Investing in Space: How corporate VC is a double-edged sword

Investing in Space: How corporate VC is a double-edged sword

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CNBC's Investing in Space newsletter offers a view into the business of space exploration and privatization, delivered straight to your inbox. CNBC's Michael Sheetz reports and curates the latest news, investor updates and exclusive interviews on the most important companies reaching new heights. Sign up to receive future editions.

Airbus Ventures is one of the most prolific investors in the space sector. And, at first glance, it sounds like any other corporate venture capital firm, nestled under Airbus, acting on behalf of the larger entity – and potentially unfriendly to disruptive startups. But it's not.

Airbus Ventures maintains an air gap between itself and its eponymous corporation, according to Lewis Pinault, space-focused partner at the firm. The VC operates as a self-standing fund: Airbus is a limited partner but AV has other external LPs as well, with an independent investment committee.

This was very much by design, Pinault told me.

We knew that for us to be able to work on a trusted basis with top tier VCs in Silicon Valley … and to have insight to their startup companies, often typically still in stealth mode when they're the most interesting .. that we would need to be co-investors on the same sort of trusted basis within the startup company, Pinault said.

It's a telling dynamic — attempting to straddle the line between scale and agility, reputation and newness — and is important context amid a deal-making shift in the space sector.

A few weeks ago I polled folks on the state of M&A in the space industry, and the consensus was unanimous that deal activity is heating up. While the latest data indicates the sector is stabilizing in terms of investment, Pinault noted that there is still pressure on valuations. That can be a risk to startups that took money from corporate venture capital firms, where a lack of options can quickly corner a company into an exit.

It can really narrow down the options. Maybe that's part of the risk, but maybe for some it might be part of a fallback-opportunity thinking, Pinault said.

According to PitchBook, as many as 100 space companies have taken investment from CVCs, including from the venture arms of Lockheed Martin, Toyota, Raytheon, Honeywell and Boeing.

The risk and distrust of CVCs is not a new topic. There's fear that a corporation would use its venture arm to gain competitive intelligence, take a look under the hood, stifle young disruptors, or simply hunt to acquire speculative tech. That's a perception Pinault fights.

Many portfolio companies sometimes in the beginning are asking the same kind of questions: 'Oh, aren't you a CVC? You're not a department of Airbus, and you're not after acquisition?' Pinault says. But there are no conditions [with AV]. There's no hooks, there's no promises about future M&A, there's no first right of notification or right of refusal.

We might make decisions that [Airbus] finds occasionally disruptive, Pinault said, adding: In truth, this has happened – we've shaken the trees a few times.

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