Space VC’s Bold Approach: Investing at Day Zero in Frontier Tech

Insider Brief:

• Space VC has reportedly closed a $20 million Fund II, focusing on early-stage investments in frontier tech.
• The fund operates on ultra-high conviction, targeting only 15-16 companies with check sizes between $500,000 and $1 million.
• Success stories from Space VC’s portfolio, such as True Anomaly and Castelion, support Lacoste’s strategy.

Venture capital is shifting, and Space VC is working to be at the forefront of this change. The Austin-based micro-fund, led by Jonathan Lacoste, has reportedly closed a $20 million Fund II, focusing on early-stage investments in frontier tech. Lacoste believes there is still significant opportunity for specialized funds to make an impact, despite the increasing involvement of larger multi-stage firms.

Space VC invests at the earliest stages, often when founders are just starting their companies. Lacoste emphasizes the importance of going in “at day zero” to make a substantial impact. This approach contrasts with waiting to evaluate seed rounds later, which Lacoste argues is likely to fail.

The fund operates on ultra-high conviction, targeting only 15-16 companies with check sizes between $500,000 and $1 million. This strategy, while contrarian to the typical VC model governed by the power law principle, aligns with Space VC’s focus on deeply technical fields and frontier tech. Lacoste acknowledges that sometimes larger firms outbid them, but he believes entrepreneurs have different paths to choose from, including raising smaller initial rounds to avoid early dilution.

Success stories from Space VC’s portfolio, such as True Anomaly and Castelion, support Lacoste’s strategy. Both companies raised small initial rounds and later secured larger rounds with significant firms. Space VC wrote the first checks for these companies, as well as for Array Labs and Space Forge.

Not everyone is convinced this approach will succeed. Jai Malik, former GP of Countdown Capital, decided to return his second fund’s remaining capital to LPs, doubting the potential returns for smaller firms. Lacoste, however, remains confident, providing value beyond capital through customer and capital introductions, and a network of founders. He believes specialist firms can compete effectively at the pre-seed stage by being a sounding board and offering industry connections.

Lacoste’s journey to space and defense investing is unconventional. After founding a successful enterprise software company, he sought more impact in his career, leading him to frontier tech. Raising Fund I in 2021 was challenging, but Fund II’s success shows Lacoste has earned his place in the hard tech ecosystem. With investments in 15 companies and partnerships with key industry players, Lacoste no longer feels like an outsider.