Using your Mothership as a Secret Weapon

Using your Mothership as a Secret Weapon

May 9, 2024

Interviewed by Nicolas Sauvage on July 23rd, 2020

It is no surprise that NASA is pushing humanity’s boundless curiosity by pursuing exploration beyond Earth. But how does NASA achieve the impossible? Jenn Gustetic, director of Early Stage Innovations and Partnerships at NASA, outlined for Corporate Venturing Insider host Nicolas Sauvage how the momentum of being a CVC behind a powerhouse mothership propels humans toward the stars. Aside from her director role, Jenn also works as the program executive in the Small Business Innovation Research (SBIR/STTR) and strives to invest in startups that have compelling technological solutions that will help NASA reach its end goals.

SBIR/STTR Program Innovation and Impact

SBIR, an R&D program, is tasked with furthering research and technology development to build capabilities for NASA, the aerospace industry, and the broader United States. NASA partners with small businesses, which it considers firms with less than 500 employees. However, the majority of the investments made are for much smaller-sized companies, those employing less than 25. The program invests in firms in all 50 states and Puerto Rico, with an annual capital deployment of around $200 million.

Through STTR, NASA encourages university partnerships to spin out innovations from the lab into the marketplace through these small business partnerships. NASA invests in everything from human exploration to space technology development, and a number of aeronautics-related technologies. The program invests annually in various companies, and in the summer of 2020, NASA announced its 2020 phase one selections, where it invested $51 million in over 300 companies through over 400 investments. By partnering with small businesses and entrepreneurs, the program drives technology transfer from labs to market, stimulating job growth and economic development across the United States.

“For every dollar invested by SBIR over $2, we’re ultimately investing in the US economy over 10 years; that investment sees a 19-to-1 return in the economy,” says Jenn.

The SBIR program funds riskier technologies that other deep tech investors might not be willing to invest in. Moreover, when a company receives an SBIR contract, they get access to other advantages such as association with the NASA brand, which can be hugely valuable in and of itself to show that NASA validated and gave credibility to their idea. It isn’t just a financial investment but a strategic investment as well. NASA believes these innovations will catapult it to achieving its end goals faster. To do this requires not just financial support but providing additional support tools that are helpful to set up the entrepreneur for success. Another major advantage attached to this program is that it provides entrepreneurs with the ability to win government contracts without bidding. Because they are constructed as contracts, future investors will be able to see this as revenue, providing even more value to the entrepreneur and their startup. But NASA did not stop there. Seeing a huge opportunity within the educational ecosystem, the Small Business Technology Transfer Program was launched.

“The beauty of the STTR program is that it requires collaboration between a university and a small business in the co-development and then commercialization of a technology and it is a devoted funding source,” says Jenn. “They can create wonderful opportunities to spin out innovative technologies in the lab to the market.”

This, of course, ties directly to creating value for society. Investors like Jenn are working hard to bridge the gap between startups developing innovative technology and NASA, which has the funding to support them. This is just one of the reasons why a CVC can be so beneficial for portfolio companies that fit a mothership’s aims. They are pushing to make entrepreneurs’ dreams come true while providing them with resources not just from the investor side but from the entire NASA company itself.

The Benefits of a Non-Dilutive Program

When a company seeks external funding, such as through venture capital or government programs like SBIR/STTR, it often needs to exchange equity or ownership shares in the company for the funding received. This distribution can dilute founders’ and early investors’ stakes. In other words, their ownership percentage in the company becomes smaller as new investors or funding sources come in.

SBIR and STTR are non-dilutive; they do not trade ownership shares or equity for funding. Instead, they offer grants or contracts to support research and development projects, which is one of the key benefits of these programs.

“If a government agency is making the award through a contract, they’re signaling that they are likely a customer of that technology,” says Jenn. “They’re almost trying to help that company through baby steps and figure out how to work with the government as a customer.”

Companies that receive non-dilutive funding can maintain their existing business operations and growth plans without external interference. They can focus on developing their technology and bringing it to market without concerns about pleasing investors. By receiving non-dilutive funding through SBIR/STTR programs, companies can strengthen their position and credibility, making them more attractive to other sources of funding, such as venture capital or angel investors, if they choose to pursue such options in the future. By avoiding equity dilution and focusing on technology development, companies can potentially create more long-term value. This value can be captured by the founders and shareholders when the company achieves milestones or enters the market successfully.

With the U.S. government being one of the largest purchasers of goods and services in the world, it maintains a consistent demand for a wide range of products and services, providing startups with a stable and potentially substantial customer base. Government contracts often come with longer contract durations compared to private sector contracts. This stability allows startups to plan and allocate resources more effectively, promoting sustainable growth. Collaborating with government agencies allows startups to tap into the deep expertise of government personnel and researchers, which can contribute to product development, refine technology, and provide valuable insights.