Interview with Dan Berkenstock, Part Two

Last week I shared part one of an interview with Dan Berkenstock, the founding CEO of Skybox Imaging. Today's newsletter is part two of that interview. Skybox became the first venture-backed space startup to have a major exit event when it was acquired by Google for $500M in 2014. For those who haven't already read that newsletter, I highly recommend starting there first.

That newsletter covered some incredible topics, including 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 dig into part two!

Skybox ultimately was acquired by Google. How did that Google acquisition come to be? And what were some of the learnings from going through an acquisition like that?

Fairly early on in Skybox, I asked one of our investors how acquisitions happened, since I had no idea how it worked in the real world. They said, "Well, the acquirer is often a customer and not usually your biggest customer. You'll hit some major milestone and they will have a conversation with you that goes something like, 'We'd like to explore other ways we might be able to work together.'" At the time I thought it couldn’t be that simple, but I filed it away in my head.

A few years later, that's exactly what happened. Google was a customer, but they weren't our biggest customer. They were an important early customer and we started to have talks with them about ways that we might be able to work more closely. When SkySat-1 launched, I think we surprised ourselves, them, and all the other folks that were watching us with the quality of the imagery that was coming off of the satellite.

Our acquisition, any acquisition really but ours in particular, was just this somewhat magical sequence of events that all came together. We were in the right place at the right time, with the right capabilities, and the right team to help with a need that they saw. As with every other acquisition that I have now witnessed any of my friends or colleagues go through, these are all bumpy rides with a lot of negotiating, a lot of uncertainty, and a lot of anxiety about whether you're going to actually get it across the finish line. Thanks to the efforts of many, many people on both the Google and the Skybox side, it did get over the finish line.

Second only to actually launching a satellite that works for the first time, there's probably no better feeling in your professional life than walking into Google and starting your first day with 150 of your closest friends and colleagues. Everyone was wearing the Google beanie caps and getting our Google badges and computers. That was just an extraordinary experience.

Also, it allowed us to hit the reset button back to our early days, which was a large motivating factor for us in being acquired. We were suddenly in an organization that prized information and data and applications of that data more than just building satellite hardware. We were part of a group of people that had vast experience working with imagery, knowing how to store it, make it look better, and get the most bang for your buck in terms of how the imagery is presented. The expertise went even beyond that though, like in being able to orthorectify imagery so that shots from multiple days line up with each other, which is very important if you're trying to look at change over a period of time. They were also experts at using machine learning models at scale to extract information from imagery, which happens billions of times a day in tools like Google Photos. There was an unimaginably vast set of infrastructure that we could lean on once we were part of the Google team. Overall it was just a fantastic experience and one that, if I had to make the choice again, I would do every day of the week and twice on Sunday.

In addition to just being a great deal for the investors and our employees, I really believe in thinking realistically about the future valuations of companies based on earnings and honest financial metrics, not just based on enthusiasm. I had run the numbers. I had looked at what types of future valuations we were likely to honestly support based on comps to public markets, based on discounted cash flows, and based on the revenue ramp that we credibly expected to achieve.

The risks that were inherent to our path and the amount of money that we would have to raise to be able to hit those milestones, they were pretty daunting. It was daunting for us then, and I think it remains daunting today for the industry as a whole, which I think is a big part of the reason why there haven't been a whole lot of other significant acquisitions in this industry.

Well, it's funny you say that because I was going to ask why you think there haven't been any acquisitions like Skybox's since it took place back in 2014.

Well, I don't know how big the Swarm acquisition was [Swarm was acquired by SpaceX in 2021 for an undisclosed amount]. That is the one other acquisition that I would say seems to be a significant one. I think that a lot of it is because it has remained stubbornly difficult to assign a value to space businesses outside of limited government-dominated markets.

There's a lot of great technology that's been developed. I mean, a lot of just extraordinary technology that's been developed for launch and spacecraft, both for communications and for earth observation. It's mind-blowing to think about the degree of technology that's been developed in many cases by relatively junior folks in their career over the last 10 or 15 years. It parallels things that were developed by nation-states in the forties, fifties, and sixties. It is just extraordinary.

However, the growth in markets for the applications of the data that come off of these spacecraft have just been so much more stubborn to develop than any of us wanted to believe 15 years ago, and I think anybody still wants to believe today. The value chain for the data off of any type of observation or measurement spacecraft is just so complex. It requires so much more finagling and modification and tuning for each specific application than is ideal.

Often when you even do get to the end of that road, you finally have something that's useful for an end user that hasn't traditionally used satellite imagery and their response is "Let me use this for two years, and then I can tell you what the value is to me." It remains very difficult for them to be able to ascribe a specific value proposition for that data based on its quality, frequency, dependability, and its comparative value with other types of data that also drive daily business decisions.

I'm a big believer that in 50 years, this data will be ubiquitous. It will be used in all kinds of varied applications through all types of industries that we can scarcely imagine today. But the path for how we get from today to that endpoint is not a lot clearer to me now in 2022 than it was in 2012, even with all this time and money and investment. Most of these companies are still tracking towards deeper connections to government and larger proportions of their revenue stream coming from governments, versus a commercial user base that we would all like to exist.

What form does Skybox live on in today?

Today there are 21 spacecraft that we developed and are operated by Planet Labs [the SkySat satellites were later sold by Google to Planet Labs], which I believe makes it the largest high-resolution imaging constellation in existence. From what I see in the media, they're taking a lot of great pictures every day. There's been an incredible batch of pictures taken by SkySats in the last six months related to the Ukrainian conflict. It's wonderful to see the clarity and the quality of the data that's coming off of the SkySats and the impact that I believe they continue to make for the public.

When you see pictures on the CNN wall from satellites that you helped develop and they're helping to describe to the country how a major global crisis is unfolding, I find that pretty extraordinary. I think that that's a wonderful legacy of all the time, effort, blood, sweat, and tears that the Skybox team put into developing, manufacturing, and launching those satellites.

How are you involved in the space industry today?

I'm a formal or informal advisor to a number of early-stage space ventures. I'm also on the board of Astranis as an independent director.

What are your thoughts on the relationship between venture financing and the space industry going forward?

I think that we in the space industry have a responsibility in the types of projects that we pursue. Especially when venture financing is involved, we need to really be honest with ourselves about the commercial viability of these programs and the likelihood that they will be able to move beyond technology projects to true businesses. I think that the last 15 years have proven that the venture industry has been willing to put a significant amount of financing to work in space projects. I think that there's a real risk that some of these projects that have had so much capital put into them, still have an uncertain path to real commercial success. As a result, we run the risk of souring future investment. Just because you can raise a lot of money doesn't always mean you should.

A project that ends up not being commercially viable can be an enormous loss on somebody's balance sheet. One or two high-profile instances of that, I think could really cool the investment market for the next generation of people that come along.

I think there have been some really smart business models, like Swarm Space's for example, where you've got a company that can build a true commercial capability, with a small team and a relatively small amount of money, which has the potential to scale. I also think that efforts in the communication industry, in general, are very interesting because the value chain is so much less complicated than it is for Earth Observation. The bits get moved around and the customers are happy.

I think that there are some great examples where it makes a lot of sense to go for venture investment, in situations where you can disrupt an industry that has existed, or try and take advantage of a new disruptive technology that has the potential to turn into a real growth business. Ultimately though I think there's a fair amount of responsibility that's incumbent on entrepreneurs in the space industry to be honest with themselves about pursuing projects based on an actual fit for the venture industry and an expected return profile. That's in contrast to instead falling in love with the technology and just seeing how far you can take it based on the money you can raise.

What are you most excited about for the future of the space industry going forward?

First, I'm excited about operating networks of commercial sensors that will help us really understand our planet. You can't manage what you can't measure. We have an existential crisis in front of us to try and leave a world for our kids and grandkids that is as good as, if not better than, the world that we were given. I think the path to that does lead through measuring so that we can manage. Constellations of lower-cost satellites enabled by cutting-edge technologies can offer their services much faster through startups than they can through traditional space programs. I think that is a noble, valuable, and critical effort toward the future of humanity.

I also think that there are still so many places in the world where communications are difficult to come by or even nonexistent. There are so many people in the world whose lives could be lifted up by improved access to communications. I really hope that that's something that technology from space can help drive as well.

In addition, space for the last 50 or 60 years has inspired and catalyzed new generations of scientists and engineers that will help carry us all forward with their future discoveries. Being a part of a space startup that has a bold mission and great people is an exhilarating and extraordinarily fulfilling experience. I hope that's something that lots of people can have in their careers. I hope that these companies can help inspire the next generations of scientists and engineers. We're all gonna need them for all the things that are gonna come up in the future.

Looking back, is there anything you would've told your younger self in 2009, when you were founding Skybox?

I'd probably take more pictures and videos. People did actually tell me that. Folks who had been successful with their own startup companies came through and said, "Wow, this culture, this office, it feels awesome. Make sure you stop to enjoy it now. Record it, take pictures, take videos. It's not always gonna be like this. Things are going to change as you raise more money and the stakes get higher. You're at a unique moment in life, and there are gonna be a lot of other great moments in life, but this will be a unique one."

I would probably tell my younger self to slow down, smell the roses, and take in what's around me. Of course in the midst of continuing to push hard toward the next step on the ladder of making the whole thing work.

I also would've told myself that I was one of the luckiest people in the world for having the co-founders that I had and the early team of people that we had. There were four formal co-founders, but then the next 10 or 12 of us were co-founders too in a certain sense. We were so lucky to have that group of people together as a core. It got us through so many hard times and really was what punched us through to being successful in all the ways that we were successful.

That wraps up the second part of SpaceDotBiz's two-part interview with Dan Berkenstock, founding CEO of Skybox Imaging. Make sure to subscribe to SpaceDotBiz to receive more interviews and insights like these on startups and investing in the space industry.

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