Space Investing: VCs Move Beyond 'Rocket Science'

A Shift in Venture Capital: Investing in the New Space Economy

Five years prior, Katelin Holloway, an investor, undertook an investment she characterizes as a significant risk. The founding partner at Seven Seven Six acknowledges that she and her colleagues initially lacked comprehensive understanding of the reusable launch technology proposed by rocket company Stoke Space. She concedes they weren’t specialists in the field.

Expanding Investment Horizons

Holloway has since also invested in Interlune, a firm focused on extracting helium-3 from the moon for applications in quantum computing and medical imaging, with the intention of selling it back to Earth.

She recognizes the potential for skepticism surrounding these investments. However, her progression from a space technology novice to an investor mirrors a wider trend within venture capital, where VCs without specialized aerospace engineering backgrounds are increasingly supporting space startups. Global venture funding in space technology reached $4.5 billion across 48 companies by July, a figure exceeding the total investment of 2024 by more than fourfold, according to PitchBook.

Drivers of the Trend

Several factors are contributing to this surge in investment. SpaceX and similar companies have dramatically lowered launch expenses, opening up space access to entrepreneurs with application-driven business plans. Holloway recently stated in TC’s StrictlyVC Download podcast that humanity is on the verge of integrating space into daily life, a reality she believes is not yet fully appreciated.

This accessibility has enabled VCs to move beyond companies solely focused on rocket construction, and instead invest in startups utilizing space-based data and infrastructure for applications such as climate monitoring, intelligence gathering, and communications. Investments are also being directed towards orbital logistics, in-space manufacturing, satellite servicing, and the development of lunar infrastructure. Interlune exemplifies this emerging category.

Geopolitical Influences and Defense Applications

Falling costs aren’t the only catalyst; rising geopolitical tensions are also increasing the appeal of defense-related space startups. China’s advancements in space technology are driving increased U.S. investment. VCs often find reassurance in defense spending, as the U.S. government provides a stable customer base and validates emerging technologies, bolstering confidence in the commercial viability of space ventures. Defense Secretary Pete Hegseth emphasized in March that the space domain will be a critical area of future warfare.

This year has seen several U.S. defense-focused space startups secure substantial funding rounds. True Anomaly, a developer of military-class orbital systems, raised $260 million in a Series C round led by Accel in July. K2 Space, currently working on its first government mission, closed a $110 million round in February, co-led by Lightspeed Venture Capital and Altimeter Capital. The defense aspect enhances the attractiveness of space investments that might otherwise be considered high-risk.

The Role of Artificial Intelligence

Artificial intelligence is further accelerating this momentum, particularly in geospatial analytics and intelligence. In March, Fire Sat, a collaboration between Google, Earth Fire Alliance, and Muon Space, launched its first satellite designed to detect wildfires from orbit. Planet Labs has also partnered with Anthropic to analyze Earth observation data.

Shorter Timelines for Returns

Remarkably, the expected timeframe for returns on these investments has been significantly reduced. Traditional space companies often required decades to yield returns, but current VCs anticipate achieving liquidity within standard 10-year fund cycles. Holloway explains that her fund maintains a 10-year horizon and would not have invested without expecting substantial returns within that timeframe.

Public Market Receptivity

This ambitious schedule appears feasible, as public markets are demonstrating receptiveness to these new space companies. Voyager, a space infrastructure company, listed in New York in June with a $1.9 billion market cap, experiencing an 82% increase on its first trading day (though shares have since declined by approximately 45%). Karman Space & Defense, a 48-year-old space systems manufacturer, opened 30% above its listing price in February and has since seen a further increase of nearly 60%.

Potential Exit Strategies

For Interlune, Holloway foresees potential exit strategies including acquisitions by established aerospace or defense companies, purchases by energy firms, or even a government buyout, given the national security implications.

The Evolving Skillset Required

These converging factors – reduced launch costs, defense spending, AI applications, and faster return timelines – are changing the profile of investors in space. Holloway’s diverse background – from teaching to Pixar script supervision to Reddit’s VP of People & Culture to venture capital – underscores the broader range of skills these companies require. While acknowledging her limited expertise in helium-3 harvesting physics, she emphasizes her operational experience.

“Ultimately, a company is a company,” she states. “Successfully bringing people together to build something challenging requires someone with a proven track record in company building.”

Looking Ahead

The success of this approach remains to be determined. The space economy is still largely unproven at scale, and many of these ventures face technical and regulatory challenges not typically encountered by software startups. However, as more generalist VCs like Holloway invest, space is increasingly resembling a dynamic sector where operational expertise is as valuable as rocket science.