Starburst Ventures: Start-up investment trends and how to identify a winner
Benjamin Zeitoun, investing partner at Starburst Ventures, a dedicated pre-seed and seed fund for aerospace start-ups, talks to FINN editor Hazel King about how he decides on which start-ups to back
Who is Starburst and what do you do?
We started in 2015 and created the first accelerator for start-ups in aviation, space and defence. After moving to California – which is where a lot of the newer aerospace, space and defence start-ups were popping up – and building a solid track record of operating in this space, we launched our first fund, Starburst Ventures. A few of our early investments are in businesses building spacecrafts, imaging or fuel technologies as well as robotics. We have a portfolio that is 50% software companies targeting the hard tech demographic we’re interested in.
What types of projects or developments have you seen through the accelerator?
Most of the companies we work with have a dual position of being B2B but also B2G – a lot of their early adopters are within government. A lot of the start-ups in aerospace or defence have relatively high RD&E and marginal costs which requires so much capital that generally they need to have federal/state backing throughout the early phases of the company.
We like to see companies that target crucial pain points in the commercial world, but that can also touch big national priorities, in the Department of Defence, with NASA or the Department of Energy, for example. We have seen companies like Ampaire, who is on top of their business, the testbed for electric aviation technologies for the US DoE, and ZeroAvia in the UK that have been able to get a lot of support in developing the early stages of the technology and the proof of concept for hydrogen powered flight.
What are the main trends and challenges that start-ups should be addressing?
The trends haven’t really changed much in the past few years – they have just adapted to the reality of the world. The trends regarding supply chain have got worse after Covid – and exacerbated tensions may be fertile ground for tech solutions; the trends in electrification of flights have matured in terms of our understanding of what it takes to develop that.
We see a lot of interest in the MRO sector, as aircraft fleets are aging so we’re seeing healthy margins coming back to some of those providers in the MRO market, which might also drive start-up creation in the space. Trends act as tailwinds for new ventures and it is important for founders to understand how they can play in their favour.
When you’re looking to invest a start-up, what are the most important elements?
We are usually the first, or sometimes second, cheque in the company and so it means there isn’t much of a company to invest it. It is usually just a person, two- or three-people team with an amazing background, an amazing brain, who demonstrate grit and tenacity, that have the potential to be historical actors in whatever their field is.
We don’t tend to invest in technologies themselves – for a company to scale faster, it is better that the technology maturity is higher. So generally, we prefer to invest in a company that is designing on a stack of technologies that are more mature. For instance, if you were investing in an electric aviation company, you know that the development timeline is going to be much shorter if they’re using things that are, or are soon to be, off the shelf and certified than if they’re counting on a new generation of batteries or a lot of new technologies that haven’t flown yet.
What we’re really looking for is a team that has a differentiated view on value creation for customers (government and private sector). Do we think they’re going to completely own the market for this value add, and then what are the market, execution and technology risks, and do we want to take them? Generally, in aviation, space and defence, you do take some tech risk, and we have, but we prefer it to be as small as possible.
What do you think you’ll be investing in in the future?
In aviation, I think one of the most important things is going to be electrification on the regional side and I am excited to see the redesign of the regional routes thanks to this technology. If a country is going to push for the electrification of regional routes, it means we need to have innovation on the ground on how to make dynamic route planning and in the skies with more electrified airframes. In the long term, we might see aircraft powered by the ZeroAvia technology, but it is too early to say. These new regional economies of course may capture the economic potential offered by unmanned platforms as well.
In defence systems and generally in the government space, barriers are coming down around acquisitions, and I think we’ll see the rise of some new primes as well as dozens if not hundreds of smaller businesses that are addressing government problems in a more modern way through the use of software and open architectures.
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