Interview with Dan Berkenstock, Founding CEO of Skybox Imaging
The first venture-backed space startup to have a major exit event
Today for SpaceDotBiz I'm sharing an interview I'm incredibly excited about. I spoke with Dan Berkenstock, the founding CEO of Skybox Imaging. The company's story is key to the relationship between New Space and venture capital financing.
Skybox was founded in 2009 and became the first venture-backed startup in the space industry to have a major exit event when Google acquired Skybox in 2014 for $500M. The company was founded by four Stanford graduate students, three (including Dan) in the school's Aeronautics and Astronautics department and one in the Graduate School of Business.
I met Dan in 2019 when he was my professor. That year, he came back to Stanford to teach a course called How To Build An Aerospace Startup, alongside his Skybox co-founder John Fenwick, which I enrolled in when I was myself a grad student in the school's Aeronautics and Astronautics program.
This interview is so thorough and Dan was so generous with his time, that I've had to split it into two parts, the second of which I will send out as my next newsletter issue. In this first part, we talk about topics like what it was like raising venture capital for a space company in 2009, what they struggled with early on, how they validated Skybox's value proposition, his board deciding to hire a new CEO, and more.
Now let's jump into the interview...
How did the Skybox team come together and what was the company's mission?
The Skybox team originally came together in response to the Google Lunar XPRIZE announcement back in 2007. At the time, there were a few Stanford folks thinking about going after this prize, including groups doing hybrid propulsion, working on CubeSats, and studying control theory. Overall, there were four or five sets of people who had all independently been talking about this prize. Over pizza and beers, we all coalesced into a big, integrated project team. Stanford had just won the DARPA Grand Challenge as well, which was related to autonomous driving, so we thought an exciting next step could be putting a rover on the Moon. Unfortunately, the economy collapsed soon after the prize announcement and it became clear that doing an expensive industrial-grade mission out of Stanford was not a likely scenario. As a result, most of us scattered and went our separate ways.
I kept wondering whether we could take the approach to low-cost systems engineering that had been developed involving CubeSats at Stanford and turn it into a viable commercial mission. After canvassing this nascent industry, I eventually bumped into a guy who said that he wanted to use frequent satellite imagery for monitoring carbon offsets, specifically, trees that had been wrapped into carbon offsets in Southeast Asia. But, satellite imagery was way too expensive, way too hard to get, way too hard to work with, and way too infrequent for that to be a useful application. That conversation sparked the goal of good enough quality imagery for viable commercial information applications on a consistent and affordable basis.
That was fundamentally the mission of Skybox, to open up the world as a data set to companies, nonprofits, and governments in a way that just hadn't been practical before. Both from the imagery side, as well as in plumbing the imagery. To be able to convey this information in graphs, charts, and numbers in an Excel file, instead of just providing large, difficult to work with, proprietarily formatted satellite images.
What was it like raising venture funding for a space startup back in 2009?
It was rough. We talked to 60 firms before we got our first term sheet. There was real interest in what we were doing, but there were no existence proofs yet. It took finding a senior partner at a firm that was early in its fund cycle, had a lot of capital, had a big vision, and had a lot of appetite for technical risk. We didn't know in the beginning that that's what we needed to look for. Fortunately, we had some very good advisors who eventually introduced us to the tiny subset of people that are at the center of that overlapping Venn diagram. That's who ultimately ended up investing in us.
What were some of the things the company did well early on and some of the things you struggled with?
I think that far and away, the best thing that we did early on was in hiring. We had an extraordinary team of people at Skybox. That's largely because the first 10 to 15 hires were some of our best friends from Stanford and we were blessed to have come into Stanford with a brilliant, exceptional, very well-rounded group of people that were not just technically very sharp, but were also great people. They were people that had the ability to grow into the types of leadership positions that a startup needs along the way.
I think that we also did a really good job of canvassing the market and talking to many potential users who hadn’t considered satellite imagery an option in the past. Satellite imagery is a technology that has perennially been stuck within the confines of a small group of expert users with very deep pockets, primarily on the government side.
We were motivated to break through that log jam. We believed then, and I continue to believe now, that the best way to do that is to understand what types of problems these people were solving in their daily lives. For example, what were the applications they were using when they sat down and logged onto their computer at work? What were their decision-making processes about how to buy things, how to sell things, and where to move things? How to monitor things? When to fix things? Doing that allowed us to get to a point where we wanted to optimize our system to be able to see vehicles moving around the planet on a daily basis. We learned a lot from that process. For example, for us it really didn't make sense to have high-frequency imagery that was at too low of a resolution to see the things that change on a high-frequency basis. I think that in the last 10 or 15 years, all the applications and developments and challenges in the commercial space industry have validated the approach that we took and the decisions we made on the resolution, quality, and timeliness trade-offs while designing the system.
I think where we could have done a better job was communicating and getting buy-in from all of our investors on our strategic plan, what we were doing and why. That is one of the hardest things when you're a 28 or 29-year-old first-time founder and you're trying to take on a big, meaty, capital-intensive problem.
During the course of our Series A, we continued to dive deeper into understanding the nuts and bolts of what it would take to develop a spacecraft constellation and get them launched. During this process, it became clear it would be significantly more expensive and complicated than we had originally anticipated to bring the total capability to market. Part of the reason for that was naiveté on our part because we hadn't gone through and done the work yet to really understand the fine print.
Part of it though was also a difference in backgrounds from our investors. We should have added more buffer into our investor and board's expectations early on in the process. Our team primarily came from aerospace backgrounds, where we knew that there was a dramatic difference in any aerospace program between a back-of-the-envelope, conceptual design and a fully formulated program plan. I think we expected that our investors and board would see things the way we saw them. However, I think for them, it was a more jarring experience. They came primarily from the software industry and other areas that were not as capital intensive and not as subject to significant program ballooning, as you got into the meat of a project.
Do you think the awareness of what it takes to build a space company exists now in the venture community more so than it did in 2009?
Absolutely. I think that there's a bit of a quandary in the venture community in that you want to be willing to be first into a new market from a financial return point of view, however, it can be intimidating to be first into a market from an execution and risk point of view. That's especially true when it's a new type of technology and development process. It's tempting to pattern match from what you've seen in the past in other industries, but it can turn out to be very different.
I think today, 15 years later, there are a lot of existence proofs that just weren’t part of the equation when we started out. That development is based on the efforts of a number of different companies and on the financial success of a limited number of companies. For example, there is no question today that a young group of founders with moderate industry experience in the aerospace industry can, with the right amount of capital, attract a team, come up with a qualified technical plan, and drive the execution through to putting satellites in orbit or launching rockets from the ground.
At this point, that's in the rear-view mirror. I think that the concerns that existed more in 2009 or 2010 around the question of, "Would a group of folks with this level of experience be able to successfully execute a program? Would a group of folks with this level of experience and age be able to raise money for this type of program?" I think those questions have been answered. And I think that the financial industry, the venture community in particular, has a very different perspective on that today than they did back then.
I still see a great number of open questions surrounding the business viability, the potential market size, and trying to understand how consolidated versus how fragmented the user bases are for these products. However, I think the fundamental question of, "Can it be built on a venture scale investment with a dedicated, but relatively inexperienced team?" I think that's been put to pasture at this point.
It's interesting and encouraging to hear you say that a space startup can be built in a compatible way with the venture model because I think a perspective still exists about that being an open question.
I would say that ten billion, or so, dollars in investment, at least bought an answer to that question. However, I would say that it has not bought an answer to the question of whether or not these are scalable, reliable, and enduring business models.
In the early stages of Skybox, how did you go about validating the company's value proposition?
We talked to everyone we could conceive of using satellite imagery. We really searched far and wide. We talked to every reseller that we could find that sold satellite imagery in the current market. We talked to every government agency and government agency representative, both from the United States and around the world, that would talk to us. We sat in the offices of hedge fund managers in New York, oil traders in Texas, and people who sold imagery to farmers across the country. We set out to talk to a very large swath of people and tried our hardest to distill that down into a set of technical feedback that we could use to make informed decisions. We digested all of that information to design the spacecraft and the tools that went downstream of the images that we captured.
That's pretty thorough. Not easy for a bunch of grad students
No, it wasn't. It was a lot of fun though. We were busy. We racked up tons of frequent flyer miles and so many nights on friends' couches around the country.
What were some of the growing pains of being a first-time founder in the space industry?
Culturally, there's a lot that's very different in the aerospace industry than in the startup world. The aerospace industry is a place that's slow to change and where someone's value is often correlated to their time in the seat or how many years they've put in. It's an industry that tends to be hierarchical. It's an industry where you don't project certainty about your plans or your decisions because there is always uncertainty.
It can be a tough job to balance that with some of the things that can make you successful in the startup world, such as projecting significant confidence and selling a story that actually goes beyond the exact horizon of what you know today and putting your confidence in people based on perceived and demonstrated ability versus the length of their career. It's challenging to balance those two worlds.
About three years into founding Skybox, the company's board chose to bring in an outside executive to take over the CEO role and you stepped into the Chief Product Officer role. How do you now look back on that experience and are there any key learnings that stay with you?
Looking back based on the context as well as the state of understanding within both the venture community and the startup aerospace community at the time, I understand the board's reasons for wanting what they perceived as a professional CEO who could help catalyze the investment that would be required to continue the capital intensive business plan that we were on. I think that now with the benefit of hindsight and what we've seen across the industry, the concerns they had at the time were largely unfounded. That's a hindsight being 20/20 observation, not one that was clear at the time. There have been quite a lot of existence proofs at this point of people with the same age, experience, and ability that I had, who were able to carry these businesses much further.
At the time it was not a decision that I supported quite frankly. I wanted to carry the company through launch and early revenue. At some point, I expected to turn it over to someone else to lead, but I felt that I had, along with the other three co-founders, set the company on a good trajectory and that the business was coming together. The technology was coming together. The team was certainly coming together. I felt that there was a lot more that I had to offer.
At the time I also feared that making this step would limit our potential because, although there were more experienced people than me in both the satellite world and in the world of building new markets based on information applications, I did not at the time nor do I believe today, that there was anybody out there that was more experienced than me at merging the two of those together in a startup.
I believed that, by hiring a professional CEO, we would inevitably have to prioritize one of those things over the other. In addition, I also worried that, because of the capital-intensive nature and risk of the satellite side, we would probably end up prioritizing someone who knew and understood satellites, but who did not know and understand Silicon Valley growth information markets, or at least not specifically the applications of satellite imagery. I was concerned that in doing so, we would be more likely to over-invest in technical risk reduction in manual systems to support the satellites. Therefore, our overall risk posture would be too conservative and more geared towards satellites versus balancing that risk reduction with making the investments that we would need beyond the launch of the first satellites, and providing of initial imagery.
Ultimately, that's essentially what happened. On balance, the things that I was concerned about did come to pass. It's a counterfactual today, but I think the things that the board was more concerned about were less likely to materialize, based on events as they have occurred throughout the rest of the industry.
At the time, I didn't have any money in the bank to fall back on. I had invested everything I had in Skybox. I had invested my time, my career, my friendships, and my reputation. I felt a strong responsibility to that group of friends that had been willing to leave jobs at Lockheed Martin or at NASA centers. They left places where they had a 401(k), the opportunity to work on incredible projects, and a very clear arc for their own careers laid out in front of them.
These folks had taken a big risk, left those places, came to work with us, and bet on the Skybox vision. Based on all those things, I didn't really feel like I could just say, "No, if you hire a CEO, good luck but I'm leaving." I didn't feel like I was in a position to be able to say that, based on my own personal apprehensions, my own lack of resources to fall back on, and the responsibility I felt to the team.
I think that now I would handle that very differently, having gone through the whole iteration and being in a different place in life. I think I would be much more comfortable saying, "No, I'm sorry, that's not something we're gonna do." Or, "That's not something I'm going to entertain."
While I think that situation is less common today in the space industry, it is still a very real concern for any CEO or for any first-time founder. I think it's important to have a conversation with yourself early in the process and have a plan for what you're going to say, if and when that comes up. I also think that changing CEOs is a very messy process that should generally be avoided, especially in a company that's going at 110 miles an hour in a very complex development project.
In retrospect, there were certainly ways that I could've helped myself and there are ways that the people around me could've helped me better to navigate the interpersonal and team dynamics and issues that came after that transition.
I think it's also a good lesson for folks that might go through it themselves. If you're going to choose to stay, you have to look at part of your job as figuring out the way to make it work best. You have to work through it. Not just around it. I don't think that the working “through it” is something that I did as well as I could have, or that we as an organization, did as well as we could have in hindsight.
That wraps up part one of this two-part interview, part two is coming out as my next newsletter issue! In part two we talk about Skybox getting acquired by Google, what Dan thinks about the relationship between venture capital and space going forward, and so much more. If you aren't yet subscribed to SpaceDotBiz, make sure you do so below so that you can get part two directly to your inbox!
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