The Nextspace™ Broadcast

[Rachana, Host]

Hello, everyone, and welcome to another episode of The Next Space Broadcast brought to you by Reflex Aerospace. And today, let's take a look at SpaceX from a venture capitalist perspective. And our guest for the day is Maxim Shvaruk, who is the managing director of Atlas Ventures, currently based in Singapore. And they are an early stage fund that focuses on the Southeast Asia markets.

And they are, as of now, focusing on the areas of interactive media, privacy and security, B2B, SAS, enterprise, tech and so on and so forth. So welcome to the podcast, Maxim.

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

Thank you. Thank you for having me. It's great pleasure to discuss such an interesting and intriguing topic as space and space tech.

[Rachana, Host]

We also have Ivan Kosenkov who is a part of the business development team joining us from Reflex Aerospace. And we together are going to approach the topic of looking at SpaceX from a venture capital fund from two different vantage points. So the first vantage point is going to be a venture capital fund investing directly into space technology or space technology companies.

And the second, which is my personal favorite, is going to be a fund that's actually using space technology and its applications towards internal fund management or making decisions or seeking out new START ups or, you know, things like this. Let’s start with my personal favorite. The second one, the more intriguing topic. Maxim, Space is currently not a sector that you are invested in, right?

It's mostly like wellness, e-commerce and cybersecurity that companies which are in your portfolio. So what really made you think of space imagery or of space technology at all in the first place?

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

It's a good question. You’re right that we haven't made an investment in space tech yet. We are in our second fund right now. So the first fund, as you rightly mentioned, is mostly focused on mostly B2B tech. But we also have a lot of wellness, ecommerce, cybersecurity things, but it wasn't really specifically deep tech as a fund.

The second fund that we're currently in the process of finalizing will be more deep tech fund. So we'll focus and invest in more hard things. And space tech is definitely on the agenda. So what we like about that is obviously it's one of those topics that is really, really tough to pass by. There's a lot of articles and a lot of hype around this area.

The space economy is huge. It's already 400 billion. It's going to be 1 trillion at some point of time based on multiple sources. I mean, we all trust investment banks from the US, right? So we're probably going to be a trillion. And then if you look at the a sheer number of things happening. Number of launches, for example, you'll see that it's a ten x growth in ten years.

So it's a huge industry and VC is just starting to catch up.. $6 billion in deals last year. It's probably going to be less this year, but it's a clear indication that has a lot of interest from the VCs. We are a Southeast Asian Focused Fund who started to look into this but Southeast Asia as a region. In terms of VCs, this is probably like ten years behind the U.S. and Europe when it comes to old tech.

So space is just getting started. And obviously now it's predominantly that the government is everywhere else. Butwe all started seeing some some companies in the space sector. We see companies like New Space in Singapore, like Spectral, also in Singapore, a couple of others that are focusing on some applications like mostly on connectivity issues in Asia and Southeast Asia, because this is one of the areas that is still highly underdeveloped.

So this is a fascinating topic for us. We're looking into many applications of space tech, a lot of interesting, applications in intersection of space tech and artificial intelligence and location intelligence. There are a lot of things happening. And so we just can't really pass by. So we believe that we'll make one or two bets in space tech for the second fund.

And hopefully these companies will be in Southeast Asia.

[Rachana, Host]

Now that you mentioned the intersection of other technology and space technology, especially since you've invested in a bunch of companies related to cybersecurity, developing software solutions and different models for cybersecurity. Is that what kind of triggered your whole, thought process of considering space applications? Because when we talk about, connectivity, cybersecurity, then a lot of quantum and then crypto all these things coming to picture and they kinda, can be linked to satcom constellations and making everything in quantum proof.
I don't know, in ten, 20 or 30 years.. So is that the direction you were thinking in?.

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

Yeah, that’s one area of course we looked at. We made a couple of bets in cybersecurity, post quantum and post quantum cryptography is one thing that is getting more and more popular. And we looked at,, a couple of companies that specifically look into the post quantum cryptography for satellites, obviously super secretive ex-DOD guys

I mean, I'm talking about the American companies, I'm talking about Israeli companies that are looking into this. This is a very fascinating area, but super hard to invest in as a VC, because there are a lot of things going on between the company and the government. And as a VC, we do not want to be that highly regulated.

So this is one thing that, you know, prevents space tech from getting a lot of VC attention is just regulation, which is insane.. You have to go through and jump over a lot of hoops just to make that happen. In order to invest in the US, for example, as a Singaporean fund, we have to go through the CFIUS Regulation, which is a special law that is preventing foreigners to buy a significant stake in American companies, especially when those companies possess double usage applications.

Like for both defense and military/nonmilitary cases. So it is tough, especially cybersecurity for satellites, is a super tough space. I've seen some companies, but I would prefer to kind of stay away for some time. We mostly look at companies that are sort of enablers, for us. We’ll probably talk about this going forward, but there are companies that help us to do our due diligence, companies that by using satellite images help to assess ESG and climates scores for our companies.

And this is getting more and more important for us. Our LPs come from Europe and mostly from Germany and Switzerland, and climate tech is on the agenda and they ask us a lot about that. “How do you do this? Are there companies that you guys can invest in that can help you? There actually was a meeting in Munich with one of our LPs that actually specifically asked about satellites and the way to make climate assessment more accurate.

It's like, is this something you guys are looking into? Even if we didn't look at this right at the point of our conversation, I started looking into this. You can't say no to your LPs. . So I don’t know if that answered your question, but that's what we're kind of looking into.

[Rachana, Host]

Yeah, absolutely you did. I mean, there's a couple of follow up questions that I'm sure Iran is really, really interested to jump on

[Ivan Kosenkov, Business Analyst at Reflex Aerospace]

For me, the follow up question would be with the Southeast Asia aspect. I’m sure that you know Maxim, that Singapore holds the third place on private investment into space tech. When I first saw this figure, I was a bit amazed. It was was surprising to me.

Do you know what are the investment activities in Singapore? Who invests in what in Singapore in space tech?

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

it's a good question in general about Singapore and Southeast Asia. So when you see that Singapore is taking a leading role, say, in terms of number of companies, number of unicorns in Singapore - I’ll get to your question, this is just to set the context - it’s because a lot of companies are just incorporated in Singapore.
00:12:45:00 - 00:13:17:08
Speaker 2
They do have other businesses around the world like Southeast Asia, India, the big region of South Asia.. But they're just incorporated in Singapore because of English law and because of, banking and other things. So this number could be skewed by that. Obviously, Singapore benefits from this in a big way because when you incorporate a Singaporean company, you have to register your IP in Singapore and when you register your IP in Singapore, obviously Singapore benefits in a big way.

So getting to your question, it's led by the government and government owned companies. So the number that I know that Singapore invested is not that much, it’s around 150 million SGD in research and development of space capabilities applicable to key industrial sectors. . So when Singapore invests, they give it to Singapore. They are super rational when it comes to investments.

So there are like priorities for the country and they're going to invest only in things that benefit the economy. And so they kind of allocated this 150 million into very key industrial sectors. Agriculture is one of them. The Environment is another. So this is going directly from the government via government owned companies like ST engineering. So ST engineering specifically, they launched the first Singapore made commercial Earth Observation satellite back in 2015.

So that already happened. And now that satellite is, I think, working directly with American telco Verizon and a number of others. So this is already happening. And there will be one more program that they already announced or they will announce it soon which is a very similar thing. And R&D is a lot of it. So, local universities, as you may know in Singapore, are super rich.

They receive a lot of funding and there are a lot of spinoffs that those universities produce. And I believe that those are going to be in the next ten years. I don't see that many like private investors actually investing in space tech. I see this largely as everywhere else, probably the US is an exception because of the SPACs and things like this.

It's mostly government, government linked companies and universities. It's probably going to be like that in the next ten years. And the reason being, the very simple financial reason is just ROI being something tough to determine. As a VC, we don't have such a horizon as governments and government owned companies.

We can't plan for like 30, 40 years, 50 years. We need to return the capital to our LPs in ten years. So, we need to understand how this thing is going to be commercialized, how are we going to sell it, what are going to do with this? And in space tech, because precedents are very minimal, we still can’t justify investment sometimes.

So that's why I think private investors are going to still stay away from that space a little bit because they're scared. So, it’s going to be mostly dominated by governments and corporations, big corporations, government owned corporations.

[Ivan Kosenkov, Business Analyst at Reflex Aerospace]

If you don’t mind, I would like to go further. It is related directly with the question that only the newspace is currently fueled by VC money. Recently we have seen an influx in private equity capital as well. But even if it is fueled by VC money, the sales are mostly made to the government.

75% of the space data provided by the commercial operators are sold to the governments. And most of the use cases, for example if we are looking at Reflex Aerospace, most part of the use cases requiring high revisit rate, high resolution and so on are useful mostly to the government.

That’s why I wanted to ask you if you see this changing anyhow and in what perspective?

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

As I said, the only way this thing can change dramatically is by reducing the cost of using the products of the satellite. There are a lot of forecasts about this that say it is going to drop by 100 times by 2040. So basically, it’s like the internet that emerged in the 1960s.

How long did it take for the Internet to become accessible for people and for funds? Probably took 20, 30 years and space probably is going to be the same thing. So we'll probably see the first easy to use technology kind of off-the shelf things probably in 20 years from now, maybe you don't see this happening faster than this.

Once this thing is going to be closer, you'll see more investments flowing into this. So now it's just, you know, very rare examples of funds for you. You mentioned new space that raise not that much capital, but they raise some capital from a couple of investors.. There is another company that released a bit more called Spectral.

It's a security technology, for communications. And they received close to 2 million in seed funding from Golden Gate and Space Capital. But those are exceptions and obviously no one knows what will happen. They’re super brave bets. And in terms of monetization, as you said rightly, they'll be dependent on the government 100%. And that's unfortunately the case.

Big private equity funds definitely use space tech a lot in their due diligence work and big hedge funds as well and private equity funds. But the problem with Southeast Asia and I kind of talk more about Southeast Asia here is that we just don't have those big funds for now. We do have some, but it's just not enough to build a company specifically with that market.

There are just not enough clients, for them. Even if they pay like millions of dollars per year, which they don't, that's still not enough. So it's kind of a chicken and egg type of problem, really.

[Ivan Kosenkov, Business Analyst at Reflex Aerospace]

Yep.

[Rachana, Host]

I have a follow up question to something that you mentioned previously, Maxim. So you mentioned that most of your LPs are from Europe, you know, around Switzerland and Germany, and they are focused or they are encouraging you to focus more towards climate change mitigation problems. So do you have any LP's from the Southeast Asia region and what kind of areas are they interested in?

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

Yeah. So, for the first fund, we didn't have anyone in Southeast Asia. Only for the second fund we'll have some LPs coming from Singapore, but mostly family offices and high net worth individuals. Unfortunately, again don't want to offend anyone, but obviously climate tech is not on their agenda at all. Right. For climate, they’re obviously interested as individuals.

Okay, tell us a bit more about climate tech. We invested in a couple of climate tech companies, but this is something not critical for that, right. They're not investing in VCs for us to make an impact or positive impacts on the Southeast Asian region. They're investing for their own reasons such as obviously ROIs, plus a lot of LPs invest just to gain access, just to get some knowledge on this, on the frontier sectors of tech.

Just knowledge. Just buying knowledge, basically. So, I think Europe in that sense is a bit more advanced. For them, it’s actually critical. So, one LP asked us to do basically ESG calculations for our portfolio and we have in our fund more than 30 companies that we already invested in. So, it was a bit of a challenge now for us to do all sorts of ESG metrics and provide them with this sort of report.

We’re using a company called Offsetted. I think you had them on your podcast previously. So, they helped us out a lot in this. So, they had a tool that helped us to basically gather all the ESG data from all of our portfolio companies. And we could visualize it beautifully for our LPs.

The result is obviously horrendous. But this is Southeast Asia. So, the ESG score is not good. It's mostly like male dominated companies. Minorities are minimal and are still minorities. So yeah, I mean, it's pretty bad. But you have to have a good starting point, at least to understand where you are in the whole thing just to do something about it.

[Rachana, Host]

Now that you mentioned ESGs, how do you at Atlas Ventures compute the ESG scores? Do you have an established flow or do you just outsource it to other companies like Offsetted? And usually VC funds in general, do they just outsource the whole ESG assessments to other companies or how does this go?

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

Well, in general VCs do not do that in Southeast Asia specifically. They don’t do anything. There are big funds that do because they raise capital from large institutions like World Bank, like IFC, and so they have to do it. But most of their funds, especially micro funds or smaller funds, they just don't have enough resources for them. This is very time consuming and sometimes could be a very expensive exercise. If you go through all the companies, an average fund or a typical fund has between 20 to 50 companies in their portfolio. And you can imagine what it is. Right? There are a lot of people you have to convince on why they need to do the ESG assessments? Like what's their benefit? For us, that was a bit of an exercise, really.

I had to do a lot of things myself. You kind of outsource it. There are companies like Offseted. They're helping you to structure all the data. But then you receive a call from the CEO of one of your portfolio companies who says “Come on, man. Like a 25-question questionnaire. Do I need to allocate, like, a couple of hours of my life to do this?”

And why do I need to do this? What is the carrot in the end? What do I get from this. And you have to explain them the whole thing like - okay, you guys probably can use it as a team building tool or you can use it as a sort of goal setting exercise, so you understand where you are in terms of ESG.

For other companies - Okay, guys, you can access the green credits at the end of the day because it's important for you. For some companies, you don't need to explain anything. For example, for our agri tech companies, they understand it right away. For logistics companies - no need to explain anything, like we understand why it's happening, all these things like electricity bill bills, what kind of providers do we use?

And the Supply chain. We're happy to give it to you. And thanks a lot for doing this for free. Because, for a lot of companies, we're doing this for free for our portfolio companies. And if they were to do this themselves, I'll pay like tens of thousands of dollars just for this exercise. So I believe it's a part of our like small but still some sort of value add to some of those portfolio companies.

So yeah, this was a very hard exercise but I'm glad that we've done it and it's revealed a lot of things about us and about our portfolio composition from the ESG standpoint. We have to double down on that for sure.

[Rachana, Host]

I know that it’s very unlikely, but do you see Atlas Ventures at any point in the future or in the far future procuring satellite imagery directly for your internal use?

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

Yeah, it could happen. I can see how it can be useful, right? It can potentially help with the due diligence process.. So instead of making a personal physical trip, we could do a lot during our due diligence because for us it's important to see the location, especially when it's an agri tech company. We have to see it.

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

We have to go there and check it out. So, this could be a very easy way to reduce our costs of due diligence for sure. But we have to obviously see how because every fund has its own kind of budget for due diligence. So, the cost of services of satellite imagery should fit into that budget. Because this is the money we will have to subtract from our income at the end of the day, obviously we want to minimize that.

So, if we can save a significant amount of money on traveling somewhere or getting more accurate data and if this is financially feasible for us, I mean, I do see ourselves using that. And we probably will, at some point learn to gather intelligence on a company we are interested in, the competitive landscape and some other things that we might need during our due diligence.

But for now, it's a bit tricky just because of the cost.

[Rachana, Host]

This seems to be like a common point among all users or potential users of satellite imagery. Even though there is a lot of cheap or free imagery available,

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

Yeah.

[Rachana, Host]

The biggest problem is always the frequency at which this imagery is available and whether it covers the geographical area of interest. Because most of the current imaging satellites are focused on North America and Europe. However, most of the monitoring needs of the world seem to be in the parts of the world that are not covered such as Latin America, Africa and SouthEast Asia.

These seem to be the recurring points every time we talk to potential users of satellite imagery.

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

Oh yeah, of course. Plus, probably some regulation. And you know, some governments might be not super enthusiastic about this thing. Especially some countries neighboring Singapore that create a lot of problems, environmental problems around because of their agricultural use - I'm talking about Indonesia - that are actually burning a lot of stuff and creating insane pollution. This could be problematic for them.

They will not be really enthusiastic about this kind of capabilities and most of the VC funding goes to Indonesia in Southeast Asia. Most of the companies are obviously in Jakarta, but there's still some companies outside of that city. So yeah, they'll be tough. But again, as I said in the beginning, just let's give it some time now.

I think it just needs to be a bit proliferation technology and it always comes with a huge cost. But we know it's gradually going down and the use cases are growing. There'll be more professionals available. It's another problem actually with this in Southeast Asia, there's not enough talent for this particular space.

Not just in space, but we don’t have AI professionals. We don't have like cybersecurity analysts; we don't have designers. So, it's just not enough. It's not enough people, especially in space tech and this goes without saying. And we need these kinds of people to be sort of evangelists who can basically explain how it can be done.

Because for me, I have to do a lot of desktop research and talk to people. If we're doing the due diligence, sometimes we outsource it to some firms. No one's heard of satellite imagery as a source of intelligence. Believe me, in Southeast Asia it's just non-existent.

[Rachana, Host]

Okay. That's a very interesting insight.

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

So, it's a huge market for you guys. So what I was saying is it means that you guys have a huge potential in that region.

[Rachana, Host]

Yeah absolutely. Just need to make it very, very cheap. The satellite imagery has to be extremely affordable. And then we are targeting areas that are of interest. So Ivan knows what to do next for business development!

[Ivan Kosenkov, Business Analyst at Reflex Aerospace]

The problem is always the penetration in the region. I was speaking to some people representing the Southeast Asian countries. And they are always like, you have to move there, establish an office there. It’s all still very personal. You need to establish good personal relations on site. Because without it, it’s like some Berlin based company that is supplying satellite data for them. And they wonder if they really need it.

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

A hundred percent. This is the nature of this region. It is the difference in cultures, right? So Asia is a highly contextual culture. So, in order to do business with someone, you have to meet them multiple times. You have to discuss their kids and, you know, the scholarship of their kids and, you know, doing all this kind of stuff like dancing, wining, dining for like many, many months before you can do something, and someone should vouch for you ideally.

That’s another thing, versus U.S. and Europe in some countries in Europe, where you can just do the business because you have a good tech and the team is solid and you have a good brand name. In Asia, it just doesn't work this way. I mean, Singapore is maybe a little bit of an exception sometimes, but again, even in Singapore, which is more westernized than other countries, it's still predominantly high contextual culture.

They should know you, before you come in, on a personal level.

[Rachana, Host]

I have another question based on what you mentioned about the affordability of satellite imagery or space applications. Maxim, can you give me like a ballpark percentage of a fund that you can afford to spend on procuring these satellite services? Is it like 0.1% or an order of magnitude perhaps.

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

I’ll give you this number. It doesn't have an explanation on why this number or when this number originated. But this is a kind of standard for the region and for the sector. So, we do not spend more than 2% of the investment amount on due diligence. So that's the hard stop.

So, let's assume the average series A in Southeast Asia is like $6 million, right? So, you can spend up to 120 K on everything. On the whole kind of due diligence out of the 120 K, you probably spend on a true indicator is actually quite a lot. On a series A, you probably not spend more than 60 right now and that includes legal, tax, financial due diligence, or banks.

So probably for this specific area, you can carve out something like 5 to 10 K USD tops. Again, it's just ballpark numbers, but I think that's pretty accurate. This is something you're using for experts. So, this is like 10-15 K, you're using to access experts around the world. Like you go to GLG or another marketplace and access some expertise you do not possess internally.

So, this is how much you pay them up to 10-15 K for like maybe three or four or five calls.

[Rachana, Host]

Yeah, that's an interesting metric.

I think we have covered most things about actually using space technology as a VC fund. The perspective I get is, for now, it’s all very early. You are probably the pioneers in even thinking in this direction and especially in the geography of Southeast Asia. Maybe more funds in Europe or focusing on climate tech or those investing into companies with distributed assets or distributed logistics probably makes more sense.

But this is very interesting. We could also imagine the kind of timelines - maybe it would take five or ten years for VC funds to seriously start considering probably investing into satellite constellations for themselves and for space to play a very big role in fund management as such. So I see that we're still a bit of time away from it.

And coming to investing directly into space tech. It’s also interesting that the push towards investing in space is coming from LPs who are more passionate about climate tech. But I guess that’s more interesting to Ivan. It will definitely give us insights into where to pursue further action in terms of business development.

[Ivan Kosenkov, Business Analyst at Reflex Aerospace]

The thing that I really understood is that regional VCs would rather attempt to invest into some application than hardware. Investing in hardware, for many VCs, is still a red flag.

Taking into account that one has to ensure a return on investment in 10 years, do you envision investing into not only applications using earth observation data but also in companies building hardware? What are the barriers against investing in companies building hardware?

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

it's a good question. I mean, partially why there is not enough funds investing in space tech is because of the nature of this being hardware mostly. Obviously there are some byproducts of this or applications that are on the software end but you need to invest in the guardrails first.. You have to build the infrastructure.

And this is actually very similar to infrastructure. When you have a payback period, which is super long and you have the same challenges. So for us as a fund, we invested in plenty of, as I said, plenty of hardware companies. Just because we're more interested in a specific problem being solved rather than a business model.

So we have a company, for example, called Axia, which is based in Singapore, which is in mining tech, and they create an Iot solution to just get the data from mining and put it in one space so people can analyze that data. And mining companies and operators of any particular mine have a very fast access to the data.

So if something happens they can extract certain metrics in real time. Can you do this without hardware? Absolutely not. This is the only way, right? So this is how we overcome this. But hardware, obviously, has all the challenges. They're hard to scale, build too many factors that need to be done right for this to work. A lot of iterations of the same product needs to happen.

You have to have a really good and trusted manufacturer. And we had a case when we had a manufacturer who in assembling our equipment, they used fake, not fake, but used components. And we didn't know about this. We just learned about this when we shipped this to our customers and obviously, we're not super happy.

So your supply chain should be done right. Your working capital should be accessible because this is one thing that's not freely available in Southeast Asia is specifically working capital. You have to secure certain funding to manufacture the goods before the goods are sold. You can't pre sell those. So again, this is again, as I said, it's a good question that dictates why investments in space tech are largely government driven and R&D focused because hardware is hard and a lot of things needs to be done right and it's very, very expensive and the payback is very long.

But sometimes you have to invest in hardware for the things to work, right? You have to build those guardrails, otherwise you can't build any applications on top of it. So it's kind of a railroad type of solution. Someone has to invest in railroad and historically this has been very unprofitable, but without railroads, we wouldn't be here now.

[Rachana, Host]

Speaking of investing into hardware, I feel that it’s a really long game, right? It cannot be bound by these time limits set by VC funding rounds. For example, funding rounds can have a 10 or 15 year periods. And one has to make a complete exit most of the time.

But when we look at investors, people who are investing big money into SpaceX for example, they don’t invest it for the short term, because, you know the SpaceX share values are all over the place. They do it for generations to come. They do it for their grandchildren’s generation. They often say, oh this is not for me.

I have some spare cash lying around and this investment is for my grandkids.

I mean, as someone who works with hardware in the space sector, you are right. Space is hard. Hardware is much harder. It’s very hard. But do you see this kind of attitude among your high-net-worth individuals from Southeast Asia or Europe or anywhere else who want to place these kinds of long bets?

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

Yeah, for sure. Again, this is, as I said, like a lot of LPs, especially high net worth individuals or some family offices, they do not invest exclusively to make money out of VC funds, and they are all f smart people who understand that a lot of VCs don't make any money. Because at the end of the day, they are super risky. By definition, it’s’ a venture, right?

Believe it or not, we’ll have to explain this sometimes. That we can’t guarantee your returns, If you want guaranteed returns, go to public markets, hedge funds or some other things. We don't do this, but by investing in venture capital funds, you'll have access to frontier tech. You'll see something. Basically, VC is the only way you can participate in space tech.

Probably one of the very few ways of participating in space tech. Obviously, space acts as a whole different story, because as a publicly traded company, you can put money in and then pass it to your grandchildren just to hold stock. You can say that I am doing this for the better good,

But you can liquidate your stock at any given point of time. With us, when we invest super early, there are not many ways for you to liquidate your position or your asset early on. You have to stick with it for like ten years before it matures. I mean, you're lucky if it doesn't die, right? Because again, this is always an option, right?

You don’t know where it goes. I mean, it could go to zero or it could go to billions of dollars. So, yeah, I mean, liquidity is a problem. A SPAC helped it out, but with the current market, I don’t see liquidity being solved at all.

[Ivan Kosenkov, Business Analyst at Reflex Aerospace]

That was exactly my question. What are really the exit strategies for VCs for this kind of domain. We have seen some SPACs, but most of them have performed poorly after going public. What would be the exit strategy - going public or be sold to strategic investor or to some kind of private equity?

What do you envision as the best way to exit for investors in space tech?

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

There are really a limited number of ways you can do this right now because (a) if you're talking about trade sale, there are not many acquirers. So, it is the problem of concentration of acquirers. They know there are a few of them that dictates the price at the end of the day.

So you probably can't expect a really good return. So trade sale is possible. But again, historically, selling a hardware company with a lot of working capital needs and all has been really, really tough. So it's a cash flow problem. So I see the only way that is possible for space tech is being able to attract as much government funding as possible and become self-sustainable and maybe at some point of time to file for an IPO and going public via either SPAC, direct listing, or just the standard route.

But again, the trade sale currently, I just don't see this happening. I think the most popular one in the next five years will be just an equity hire. There are a lot of really good teams building something in space tech. Some of them pulled really valuable IP and for many big companies like SpaceXs of the world, that are already big and raised money. This Finnish company called Iceye.

Iceye has raised quite a bit of capital. They'll probably just buy teams that are good, which I would probably do if I were if I was going just to prepare for the next stage.. So that's probably something we'll see more and more. SPAC is going to be very limited. It's getting more regulated and people are fed up with this kind of stuff.

Yeah.

[Ivan Kosenkov, Business Analyst at Reflex Aerospace]

This is a very good answer. Thank you for it. And I have been thinking about it for quite a while.

[Rachana, Host]

Has there been any company that you have invested in, as a part of a fund, where the product made by this company was used by other companies in the fund or used internally? I am just trying to see if investing in a company building satellites would make sense for you because then the product could be used by you or other companies in that fund.

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

It’s a good question. We do have cases like that. It’s more kind of standard ones. So we have a company in Singapore called Jenfi, which is a revenue based loan company, and obviously they provide revenue based loans to some of our portfolio companies. This is happening. We also have a company in the US that provides kind of AdWords for e-sports.

And we have e-sports companies, e-sports teams that we invested in, so they also work together. So, we have cases like this, there's not that many, unfortunately for now, but we're looking into this from this perspective, you're right. So, we're looking at companies that we just invested in as a fund, but we're not going to invest in the company for returns.

So, we're going to invest in this company just to provide services for our portfolio. That's a hundred percent. And we're looking into potentially investing into Offsetted for that exact reason. So, they are just going to be servicing our companies. We're going to benefit from this one way or another. Why not hold on to become investors in those companies, if we believe in what they’re doing?

If we recommend them as providers to our portfolio, why not invest in them? But again, to make an investment, a lot of things would need to be done right. Again, as a VC, you must check a lot of boxes. Unfortunately, one of the boxes is how are we going to sell it?

What are going to do with this? So, as we discussed before, that's why it limits our investments in space tech, because we just still try to understand this. And no, it's not a vibrant M&A environment for now.

[Rachana, Host]

I also see it as a win. It also makes you as a fund more lucrative to the potential company you are investing in.

[Ivan Kosenkov, Business Analyst at Reflex Aerospace]

Well, you have yeah.

It seems like you have answered most part of my questions. In a nutshell, from what I have heard, Southeast Asia is not an easy market for space tech companies because the government funding is still relatively low plus you have the problems of limited access to the workforce and in matters of regulation.

But it is still growing with the use of space data and also environmental monitoring and ESGs are going to be hot topics in the coming years. Would you add something to it as well?

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

I think you pretty much covered it again. We're definitely not the pioneers in this space. I mean, I spoke with some partners of a VC fund a couple of years back. They already told me that space tech is going to be big. We're looking to invest in this. I'm not saying be invested in space tech, but they've been talking about this for many years now.

And I hear this kind of conversation over and over again. I just wish that this translates into actual investing at some point in time and as a fund, we'll continue looking for good investments. And obviously, if you see something interesting and, you know, any good teams building something, just send them our way.

[Ivan Kosenkov, Business Analyst at Reflex Aerospace]

Sure, sure thing. Oh, yes.

[Rachana, Host]

It was a super fun conversation Maxim. And it was really nice to have Ivan’s perspective from a business as well as a tech standpoint. Thank you very much for the insights.

[Ivan Kosenkov, Business Analyst at Reflex Aerospace]

Yeah, it was insightful, very intimate.

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

Thank you.

[Rachana, Host]

Thank you for your time and looking forward to hopefully some potential synergies in future between Reflex and Atlas Ventures or you personally

[Maxim Shkvaruk, Managing Director of Atlas Ventures]

Yep, absolutely. Thanks again. Thanks a lot. It was very interesting.