Why don't American space startups like pre-seed rounds?

Earlier this quarter, I started putting together a dataset about venture capital investments in space startups.¹ After filtering for geography, I was curious about the distribution of investments across startup stages. I was intrigued when I opened up a jupyter notebook, and saw just how few pre-seed rounds² there were:

My dataset had 121 American space startups, and just 5, a mere 4%, raised a pre-seed round. That shocked me, because I know from personal experience that there’s a robust community of American space entrepreneurs.

I would have expected to see something like a 30%-50% failure rate in the number of startups between the pre-seed and seed rounds, not twentyfold growth as in the plot below:

Almost exactly 67% of the data set raised a seed round. This percentage makes sense to me; I’d expect startups to experience substantial attrition before the seed round. I just did not expect to see an order of magnitude of growth in the number of startups that raised seed rounds compared to pre-seed rounds.

Moreover, the number of startups involved, 82, surprised me, because there are 113 dots in the scatter plot above! It turns out that raising multiple seed rounds is fairly common in the space industry. 28% of startups that I looked at raised two or more seed rounds:

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I’ve found four good reasons why there might be such sparse data about pre-seed rounds in NewSpace firms in this dataset:

1. It’s possible my sample is not representative of the industry.

2. It’s possible that because of the nature of pre-seed rounds, transaction data across sectors isn’t typically public information at this stage.

3. Deep technology companies may tend to stay in stealth mode longer than other startups, or just hold investment information more closely, so transaction data might not typically be public information at this stage.

4. Some other type of funding may be providing capital to super early stage space startups.

   1. On the private side, the earliest stage VCs compete with programs like Y Combinator.

   2. On the public side, the earliest stage VCs compete with SBIR and STTR programs, among other types of funding.

I think the main cause of the phenomenon is the fourth possibility. When I gathered my data set, I only looked at venture capital investment rounds, so I don’t have information about all the accelerator, incubator, and grant deals. I don’t know how many deals I skipped, but anecdotally, there were a lot. At some point in the future, I want to dive deeper into this.

PS. If you’re a founder, and think there’s something I can do to help you, don’t be a stranger!

1. To eliminate personal biases about what companies to look at, I pulled the list of startups from NewSpace Index, and then copied down Pitchbook data about transactions into a csv file. In order to create a row in the csv file that I could use for some sort of meaningful quantitative analysis, I needed

1. the date of the transaction

2. at least one of

   1. pre-money valuation

   2. post-money valuation

   3. an amount raised

so only transactions that met both criteria were included.

2. To keep things simple, let’s say for the purposes of this post that a round is an expandable row on the Deal table of a startup’s PitchBook profile.