gompers, Paul, and Josh Lerner. The Venture Capital Cycle. MIT Press, 2004.
  5. Securities and Exchange Commission. “Investor Bulletin: An Introduction to Options.” U.S. Securities and Exchange Commission, www.sec.gov/reportspubs/investor-publications/investorpubsoptionshtm.html.
  6. Financial Industry Regulatory Authority. “Understanding Options Trading.” FINRA, www.finra.org/investors/learn-to-invest/types-investments/options/understanding-options-trading.

These references provide foundational knowledge and scholarly insights into derivative contracts, venture capital finance, and the broader financial markets, enriching our understanding of Security Forward Agreements and their applications.

VCC – Red Flags for Private Issuers – How to Identify a Scammer

Macro Tech Titan on June 2, 2024

Venture Capital Cross – 6/2/2024 — It takes all kinds to make the world go round, they say.  We encounter all of the above being in the financial services business.  The reason we like late stage secondaries as our legacy go to market is because of the credibility of the assets, they are companies that have $1 Billion + valuations and have already proven themselves to the market.  However, the real value is in catching the next big thing at an early stage, and herein lies the dilemma.  Investors are not sure which one is going to be the next big thing (i.e. Google, Amazon) and which one is going to totally fail.  And to be fair to issuers, they don’t know too.

We have compiled a short list of ‘red flags’ to look for, these are not by themselves an indication of a bad deal, but overall, these are things you want to be aware of when evaluating earlier stage opportunities.

Red Flags – signs of a bad deal

1. The principal refuses to show any due diligence
2. Insists on meeting in person
3. Does not have a public profile, media following
4. Does not have a lawyer
5. High Returns “Too good to be true”
6. Has lots of stories, but lacks documentation to back them up
7. Is not registered (this by itself isn’t proof that it’s a scam, but many legitimate fund managers and investment bankers ARE registered)
8. Uses words like “Arbitrage” and “Bank Guarantee” and “Insurance”
9. Explains the investment has “No Risk” (Any investment has risk, even Arbitrage has risk)
10. Is private, confidential person
11. Looking for in person referrals
12. Signs of time deadline / hurry
13. Operates from a dark jurisdiction i.e. Seychelles, Argentina, etc.
14. Uses big names “I got into this because of Bill Gates”

Signs of a Scammer

See the video analysis

Checkout our Udemy course on Venture Capital:

Venture Capital, Private Equity, Private Markets, Pre IPO

Uncover the Secrets of Antarctica film project with Brad Olsen

Uncover the secrets in Antarctica with Brad Olsen

Macro Tech Titan on May 26, 2024

Brad Olsen is raising capital for an expensive but valuable expedition to Antarctica to uncover never before seen sites.  Various permissions have been authorized for travel to these locations, for those who are skeptical.  Some of these sites have been visited by hikers but never explored deeply with a film crew.  Brad is not planning on going to any unauthorized areas.

For more information on the project including a deck, login to Venture Capital Cross and navigate to this page: (registration required – for Accredited Investors only)

https://vccross.com/primary/antarctica-lost-civilization-documentary-film

DISCLAIMER: INVESTING IN PRIVATE PLACEMENTS IS HIGHLY RISKY, AND IS FOR SOPHISTOCATED, ACCREDITED INVESTORS ONLY.  FOR A FULL LIST OF RISKS, SEE THIS PAGE: https://vccross.com/risks 

The value of intermediaries in Private Markets and how to choose one

Macro Tech Titan on May 24, 2024

Venture Capital Cross — 5/24/2024 —  The masses are starting to get exposed to Private Markets, with sites like Notice.co offering a free data rich platform for users.  However, most of these new users are not familiar with market mechanics and can often fall into common traps, we want to elaborate here in a short article.  Private Markets are exciting but also risky, as it tends to  be a one-sided market where there are all buyers or all sellers.  Many investors who made investments during the 2020- 2021 peak are still underwater in their investments.

The value of intermediaries

Since shares in private companies are not traded on an exchange, intermediaries provide a lot of value including but not limited to:

  • Price discovery
  • Counterparty identification
  • Settlement
  • Recordkeeping

That may not sound like much, but imagine your situation if you are an employee of a Unicorn and have shares to sell, you don’t know who to sell them to, or how to settle the transaction?  Registered Representatives of Broker-Dealers are specialized in this type of transaction and follow FINRA guidelines for transacting in private companies.  Secondary market transactions are a mix of investment-banking and trading, it’s not a Private Placement as the seller is getting the proceeds, not the issuer.  In a primary financing round, the company gets the funds raised – in a secondary market transaction, the seller of the shares gets funds raised.

Buyers and sellers don’t always agree on price, and this can lead to friction.  Cultural differences and other factors, not forgetting big Egos and busy schedules, can cause unnecessary friction between buyers and sellers.  This is absorbed by the brokers – blame the broker!

Counterparties should have as limited contact as possible.  Good brokers prepare documents, remind both sides about timelines, deadlines, or other action items, and keep good records.  KYC checks, ECP verifications for forwards, accredited investor checks, and other important compliance items are routine for a broker-dealer but not for most investors.  In many cases, using a broker to negotiate a price on your behalf can result in a net better price including the broker’s fee.  That’s because they see the market and have specific access to liquidity networks, beyond the obvious public retail sites.

But the secret of getting the most out of your broker is finding one you like and being exclusive to them, here’s why.

The virtue of being quiet

Imagine you want to buy shares in Groq, and you work with 10 brokers.  You want to invest $1 Million in the company, and you give that indication to those 10 brokers, thinking that you will get a better price.  Consumers have this ingrained into their behavior patterns, when you shop a price over a large number of stores, you can find the best possible price.  But with private markets, over shopping can change the price, typically not in your favor – here’s how.

Your 10 brokers may be speaking to the same single potential seller.  That seller is now approached by 10 brokers with a $1m indication not knowing it’s the same buyer.  To make this even worse, some brokers will outsource that to other brokers, thus creating a multiplication effect, where 10 brokers talk to another 20 brokers who then can speak to another 40 brokers and so on, each representing the same order.  When buyers are rare, such as during market downturns, this effect can be multiplied.

When the single seller in the market sees the $10m – $40m in demand, he may raise the price, he may pull the offer altogether.  Whatever is his response, he’s probably not going to lower the price, which is what the buyer wants.  A noisy broker can literally ruin transactions, create negative price slippage, and have other deleterious effects (i.e. time wasting).  There’s no upside.  Private markets are dark and anonymous, so intermediaries need to be careful how they approach potential counterparties.  There are many other examples where discretion is required, consider this:

A buyer on the cap table of Company XYZ wants to purchase more shares in the secondary market.  If that order is given to a broker who doesn’t know the name of the counterparty, how do they know not to approach the buyer, and ask them if they are a seller?  There is a solution to this known as reverse/blind solicitation, where the broker doing the job actually doesn’t know the name of the buyer.  They rely on their team to verify the buyer, but they actually don’t know the name.  If they by chance reach out to the buyer, and ask them if they are a seller, no harm is done.

Many counterparties in the secondary market do not want the market to know if they are a buyer or a seller, not for reasons of confidentiality, but because they are afraid it may spook the market, or have unnecessary positive consequences, making their price higher.  In either direction, there’s a process of information disclosure that is managed by the issuer or the brokers.  After a successful primary financing round, a press release is typically issued naming the lead investor and other significant investors.

There are a number of good brokers out there, but far more ‘toxic’ brokers that will kill the deal and/or overcharge on fees.  It’s not difficult to sort the good from the bad, just ask around, read reviews, do your research.  Just like you do research for an investment opportunity, do your research on an intermediary.  Once you find someone you like, who you trust and feel good energy from – stick with them!  We pride ourselves in quality, not quantity – in ethics, not size of profits.  We aren’t saying that we are the only good broker out there, we are leaders in the “Ethical Broker” movement, which is part of a larger movement on Alt- Wall St. which is where there is a win-win created in our transactions.  The reason we focus on late stage secondaries is because of the high quality of the companies.  Sellers are either employees getting a liquidity check to buy a house, or an early investor realizing a good Nx return and sending their LPs a check.  Buyers, or investors, are getting access to companies that typically outperform public markets, when looking from a Macro perspective.

How to choose one

Brokers are not hard to find, but how to find an objective one?  On the surface, an independent agent is the least likely to have a conflict.  A broker that represents and exclusive product, or platform, has an obvious conflict they will pitch their deals ahead of others.  Venture Capital Cross has an any and all policy meaning we want to find the best terms, not from a certain channel nor do we have proprietary products.  There are many independents out there, with a similar model – and we are suggesting to trust your judgement.  When meeting new people, are they givers or takers?  Or in other words, are they asking you to do something, or they are offering to do something for you?  Are they registered with FINRA and a member firm?  What is their experience, track record, do they have any negative disclosures or other information that might cause pause?  There are a number of factors you should consider when selecting a broker including:

  • Expertise on the market you are interested in (A broker familiar with Bytedance may be different than one with experience with Anduril, for example).
  • Positive feedback based on research you do and reviews
  • Positive / clean FINRA broker check https://brokercheck.finra.org/

Venture Capital Cross is a cloud-portal building the macro paradigm of Private Markets with a 100 year vision.

The SpaceX Effect – Companies founded by SpaceX Alumni

Macro Tech Titan on April 1, 2024

From Jeff Burke and Michael Madrid:

Note to readers: This is my first co-authored piece. Michael Madrid and I bonded after the Varda Space piece ~1.5 years ago. Since then, we have wanted to write together. There are a few things to know about this piece:

This is just part one. We completed a deep-dive on SpaceX culture (similar to my Sutter Hill Ventures piece) that can be found here.

Part Two: The Culture of SpaceX

This piece has been a work in progress for months. We have spoken to many SpaceX’ers in the process, and we feel good about a lot of the content you will see! Enjoy!

The scale of Elon Musk

Elon Musk is one of the most captivating people on the planet. Not only is he the richest man in the world, but he captivates millions daily as a master meme lord. While SpaceX and Tesla are well documented, Musk’s impact on US technology extends far beyond that. At a time of offshoring manufacturing, slowing public institutions, and large scale building demise, Musk has built two massive hardware companies. And in the process, he has trained and inspired an entire generation of builders.

For now, put aside any perspective you may have on politics, tax policy, and Musk’s personal life. Since moving to the United States ~30 years ago, Elon Musk has been a founding part of seven main companies: Zip2 (sold), PayPal (X.com merged), SpaceX, Tesla, OpenAI, Neuralink, and The Boring Company.

Exhibit 1: Total Value Created by Elon Musk Companies

These companies have generated +$1T in value, +$80B in annual revenue, and +135,000 jobs…

The numbers alone are astounding, but the list is actually even more impressive than it might seem. Each one of these companies fully disrupted or innovated in a space:

  • PayPal —> Accelerated Fintech & disrupted traditional payments
  • SpaceX —> Created the commercial space launch market
  • Tesla —> Made electric cars cool & a preferable choice
  • OpenAI —> Pushing the bounds of AI with models like GPT-3

Today, we want to focus primarily on SpaceX. (The Tesla story requires its own piece.) SpaceX drove innovation in a space (get it?) that people thought was fundamentally impossible. The industry had dramatically slowed. The excitement of landing on the moon was decades past. The level of regulation was, and remains, super high. Reigniting (get it again?) the space industry was going to be a totally different ball-game than anything Elon Musk (or most others) had done to date.

Exhibit 2: Space launches per year

And yet, if you look at launches per year, SpaceX has accelerated scale over the past few years. Prior to SpaceX, the industry was largely stagnant from 2005-2017. I would argue that SpaceX’s scaling (and success) in 2014-2017 finally turned heads. Since then, the number of private space companies, as well as investment, has dramatically increased.

Of course, Musk is just one person. Along the way, thousands of builders joined him. That’s the impact that few have spoken about.

Exhibit 3: Manufacturing output and employment

The US has increased real manufacturing output while reducing the total number of jobs. This is primarily a function of step-changes in technology. On the whole, however, manufacturing has been heavily deemphasized in our culture. Tech has increased. Jobs have been offshored.

But when you consider recent geopolitical issues, building big, amazing things in the US is imperative. For the past 15 years, Musk has been training thousands of people to build hardware at MASSIVE scale… and fast. As a result, not only has SpaceX succeeded, but those builders have gone on to continue building. The ripple effect is real. We call it the SpaceX effect.

The SpaceX Effect | Companies founded by SpaceX Alumni

Exhibit 4: SpaceX Alumni companies (Credit to the Tesla / SpaceX Alumni Map for the list of companies)

Ultimately, the growth of SpaceX has become fairly obvious. Constant launches. Paired landings. Passenger spaceflights. All of this tweeted through Elon Musk’s channels, with the entire world following. And while this is all amazing and something we should be thankful for, most people have yet to see the former SpaceX employees now building new companies. Within years, there have been tens of sizable companies founded that are building real, critical things.

These founders are not optimizing ad clicks or emojis! They are building companies that are fighting for visions which will fundamentally change the world.

Exhibit 5: 12 companies founded by SpaceX alumni

While we cannot walk through all ~60 of the companies, we can give a sample! In Exhibit 5, we have listed just 12 companies that we find fascinating. Most of the companies are:

  • Relatively early stage
  • Raised significant money (+$500M in total)
  • Building innovative solutions for large scale problems, including nuclear reactors, freight trains, hypersonic reusable engines, and more

Companies of this scale take years (maybe decades) to build. Right now, it may not be apparent to most, but SpaceX has massively altered the trajectory of US large-scale hardware innovation, and the positive impacts of that will be showing for years to come.

The companies

Ursa Major

Founded by SpaceX engineer Joe Laurienti, Ursa Major is becoming the market leader in propulsion. For years, space companies have been faced with a tough decision. Design my own engine in-house or purchase Russian-made RD-series engines? The former is very expensive, time-consuming, and inefficient. The latter is outdated and has geopolitical implications. The Ursa Major Hadley, Ripley, and Arroway engines are market-leading, ubiquitous engines. For more on Ursa Major, read my previous piece.

Reliable Robotics

Aircraft that fly themselves. By making autonomous, commercial aircraft, Reliable Robotics can increase everyone’s access to air transportation. Reliable Robotics is creating the airline of the future. SpaceX’ers Robert Rose and Juerg Frefel are the founders of Reliable Robotics.

First Resonance

The surge in large-scale manufacturing is exciting… but complex! As this trend continues, companies will need to better understand their systems. First Resonance is building the operating system for manufacturing. Eliminate data capture. Understand your processes. Operate efficiently. SpaceX’er Karan Talati is the founder & CEO.

Varda Space

SpaceX and many others are building machinery on earth to be used in space. But what if we made things in space that we can use on earth? That’s what Varda Space is doing, with microgravity manufacturing. High quality materials (e.g., pharmaceuticals, fiber optics) can be fabricated to higher specifications if the process is done without influence from Earth’s gravity. Varda Space will be the logistics supplier to carry out these manufacturing processes, and was co-founded by SpaceX’er Will Bruey. For more on Varda, read my previous piece on them.

Epsilon 3

After more then 10 years at SpaceX, Epsilon3 co-founder and CEO, Laura Crabtree, noticed something that had not existed a decade prior when she started at Elon’s company: an expanding startup ecosystem in the space industry. As a result, Crabtree founded Epsilon3 to help such companies reduce risk and increase efficiency by migrating spacecraft testing and ops procedures from static documents, spreadsheets, wikis, and paper checklists to digital alternatives based on a modern software platform.

Relativity

Relativity is building the first autonomous rocket factory. By “disrupting 60 years of aerospace”, Relativity predicts they can be more reliable (100x fewer parts), better speed (10x faster production time), more flexible (no fixed tooling), and win with optimization (compounding iteration quality). At $1.3B, Relativity is the highest funded company of the group. Co-founder Jordan Noone worked at SpaceX in 2014 and 2015.

Xona Space Systems

GPS is a critical part of our infrastructure, from payment processing to driving cars to syncing clocks. But the painful truth is that GPS is vulnerable… and beyond current risks, the exciting applications of the future demand more and better position, navigation, and timing (PNT) support. Enter Xona Space Systems, which is building a precision LEO PNT constellation called Pulsar that offers a more secure, robust, and accurate alternative to legacy systems. The use cases are many, and co-founder & CEO Brian Manning is leading the charge.

Radiant Nuclear

Nuclear energy is our most scalable green source of energy, yet it is not universal. Reactors are huge projects, often mired in bureaucratic debates at the state or municipality level. Radiant is changing that with portable nuclear microreactors. Instead of a diesel generator, people could use Kaleidos. This provides a green alternative to fossil fuels that is both sustainable, scalable, and flexible. Founder Doug Bernauer is a former SpaceX engineer.

Phantom Space Corporation

SpaceX, Varda Space, and many more are proving the economic potential of space. But getting to space is expensive! SpaceX has done wonders lowering launch costs, but that is just the start. Phantom Space is a SpaceX alternative that is using mass manufacturing to drive down the costs of satellite builds and launches. This will lower the barrier to entry in space, creating more businesses and market opportunities. Founder Jim Cantrell was the first VP of Business Development at SpaceX back in 2001.

Impulse Space

Building a rocket. Creating the payload. Launching it to space. It is all very complex, and that may seem like the hard part (maybe it is)… but the job is not quite done! What do you do with it once it gets to space? Impulse Space is building orbital maneuvering vehicles that are focused on last-mile delivery. Think about your Doordash driver… just ergh…. in space! Jokes aside, this is a critical need in the industry. So much so that founder Tom Mueller left SpaceX after 17 years to pursue it!

Astro Forge

Asteroids consist of a variety of raw materials, many of which we actively use on earth (ex., gold, cobalt, iron). Resource depletion on earth is a concern for many. Astro Forge is working on a cost-effective and scalable solution for asteroid mining. This would give us the opportunity to expand our access to resources, as well as reduce on-earth mining and the downstream effects that has. Founder and CTO Jose Acain spent years at SpaceX as an aviation integration engineer.

Parallel Systems

Freight trains are a critical part of American logistics. The trains, however, run on fossil fuels. Parallel Systems is decarbonizing freight by building a cleaner, automated rail future. Long-term, their solutions will reduce the carbon footprint of rail, but they will also allow more of the $700B trucking industry to convert to decarbonized freight! SpaceX’er Matt Soule spent 13 years at SpaceX prior to founding Parallel Systems.

Conclusion

These twelve companies are clearly just the start. There are many more SpaceX alumni companies already, and we believe there are certainly many more to come. We will release Part II in ~2 weeks, and in that piece, we will do a full breakdown of how and why. How does SpaceX build and maintain such a high-performance culture? Why does this lead to so many entrepreneurial alumni? More to come!

What founders and reps can do to limit liability when raising capital

Macro Tech Titan on March 25, 2024

Founders need capital to grow, and registered reps often help them get there – but it’s not only about the capital.  If you search “Issuer Liability” most of the results will talk about the regulations.  When you raise money from someone else (not friends and family) you are selling a security, which is a regulated activity.  When you take an investors money there is liability, they are expecting something in return.  Many founders ask what they can do to protect themselves from investor lawsuits, so we wanted to provide a short guide.  We are not lawyers and this is not legal advice, this is information about the market in general for education purposes.  Founders should always seek guidance from a lawyer and if you are planning on raising capital with or without a broker-dealer you should probably have an attorney who you feel comfortable with on retainer.

  1. Follow the rules

This is pretty straightforward, and if you are working with a registered rep of a broker-dealer they will ensure your offering ticks all the right boxes.  Broker dealers are regulated by FINRA and their job is to understand and implement the rules.

  1. Get a lawyer

Lawyers are like Doctors, you don’t need them when you’re healthy, you need them when you’re sick or if you just got run over by a bus (in that example you’ll need both).  If you’re raising capital as your business grows you’ll need a lawyer to create documents and to provide legal advice for a range of issues well beyond your offering.

  1. Disclose, disclose, disclose

One of the biggest drivers of investor lawsuits is the failure to disclose material facts.  If you disclose everything, it will greatly reduce the risk of getting sued.  Investors understand that there are risks with private investing, they are taking the risk and will be rewarded if it pays off and the project works.  For example, if the company has a loan that needs to be paid off and you fail to disclose that, investors would be very unhappy about that (and so would the regulators).  Most of the regulations center around disclosure, they don’t evaluate the quality of an individual offering or sector – when you file an SEC registration statement, the SEC will verify the format, and that you have addressed all the required points, they will never evaluate the quality of the offering or tell you if it’s a good idea or not.  What they do require is that all material facts are disclosed, including the backgrounds of the principals, financials of the company (if any), audits, reports, articles, business plans, patents or other intellectual property, etc.  The reason for this is simple, investors can only make informed decisions when they have all the facts.

  1. Target sophisticated investors

This is more about strategy; if you target investors who have experience in early stage companies, they are going to be in a better position to make a decision, and may even provide valuable feedback based on their experiences in other deals.  If you are dealing with someone who has never invested in a private offering before, that’s probably not your best investor.

  1. Explain to investors the Use of Proceeds well

This is actually the most important requirement when doing a raise with a FINRA BD; the reason is simple.  Investors want to know where their money is going.  Things don’t always work out, and investors may be receptive to that – where they get angry is if you do something outside the scope of your plan, or something they believe to be reckless.  If you explain that with $500,000 you’re going to do A,B,C, – and then you do it, and it doesn’t work out as anticipated, there’s a much lower chance of having a problem with investors vs. a situation where you went far off the business plan and invested in something not on the Use of Proceeds list.  Founders have multiple roles with investors, they are fiduciaries of the shareholders, and managers of the business.  They have an obligation to the shareholders to maximize their value.  As an executive of the business, their job is to ensure that they execute the business plan to the best of their ability.

  1. Get an Umbrella insurance policy

If you have a house, a ranch, or other family assets, you should probably get an Umbrella insurance policy which covers those assets if you get sued.  The umbrella insurance is not specifically for people raising funds, it’s for general situations like if a stranger trespasses on your property and breaks their leg and sues.  The insurance agent can explain the benefits of it, but the idea is to provide some protection to your core assets in the case of lawsuits.

  1. The LLC or Corp provides basic protection

Incorporation when starting a company is key, it means that any lawsuit would be against the entity, not the individuals.  Having said that, a founder is in a unique position because they typically are the main shareholder, the executive, and the person responsible for the entity.  However, this is the most basic protection and the reason that entities are formed, the group of shareholders are stakeholders who share in the profits or the losses of the business together.

  1. Setup a Trust

If you have children, having a Trust is a great idea to pass assets however modest without dealing with Probate.  A Trust can provide other advantages of asset protection, but it does cost money to set it up.  This varies from state to state, but you should talk to a local attorney near where your primary residence is located.  A Trust should be local, it shouldn’t be in Delaware where most Corporations are registered.

  1. Keep in touch with investors

There’s a reason why publicly traded companies have quarterly investor calls.  Imagine the following scenario-  you have an investor who gave you a decent amount of money to start your company and you don’t hear from him for years.  Time goes by and your business grows, and then you face a huge problem from a competitor, and there is a loss.  You call to tell him that, he’s not going to be happy to listen to this.  But it’s always about the lack of info and attention, if you were calling them or if you write an investor letter at least quarterly, you probably wouldn’t be in such an awkward position.  Regular updates are a great way to keep investors informed, and if they are displeased with anything they’ll tell you that then.

  1. Under promise and over deliver

Getting caught in litigation is usually because an investor feels they were abused, lied to, tricked, or that they got an unfair deal.  If you under promise, and then over deliver – this vastly reduces the chance of someone feeling bad about the investment.  Investors don’t expect miracles and founders are not magicians, things happen, everyone knows that.  But if you provide great results, defined as better than what you originally told them, how could anyone have a problem with that?

This goes to the core of writing great terms, be conservative, be reasonable, explain the risks.  Many will say, that it will be ‘harder’ to raise money if your projections are conservative – exactly!  It’s a filtering process, you don’t want someone to EXPECT a huge return because then if you don’t do it, it will be a problem.  There was a FINRA case where a REIT promised 8%, delivered 5%, and got sued (we’re paraphrasing the terms for the sake of the example).  Or in other words, the 5% return was actually very good, but they hard sold and promised 8%, so it left some to feel that it was misleading.

11. When Speaking, Speak Honestly

According to one lawyer, what can prevent lawsuits is simple honesty.  Don’t exaggerate claims or speculate about the future, and certainly don’t speak about future potential as if it’s fact.  Avoid superlatives such as “Will” and instead use language like “May” because you really don’t know what will happen in the future.

Conclusion

This is not an exhaustive list, but it should provide the idea of how to risk mitigate the potential for getting sued, which is a real liability for founders, issuers, and reps.  There isn’t any language you can add to an investment contract that prevents an investor from suing (which is logical, if you think about it, because real scammers could use that language to shield themselves).

So consider taking the high ground, the ethical approach, disclose more than necessary, be above regulatory standards, don’t just meet the minimum requirements.