By Nick Warfield, Editorial Lead, SatNews
Ron Epstein opened Silicon Valley Space Week on Oct. 27 with a chart. The Bank of America Securities managing director, who covers about 45 aerospace and defense companies, put Planet’s government work at 82%, against the 32% the company said it wanted when it went public through a SPAC. “Everybody’s doing national security work today,” he told the room.
The public record backs him up. Defense and intelligence made up about 70% of Planet’s revenue in the quarter it reported on Sept. 3, and the company said that business grew more than 90% year on year as total revenue rose 58% to $116 million. Last December, the Space Development Agency awarded Rocket Lab an $816 million prime contract to build 18 satellites for the Tracking Layer Tranche 3 program. “Who would have guessed that Rocket Lab,” Epstein asked, “would have won a nearly billion dollar contract from the Space Development Agency for the tracking layer?”
The capital markets have priced that shift in. Later that morning, on an investor panel, Mike Collett, managing partner of Promus Ventures, said defense had lifted both earnings and multiples across the sector. “It just is unfathomable to think that you would value a company with so much government revenue at a multiple that we’re seeing today in the market across the board,” he said. KippsDeSanto’s Karl Schmidt told the same panel that munitions deals once priced at six to eight times EBITDA, and that his firm had just sold one for 50 times.
Defense Lifts Space · By the Numbers
70%
Approximate share of Planet’s revenue from defense and intelligence in the quarter reported Sept. 3
90%+
Year-on-year growth in Planet’s defense and intelligence revenue
$816M
Rocket Lab’s SDA prime contract for 18 Tracking Layer Tranche 3 satellites
50x
EBITDA multiple on a munitions deal KippsDeSanto just sold, vs. six to eight times historically
Over the next two days, the people who build for the Pentagon and the people who buy for it described how that revenue actually arrives. The clearest answer came from SDA’s director.
The bar for a real order is clear
The government’s own standard, as SDA Director GP Sandhoo laid it out, is simple. Sandhoo, who is also the Space Force’s portfolio acquisition executive for missile warning and tracking, was asked in his Oct. 28 keynote what a good industry demonstration looks like. His answer was a deliberately practical bar: a capability shown on orbit with one or two satellites, at what he called “a c-plus, b-minus” level, is enough for SDA “to go out and buy a plane or a tranche of those.” It is a standard built for speed, and the agency is buying against it. All three Tranche 1 transport vendors now have at least one plane up, he said.
That is a production buyer’s standard, and it gives startups something concrete to aim at. Sandhoo’s advice to them followed from it. The companies that succeed, he said, “build it, they show it and then they sell it.” SDA keeps a standing broad agency announcement open, and he told companies that a white paper is all it takes to get an idea in front of the right people. (Our September Speaker Focus has more on his background.)
The difficulty lies with the rest of the market, below that bar. Most of the companies in the room are still trying to reach the one or two satellites on orbit that would let them be judged by it.
Below the bar, the money looks like research
Northrop Grumman fellow Andy Kwas, moderating a MilSat panel on warfighter-ready systems on Oct. 28, put the problem to U.S. Space Command’s chief scientist, David Denhard, directly. Across the wider Department of War, Kwas said, most of the emphasis “is on the low TRL, the things that are, you know, TRL 2, 3, 4, not really ready for prime time in my mind.”
John Rood, chairman and CEO of Momentus and a former Defense Department official, described what that funding looks like from a small company. Momentus won the roughly $2 million SBIR behind its recent rendezvous mission, which used a NASA satellite as its target, through a maneuver competition run by AFRL and SpaceWERX. The award mattered as proof, Rood said, because it showed investors the company had competed and won. As revenue, SBIRs and similar awards are “insufficient to run even a small business on.”
The harder problem, in his telling, comes after the demo. “Typically a demo program is a one off,” he said. Ask a government program manager what follows a successful demonstration, and the answer is often a version of “I’m the demo guy, I’m in the S&T organization,” or a vague reference to a future roadmap with no funded link to it. In a commercial company, Rood said, money spent on a demonstration is tied to what comes next, “particularly when your jobs and the very existence of the company are on the line.”
He described the result for startups generally. “Every quarter is a survival quarter,” he said. “That’s the way tech companies develop until you’re very mature.”
The Space Force’s commercial office sees the same gap from the other side. Col. Timothy Trimailo, director of the Commercial Space Office at Space Systems Command, said on Oct. 28 that some companies in his pipeline “wanna skip a couple steps and they wanna get that really big program of record contract maybe before they’re actually ready for it,” then struggle to execute.
“Every quarter is a survival quarter. That’s the way tech companies develop until you’re very mature.” — John Rood, Momentus
Two clocks
Put those sessions next to each other and the mismatch is one of timing. Public and private investors are pricing space companies on the revenue of a defense contractor with a program of record. The companies themselves, outside a small group of tranche and prime-level vendors, are still funded the way the government funds experiments: small research awards, one-off demonstrations and a gap before anything resembling production.
Two Clocks
THE INVESTOR CLOCK
CAPITAL MARKETS
Priced like a defense prime.
Defense revenue has lifted earnings and multiples across the sector, and a munitions deal just sold at 50 times EBITDA.
Assumes a program of record.
THE BUYER’S CLOCK
PENTAGON
Funded like an experiment.
Below the production bar, the money is small research awards and one-off demos. SDA buys by the plane once one or two satellites prove the capability on orbit.
Production follows hardware on orbit.
Investors have started to notice. Jen Ross, founding partner of Breakwater Strategies, said on the Golden Dome panel on Oct. 29 that her clients’ technology is still on the program’s roadmap, but investors are cautious about the money. They have “a ton of dry powder to invest in defense tech,” she said, “but they are not necessarily counting Golden Dome funding as solid in the projected revenues for those companies.”
Rood’s own diagnosis was that “our system in government” is “really optimized for large contractors,” while “the engine for innovation is smaller businesses.” Sandhoo’s tranche model is the clearest bridge between the two, and a generous on-ramp for anyone with hardware to show: fly something that works, and SDA will buy it by the plane. Rocket Lab, which brought years of its own spacecraft flight heritage to the competition, shows the crossing can be made. The multiples now being paid across the sector assume many more companies will make the same crossing, and on the schedule investors are counting on.
The companies at the show said what would change that. Rood wants demonstrations with a funded next step attached. Denhard wants cost-benefit cases. Sandhoo has already published his test: hardware on orbit. Each of those is a step from experiment to production, and how many companies get through them, and how fast, will decide whether today’s valuations look early or right.
SatNews produces Silicon Valley Space Week.
Related SatNews coverage
- The Pentagon’s Message to Space Startups: Show Us Something That Works
- BofA’s Ron Epstein: “Everybody’s Doing National Security Work Today”
- “We Just Sold a Business for 50 Times”: Defense Multiples Lift Space
- Satellite Makers Say Stop-Start Funding Undercuts High-Rate Production
