A new Israeli venture capital fund called Type5 is in the process of raising $110 million to invest in space-technology startups, a sector that VC investors in Israel have generally avoided as being too risky.
As a result, space technology is relatively undeveloped in Israel. Lior Herman, a founding partner of the fund, is determined to end that. “Israel is already known as Startup Nation, but we need to become Space Nation,” Herman said. “Space is a new industrial-economic era, whose impact Israel cannot ignore if it is to remain innovative.”
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Herman says Type5 plans first to establish a $35-million microfund, completing it within a few months. In the next stage, $75 million would be raised for investing in startups that have advanced beyond the seed stage, that is, they have had at least one funding round and have a product ready to enter the market. Type5 will invest between $5 million and $30 million in each company.
Besides Herman,whose background is in cloud computing, cybersecurity and information technology, Type5’s partners include Yaron Sagi, a high-tech consultant, and attorney Udi Danhirsh. Burt Ross, who has been an investment manager for various family offices, will serve as vice president for investments. Einat Berkovitch, former CEO of the Morris Kahn Foundation and former board member of SpaceIL, the Israeli moonshot project, has come on board as vice president for operations. Another, unnamed Israeli with a background in security and aviation, will advise Type5 on investments.
The name of the fund comes from the Kardashev scale, which measures a civilization’s level of technological development based on its energy consumption. A Type 5, or multi-universal civilization – the highest on the scale – can control energy at the scale of multiple universes.
Historically, space technology in Israel and around the world has been the province of government agencies and large defense and aerospace companies. That has changed dramatically over the past decade, with the rise of the civilian space market and entry into the field of startups and small companies. The declining cost of space launches has allowed private companies, such as Elon Musk’s SpaceX and Jeff Bezos’ Blue Origin, to compete and has attracted additional players in the process.
That, in turn, has drawn venture capital funds to space-tech. In 2020, some $8.9 billion was spent on space infrastructure worldwide, such as satellites and launches. Another $16.7 billion was invested in companies exploiting space for applications including telecommunications, location and navigation, according to data compiled by Space Capital, a venture capital fund that also tracks the industry.
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In Israel, however, the private space industry is less well developed. Israel has considerable knowledge and operating experience in the area of satellites, mainly for military and intelligence use, but there has been little interest by investors in civilian space technology and there are very few space-tech startups. Type5 wants to change that. “Existing funds don’t know anything about analyzing space investment – to estimate a company’s value and to rank companies in the sector. We have researched the area for the past two years and have learned it,” Herman said.
“We are at the point where the infrastructure of the space economy is being built. The process of opening space has begun and, as a result, it is moving from defense to the private sector, and new technologies and new regulations are being introduced,” he added.
Herman compares the process to laying the foundations of the internet in the 1990s, which created the foundations for companies like Google and Facebook later. “We’re looking for companies developing space applications for use in the new infrastructure being built,” he says.
An example of that today, he says, is companies like SpaceX and Amazon, which are deploying networks of thousands of low-orbit communications satellites. That presents opportunities for new Israeli startups specializing in cybersecurity, satellite-traffic management and communications. “These are companies that could even become unicorns,” an industry term for startups with valuations in excess of $1 billion, Herman said.
The problem Israel faces is that today there aren’t a lot of startups in the field of “traditional’ space-tech, for instance, companies involved in satellite technology or deep space.
For that reason, Type5 will be looking for companies with so-called dual-use technologies, in this case meaning both space and terrestrial applications. This means that some of the technologies the fund will invest in may seem at first glance to be unrelated to space, such as medical equipment and remote medical care, technologies that will be required for manned missions deep into space.
Type5 will also invest in areas including data communications and encryption, robotics and automation, new propulsion technologies and quantum computing. Herman even left open the possibility of investing in traditional space-tech companies.
“If we see a company that, for instance, is developing low-cost nanosatellites with swarm technology that enables them to work as a group, ” he said.
In addition to establishing the fund itself, the partners also plan to form an industry community called SpaceTech Nation to help promote the sector in Israel via meet-ups, conferences, dedicated communities and events.