Authors: David Harris, Tai Sunnanon, Ryan Chen and Yan Wollman
Intro
Scout Ventures and AIN Ventures have combined to conduct a joint study of Department of Defense (DoD) budget projections to determine which space missions and technologies the government will invest in over the next 5-10 years. The U.S. Government constitutes one of the largest infusions of capital into space technology in the world, and within the government, the DoD is one of the largest spenders on space alongside NASA and the U.S. Intelligence Community. We believe the magnitude of DoD space spending will continue for at least the next 10 years, and likely far beyond that. An understanding of where this spending is going can be helpful to investors in early-stage space technology startups.
This paper will focus on the future of U.S. space technology spending as it relates to the DoD. With Congress consistently allocating funds towards technology innovation, the U.S. government is reaffirming its commitment to ensuring the U.S. remains the technology world leader. Mid-2021, the U.S. Senate approved the $250B United States Innovation and Competition Act (USICA), of which greater than $20B is designated to go toward space research and exploration (the money is designated to be spent over 5 years). This spending reinforces our belief that the U.S. government will remain a viable source of non-dilutive grant funding as well as revenue for private sector space technology endeavors.
The table below provides a high-level summary of projected spending on notable space technologies by the U.S. government in 2026 (as venture capital investors we are forward looking). The projected spending on these technologies alone by the USAF and USSF are comparable to NASA’s entire budget request for 2026.
Our methodology
Initially begin by analyzing current budget trends from the Space Force, Air Force, NASA, and other government entities
Analyze areas of government space technology focus over the next 10 years
Interview Space and Intelligence Community acquisition leaders to get a first-hand account of intended spend on space technology
Mid-level managers such as Senior Material Leaders and Material Leaders were a high focus due to their ownership of the overall program budgets and determining long term strategic initiatives. At these levels the “pen is put to paper” and funding is actually deployed to provide the desired capability.
Several higher level military and intel community leaders were consulted as well in the study to determine overall trends.
Our key findings are below:
Key Findings
Proliferation of Low Earth Orbit (LEO)
Small Sats
For many years, the concept of using hundreds of small satellites or “Small Sats'' to conduct military and defense operations was only a pipe dream. The idea was mainly dismissed due to cost concerns, integration issues and power constraints required to operate and maintain capabilities in Low-Earth Orbit (LEO). Through technological development, this pipe dream has become a reality. It is now possible to create a network of persistent Small Sats with low latency in LEO. Several well known companies such as SpaceX, Amazon, and Samsung are making the leap to create networks of thousands of Small Sats. On the public sector side, the Biden administration’s defense budget proposal for fiscal year 2022 seeks more than $1.2 billion, an increase over the previous year, for military space systems in LEO. On a more granular level, nearly $900 million of that investment is for the Space Development Agency’s communications network in LEO known as the Transport Layer. The Missile Defense Agency is seeking about $300 million for space sensors, and the Defense Advanced Research Projects Agency is requesting $42 million to deploy experimental satellites in LEO under the Blackjack program, which will provide the DoD with highly connected, resilient and persistent coverage globally. Our research indicates that a great deal of DoD spend will go toward building out Small Sat infrastructure over the coming years.
Optical/laser Crosslink technology
Optical/laser crosslink technology will benefit from the proliferation of Small Sats. Satellite crosslink technology (“crosslinking”) is the concept of satellites within a constellation communicating with each other by either optical or laser means. Crosslinking reduces latency as well as the dependency on relay satellites and ground stations. The use of crosslinks is critical for remote users of the satellite service looking to be able to connect while far from ground stations. The Space Defense Agency’s National Defense Space Architecture (NDSA) will leverage hundreds of small satellites just via the Blackjack Program, at almost $14M a copy. A portion of this bill will undoubtedly go towards implementing and upgrading crosslinking capabilities.
Launch As A Service
Through partnerships with SpaceX and other launch service provider companies, the Air Force and Space Force are now funding “Launch As A Service'' contracts. These contracts enable the government to share the cost of launching assets into space with the private sector. Task orders for launch service support and launch service contracts will be issued to United Launch Alliance for $337 million and SpaceX for $316 million to meet fiscal year 2022 launch dates. This funding will increase over the next decade due to increasing launch demands by the DoD.
Solar Energy Conversion
Solar energy experiments (Space Solar Power Incremental Demonstrations and Research, or SSPIDR) enables the proliferation of power on demand through the beaming of power from space down to a ground station for the continuous operation of tech and vehicles. It is a demonstration, on a very small scale, for converting solar energy directly into radio-frequency energy. An example is the beaming of energy to a forward operating base on the ground, which mitigates the dangers surrounding resupplying a base’s energy needs.
There are no insurmountable technical barriers to actually making this technology work. Solar cells are as mature as they need to be. In the near-term, the Space Force will put a 2-square-meter panel up in low Earth orbit and then begin to actually beam a small amount of power to the ground in a technological demonstration. In the long-term, the Space Force seeks to mature its ability to beam power so that the technology can be used on-demand.
Robotics
Advancements in sensors, communication systems, and computation are increasing the capabilities of satellite payloads while radically reducing their size, weight, and power. Robotic-based assembly line production of small, modular satellites that contain these advanced sensors is radically driving down the cost of satellites by 50%. The low-cost, yet advanced technological capabilities that robotics brings about, combined with advancements in artificial intelligence, will enable the distribution of capabilities across mega-constellations of small satellites. This distribution of capability brings resiliency and redundancy that is currently unavailable.
Robots will be essential in the on-orbit assembly, repair and repurposing of these satellite constellations. Robots are also critical in the construction, movement, maintenance, and replacement of current and future complex structures in space, and the DoD seeks to have this ability so that it can support and defend the build-out of infrastructures in space.
Comparing DoD Space Expenditures to Private Space Investments
The DoD has the ability to spend a great deal more money in order to maintain and even expand the U.S. technological lead in space. This can be understood by analyzing overall DoD spend on private sector companies and contrasting that with VC spend on space technology. The thought is that without increasing its private-sector spend, the DoD could potentially shift a small percentage of its current spend into Space and doing so will significantly impact the Space Technology market.
In FY 2020 the DoD allocated $292B to 100 companies, with 25 of those companies securing 81% of those funds ($235.08B). Notably, these companies include: Lockheed Martin, Rayon Technologies, General Dynamics, Northrop Grumman, Boeing Company, Analytic Services, Huntington Ingalls Industries, L3Harris Technologies, General Electric Company, Leidos Holdings, Oshkosh, Science Applications, Humana, BAE Systems, Centene, ADS Tactical, Booz Allen Hamilton Holding, General Atomic Technologies, AmerisourceBergen, Fisher Sand & Gravel Co, Bechtel, Aecom, and Textron. Many of these past recipients of DoD funding and contracts already have involvement in developing Space Technology and their institutional knowledge will likely enable them to secure future funding and revenue involving the DoD and Space.
Similarly, on the private sector side in 2020, VC firms allocated $7.6B for space start-ups, with 9 companies accounting for 80% of the start-up space investment (or $6.08B). Notably, these companies include: SpaceX, OneWeb, Blue Origin, Relativity, Virgin Galactic, CG Satellite, Landspace, iSpace, and Kymeta. A small shift in funding from the DoD ($292B) towards space of only 2%-3% from its current levels could significantly impact the Space Technology sector.
Of note, private sector investment is mainly concentrated in LEO constellations (SpaceX, OneWeb, Kuiper, Telesat, China Guo Wang), smallsat launches, private human spaceflight (Virgin Galactic, Blue Origin, Inspiration 4, Ax-1, Space Adventures), on-orbit servicing, assembly, and manufacturing, exploration (iSpace, Astrobotic, Blue Origin, and SpaceX), and national security (Virgin Orbit and Rocket Lab).
Conclusion
This paper focused on future DoD Space technology spending. Our research leads us to believe that there are four main themes regarding the types of technology that will be focused on in the next 5 to 10 years: Proliferation of LEOs, Solar Energy Conversion, Launch as a Service, and Robotics. While this list is not all-encompassing, it is clear that public and private partnerships will need to continue in order for the DoD and wider U.S. Government to maintain global leadership in space.
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