How to Fund a Deeptech Startup

Why tech is table stakes, and the art (and importance) of navigating government funding.

Doug Bernauer, CEO & Co-founder of our portfolio company Radiant, was recently interviewed by “Arsenal of Tomorrow” about the potential (and challenges) for their nuclear microreactor, Kaleidos. Doug spent a dozen years at SpaceX working on projects from Grasshopper (SpaceX’s reusable Falcon 9 prototype) to remote power generation for SpaceX’s proposed Mars colony. In the interview, he said something that really stood out: 

“SpaceX was funded at 2:1 ratio of public to private capital. We would like Radiant to get to that ratio and if we look at the SpaceX comparison, the challenge for nuclear microreactors is as big as the space industry…”

And just before that…

”In the first few years that SpaceX started, they raised $180M in private capital over many rounds, but won $350M of COTS funding through NASA which remained competitive throughout.”

So, $530M to get SpaceX started, and 2/3s came from taxpayers (and counting…)! Considering the company is now worth over $140B and is rapidly deploying satellite internet benefitting tens of millions around the globe, most would agree it was a pretty great investment.¹

So what can others learn from SpaceX’s approach as it relates to scaling a deeptech company? Of course, government dollars are great and critical to scaling deeptech businesses. That’s obvious. But how do we impact the long-term potential for success? Focus on what we can control. For seed-stage companies, we believe it’s imperative to invest in government relations from day one. Make it a core competency of your company. Plan for success, assume navigating government will be a critical part of the journey, and plan accordingly.

From our portfolio, Varda has done this effectively, bringing in Eric Lasker, a Zipline alum, at the seed stage. Eric recently led the team to a $60M STRATFI award. K2 Space hired Matt Croce, a Special Ops Aviation Veteran. And Anduril, the most well-known venture-backed deeptech/defense startup, has ridden their government procurement and relations capability to an $8.5B valuation. 

Winning meaningful government backing takes time and requires trust (like any meaningful relationship, really). We look for companies who have a plan to build relationships with key stakeholders early, focus on the value of their company’s brand as a reliable government vendor/partner, and deliver against their customer promises, big and small.² It’s generally good advice for business and life, but it’s an early choice companies can make to maximize the probability of seeing their technology innovation at scale. For seed-stage deeptech companies it can be easy to overindex on tech novelties and breakthroughs as reasons they win. Unfortunately, many with a promising early technology run into the valley of death as they look to scale their technology innovation, realizing too late the role that government funding can play in helping them overcome their funding gaps. And the ability to cross that funding gap and capture the market monopoly enabled by a deeptech company’s innovation is what separates a good investment from a generational one.

Happy building!

+Mike

1. My friend Mikal Khoso (who writes Emergent, a great newsletter on high-growth startups in emerging markets) shared a great book that talks about the misconception that government is a poor allocator of innovation capital, The Entrepreneurial State. Highly suggest you give it a read!  

2. Adam Draper had a great tweet around this topic, defining “business” as “the art of making promises and delivering on those promises.”