Bootstrapping our Defense
Is VC always the right fit for A&D Startups?
Most of my writing has focused towards companies that are venture-backed, and I’ve realized that I’ve done a disservice by neglecting other companies.
I had a fantastic conversation last night with Lee Priest, the Managing Partner of Investment Bank, Southwind Capital in part about the importance of small, non-backed companies to the broader Aerospace & Defense ecosystem. I’ve also gotten questions over the past few months from founders asking: "Is venture capital the right funding avenue for my aerospace and defense startup?" It's an important question, and today, I'd like to address it directly.
Venture capital can be a powerful catalyst for growth, providing not only capital but also invaluable mentorship and network connections. However, it's crucial to understand that venture capital isn't a one-size-fits-all solution for every founder or company. In the aerospace and defense industry, in particular, there are unique considerations that may lead you to explore alternative funding sources.
Here are some factors to consider when evaluating if venture capital is the right fit for your aerospace and defense startup:
1. Long Development Cycles: Aerospace and defense projects often have extended development timelines due to rigorous testing, regulatory approvals, and complex engineering challenges. Venture capitalists typically seek rapid growth and quick returns, which may not align with these longer timelines.
2. High Capital Intensity: Building cutting-edge aerospace and defense technologies can be capital-intensive. While venture capital can provide a substantial initial boost, it may not be sufficient to cover all your long-term financial needs. Consider whether you'll need additional sources of funding to sustain your operations.
3. Strategic Partnerships: Sometimes, strategic partnerships with established aerospace and defense corporations can be more valuable than traditional venture capital. These partnerships can provide access to industry expertise, distribution channels, and customer relationships that are vital in this sector.
4. Control and Ownership: Venture capital often involves giving up a portion of your company's ownership and control. If maintaining a high level of control over your vision and decision-making is a priority, exploring alternative funding options like bootstrapping or government grants may be worth considering.
5. National Security and Regulations: The aerospace and defense sector is highly regulated, and your business activities may be subject to national security concerns. Venture capital investors may not always align with these regulations, so ensure that your investors respect and adhere to the necessary compliance measures.
6. Market Viability: Before pursuing venture capital, assess the market potential of your aerospace or defense innovation. Will it generate substantial returns for investors within their expected timeframes? If not, alternative financing routes may be more suitable and remember that long-term profits are still possible for your company without involving a venture investor.
In conclusion, while venture capital can provide substantial benefits for many startups, it's essential to recognize that it's not always the right fit for aerospace and defense companies. Each venture is unique, and the decision to pursue venture capital or explore alternative funding options should align with your company's goals, needs, and industry dynamics. Here’s a great example of a company that is bootstrapping in this sector but still making a splash: Space DOTS founder and CEO, Bianca Cefalo, joined Rebecca Szkutak and Dominic-Madori Davis on TechCrunch’s Found podcast this week to discuss why she chose not to pursue venture backing and some of the results of that decision (as an aside, I love that A&D is cool again and it was fun listening to Becca and Dom geek out a bit after the interview on the sector and it was great to hear their coworkers Alex Wilhelm and Tim De Chant geek out on it on the Equity podcast too).
Remember that success in the aerospace and defense sector often depends on a blend of strategic funding sources, partnerships, and a clear understanding of your long-term vision. If you're unsure about the best path forward, seeking guidance from industry experts and mentors can help you make an informed decision.
As always, please feel free to reach out if you have specific questions or require further guidance on your funding journey. And of course, even when things seem daunting,
Keep building!
Andrew