Investing Billions - E271: The Future of VC: Space, Energy, Defense

Episode Date: December 29, 2025

How do you spot a frontier-tech company before it becomes obvious and why is being early so much harder than being right? In this episode, I talk with Jonathan Lacoste, Founder and General Partner of Space VC, about investing at the moment when ideas are still non-consensus. Jonathan explains the difference between deep tech and frontier tech, why founder migration is the strongest signal of emerging opportunity, and how pre-seed investors create alpha by backing contrarian founders before markets agree. We discuss how grit and mission outperform IQ, why concentration beats diversification in early-stage portfolios, and how patience compounds into an edge over time.

Before we start chatting today, you were saying that there has been a very eventful month for you. What are you currently working on and why has there been an increase in activity? Fundamentally, we're a pre-seed venture firm focused on frontier tech. We run a concentrated strategy, so that means we're only making a handful of new investments each year, four to five per year. So it's a very methodical pace of deployment. I think potentially based on some macro events and volatility earlier in the year, we saw fewer founders spinning out from the SpaceX's and Teslas of the world compared to normal in Q1 and Q2. And so that has led for a back-half heavy investment pace for us this year.

In October, shaping up to be one of the busier months that we've had on record. And do you see this essentially a positive correlation between good economic times and some of the most innovative frontier tech startups? We actually don't. Great exceptional companies are born out of bare and bull markets. And if I look back on our portfolio, you know, we've only been investing for the past four and a half years. So it's kind of constrained from a data standpoint into truly looking across different bull and bare markets. But if you recall, after the peaks of 2021, in early

2022, it was a bit of a zombie land in venture landscape in terms of deal flow and kind of the rapid decrease in deployment. And that's actually when we made one of our best performing investments from Fund One. And so I often think about it much more cyclically as great founders are always leaving to start companies, but sometimes the overall volume of people leaving when economic conditions are strong may actually be an inverse correlation with the potential courage it takes

to leave and start a business at that time. Some of the most famous companies, obviously, Microsoft, Apple, Airbnb, Uber, Slack, all these companies were started during recessions famously. Double-click on, you talk a lot about frontier tech versus what a lot of people define the space as deep tech. What's the difference between deep tech and frontier tech? It's a great question, and I think it's more important than ever before to answer because

venture for historically long period of time was investing in similar business models, often B2B, SaaS, enterprise, and now that we're spending a lot of time investing in hardware, it's important to define and characterize the differences in the types of businesses that are being invested in. And so I think it's important to note that deep tech relies on a scientific breakthrough. Oftentimes it is research or a lab-based innovation based in the hard sciences of chemistry, biology, or physics. And the deep in deep tech refers to the depth of the innovation or the breakthrough that is required in oftentimes the long lead times of research and iteration before breakthrough occurs. Fundamentally, deep tech startups are focused on

answering the question, is this scientifically possible? And they're very product oriented and focused. Fundure tech startups, conversely, are no longer answering the question of, does the science work, the risk has shifted from a science risk to more of an engineering execution and a market-based risk. And the frontier in frontier tech refers to the being on the near frontier of mass adoption or mass commercialization. And so what I think is really interesting is if you look throughout the history of technology, technology shifts from deep tech to frontier tech to simply being referred to as tech. And I think artificial intelligence AI might be the best recent example of this. From the 1950s, all the way over 40, 50 years, artificial intelligence

was confined to DARPA and university-sponsored programs, academia, research labs. And as advancements happened to some of the fundamental elements of that, whether that's natural language processing, neural networks, machine learning, it moved from deep tech to frontier tech, where Google and meta and other Mag 7 and technology companies now had the underlying building blocks available and we're trying to figure out the right commercialization strategy from a feature and application standpoint. And whether you now point to the GPT moment a few years ago or other examples, no one refers to AI now as a frontier tech startup largely. It is acknowledged as simply a tech company and a tech sector. And so I think autonomy is another great example of

this with Waymo and Robotaxy. Autonomy for many decades was considered more of a deep tech oriented problem as sensors and optics and onboard compute needed to be solved for, it has shifted into Frontier Tech and becoming more and more mainstream by the day. So I think the interplay of these technologies is important for founders to signal to VCs where on the maturation curve they are and what the priorities of the business are at the time of funding. Is it a single event when something goes from Deep Tech to Frontier Tech? In other words, it works. It's like that Matt Scientist, who mixes the chemistry and it works? Or is there a subtle change to when something

goes from a scientific risk to a non-scientific risk? These are subtle changes. Obviously, there are singular moments of breakthrough, but oftentimes these are what I would consider to be grades of de-risking and grades of a confidence interval over time. So you may have a simulation or something that is theoretically possible. And then you may have a lab scale or an experiment in small quantity or doses. And then you may have a slightly scaled up prototype, but is still fairly research graded. And then you may have more of the field prototype demo that is kind of the full demonstration. And so where the line ends between deep tech and frontier tech likely would be contested and argued both by venture and by

entrepreneurs. But I think it's important to understand that there is that dichotomy. And as you shift on the technology maturation curve, you're shifting away from purely a deep tech oriented company towards more of a frontier tech oriented one. And one of the things that your challenge to do is to invest into these hard tech startups at the point where they're going from non-consensus to consensus. And what makes that very difficult is because you're competing against other venture capitalists, other high IQ people that are trying to make the same distinction. What are some telltale signs that lead you to believe that something is about to go from

non-consensus to consensus. Ultimately, it's about following top talent and founders. When founders begin spending time in obscure corners of the ecosystem, oftentimes in parallel with researchers or early adopters from academia, government, or labs, as we mentioned before, and as questions begin to be answered about, is technology proven out and has that scientific risk we were mentioning before been closed? At that moment in time, when founders,

and talent migration begins to occur. That's often when you see early specialist capital forming and a shared vocabulary in an understanding of the opportunity and the problem sets in a particular field. That's when I believe there's a bit of a chasm that gets jumped in terms of early specialist capital coming in, partnering with these frontier tech founders early on. And that's when you see policy and geopolitical tailwinds oftentimes. You may see market maps begin to emerge and multi-stage capital pours in, LP, you know, saturation in these areas. as well. And that's all the spectrum across from non-consensus to consensus. But I think it's important to note for a second, why is it critical to not invest as an emerging manager

in a consensus market? Why is it important to invest in non-consensus before it becomes consensus? And ultimately, for me, a consensus market signals that there's a democratization of an insight that is widely accepted. And that price discovery itself has all but disappeared, where now it becomes more about it overcapitalization of a scarcity of a number of companies or of great ideas. And oftentimes I've witnessed that by the time an idea becomes consensus, many of those top founders that had the courage to take the leap of faith before it was consensus have already shifted to other areas of opportunity. And so as an emerging manager, it's not that we are anti-consensus, it's that we are early consensus

creators. We're seeking founders that have new contrarian frontier ideas or insights and we're helping them build a larger venture narrative with customers, capital, and partners for the downstream movement to coalesce and to understand the bigger opportunity. But once something jumped that chasm and becomes consensus, it is now more about the power law of capital and allocating capital to scale those consensus ideas, which is why as a multi-stage firm, I think it makes a ton of sense to focus on consensus areas of opportunity. But for a emerging firm, you have to either be focused on what one would consider to be a non-consensus team building in a consensus arena or perhaps even building in non-consensus

fringe frontier ideas that don't seem obvious today, but several years from now will become increasingly obvious. There's this idea that there's two asset classes within venture, the pre-seed seed, which is essentially this binary risk betting on new industries and this getting into the best deals of the consensus deals, the scaling, and that you have to look at them very differently. I would fundamentally agree with that. And I think you might even see that become more pronounced. What I do see happening, though, is, again, venture has rotated away from only being B2B, enterprise SaaS, consumer, mobile, social focused maybe in the 2010s. to being a lot more comfortable investing in industrial and hardware-oriented companies across a broad variety of spectrums, energy infrastructure, quantum, robotics, physical AI, space defense, etc. And so as more and more late-stage capital and tier one capital

pours into these hardware-oriented businesses, you have more of an opportunity for specialist firms to serve as signals of founder quality or insight recognition or validation to these later stage firms that can't possibly spend the time at the early stage in the same way that we do. And to summarize what you were saying earlier, you follow the founders, the hard tech founders that might be leaving the SpaceX as the Andrels of the world. The reason you're doing that is there's a general idea that these founders are closest to the ground. And while one or two might be crazy geniuses and five, 10 years ahead of time, if there's this migration, think of it as almost an immigration into a new industry, and it's pronounced, there's probably something there.

otherwise said, there's a market wisdom to the migration of founders in specific sector that serves as a pretty strong signal that there might be something there and that might be close to commercialization. Yes, absolutely. This gets to the tension that many VCs have, but especially perhaps early stage VCs have, between being overly thesis driven and founder are driven. And fundamentally, we have a prepared mind and views on certain areas of the market that we think are transformative technologies that are quite interesting that if the right team or founders were to appear, we would certainly be excited about backing and investing. But ultimately, we are as a pre-seed investor, investing at inception stage when the name of the company often changes,

bank accounts are being created for the first time, company formation docs in Delaware are being submitted. We have to be founder and people focused and driven. And so fundamentally, to your point, those founders are the tip of the sphere to understanding those unique insights or problems that are often in overlooked, misunderstood markets, and markets that oftentimes are viewed as perhaps slower moving or more bureaucratic or felt as more niche and actually are a lot bigger and have a much more venture scale opportunity than initially the broader VC community might have thought. I think over the past five to 10 years, space and defense tech are classic examples of this, where initially for a variety of reasons, they were viewed as

more fringe niche opportunities that oftentimes the question beyond scientific risk or technology risk was, is this venture scale? And I think that has largely been borne out to show that it is, in fact, venture scale. There are similar opportunities today where founders that are leaving these types of tent pole companies, SpaceX you mentioned, and others, are starting companies in desalination, in quantum communications, in maritime autonomy. And these are areas where perhaps more overlooked today or more fringe and frontier today increasingly become more mainstream over time. Just to use one of those examples, quantum computing, it seems to be, I guess, consensus or a lot of

people are looking in the space. And although it sounds great to be founder driven, there's also a place to be thesis driven in that you know that a space is going to be good and you want to talk to 100 teams in that space in order to see what the top teams look like. Is there a place for that? And what percentage of your investments are founder led versus thesis led? I think it's easier to be thesis led the later stage capital you are. When you're an early stage investor, we don't have the luxury to have a thesis and meet everyone building in a category because oftentimes as the first check, we're evaluating companies that haven't even been formed yet or we're evaluating whiteboard sessions. And so there is a timing element here

where it kind of the ability to conduct that exercise is more difficult. But to answer your question, all of our investments are founder-led, but I would frame it as of the investments we've made, how many have we had a prepared mind around versus how many did the founder come to us and educate us on the market? And under that context, it's 50-50. And I can share a quick story in each example. In 2021 and 2022, I was increasingly spending time thinking about hypersonics.

And it was largely, for a lot of the obvious reasons of our geopolitical adversaries in this context, specifically Russia and China, having made advancements and publicly stating about those advancements and the U.S. meanwhile, lagging on the hypersonics front and the Department of Defense investing tens of billions of dollars into R&D programs with the defense primes and not having much to show for it. And behind closed doors, there being concerns that some of these hypersonic programs would actually be shuttered or shut down because of a lack of progress. And so it was clear that the macro environment there was ripe for the right team and an exceptional founder to come in. But we weren't dead set on we need to make a hypersonic investment. It was just an area of opportunity that we thought was right for disruption. I was told about a gentleman who was leaving SpaceX from someone in my network, a gentleman Brian Hargis, former executive at SpaceX. And he had a thesis on hypersonics. And this was a classic example between the time I emailed him and the time that we wired was less than 21 days. And so because of that, we were able to, as a first investor, we were the first investor into Castilian, this company. We were able to get to conviction so quickly, partially because of the prepared mind that we had. And we were able to get to the meat of the substance as opposed to focus on the hypersonics 101. So that's an example where we met an exceptional team. We had a prepared mind. We moved quickly and it worked out.

On the opposite side, one of our other investments, True Anomily, is building on space defense infrastructure, both hardware and software oriented, to protect American interests and infrastructure in the space domain. We were aware of some of the threats in the space domain, but not as aware of the acute pain and the challenges that the national security ecosystem were facing. And so True Anomalies, co-founders and founding team Evan Rogers and co-founders left Space Systems Command. they were working within Space Force. They were tasked with solving this problem. They were frustrated that there were no commercial solutions or partners to solve this problem. And so they left to start the company to do that. And that's an example where in the early days of speaking with Evan and team, he educated us and we became even more aware. And candidly, as an American citizen, maybe even a little scared and alarmed, at the deficit that we faced and the threats

that we faced in orbit if a technology company did not come and solve for it. And now I think in 2025 as the Golden Dome is one of the marquee headlines being talked about in this ecosystem, it looks very consensus now to have invested in a space-oriented defense company. But at the time, it was not consensus at all. It was a first-time founder. And in that instance, was one where the founder helped us and understand and educate us on the challenges in the acute nature of that market. And Chen, 50% founder-led, 50% thesis-led. Maybe you could segment it based on whether the founders are coming from the name brand hard tech startups like SpaceX and Andrel versus a startup you may have never heard of or the average person would not have

heard of. How important is that name brand for one of the founders that you're looking at? Approximately 40% of the founders that we've backed and we're a concentrated firm. So we've backed 22 companies over two funds. So this is not a large portfolio. But 40% of those founders have come from one of the name brands that you and I would recognize. There is value to that. There's value to having been in an environment, a pressure-tested engineering environment surrounded by some of the best and the brightest of your peers

and having exposure to solving some of these engineering challenges that we're now investing behind those themes. But I view it as increasingly less important. And the reason I say that is because for a period of time, when venture was not broadly supporting volunteer tech companies across the hardware category, engineering talent was more concentrated. It was concentrated to a few of these names, whether that's SpaceX or Tesla or Andrewl as an example. Now there are hundreds of exceptional companies, many of

them well funded into the billions of dollars. And so whether you're talking about Caruso energy and the energy side or Radiance and Nuclear Applied Intuition, Gecko Robotics figure, these are all exceptional companies that have engineering talent solving different problem sets across energy, robotics, autonomy in the physical world. And so we see talent as more dispersed. And going back to that comment and conversation we had about being consensus and non-consensus, it is now consensus to back a SpaceX founders spinning out and starting a company. And I think the emerging opportunity for not only emerging venture capital funds,

but also multi-stage funds, is to find and identify talent spinning out from other great hardware-oriented late-stage companies and helping them become first-time founders as well. We've discussed Alex Hermose has this quote that Entrepreneurship is a game of the heart, not the mind, meaning that similarly IQ or similarly intelligent people, one that has grit and one that doesn't, the one with grit is the one that's going to win the vast majority of time. To what extent is that true in hard tech,

and how do you go about figuring out and testing somebody's true grit? It's absolutely true. across frontier tech and kind of more standard tech. I deeply experienced this as a founder myself. You know, before I started this venture capital firm, I was a college dropout turned venture-backed founder who built a company for years. And without going into the specifics there, fundamentally agree with the notion that it's more of a battle of the heart than the mind. But in frontier tech, I often say the founders aren't just building companies. They're building trust. They're educating customers. They're oftentimes trying to convince top quality talent and

capital to join their movement in an environment where data is often scarce. The incumbents are entrenched and timelines are potentially very long. And so for us, we want to spend as much time as possible with founders before we invest in person, having a wide-ranging discussion, both specific to the technology and the company that they're proposing, but also understanding their personal background. You know, in my personal style, I'm very conversational. I want to seek evidence of a long-term obsession. Have they been thinking about this problem set, even casually, for a long period of time?

Or is this something that they've just more recently stumbled upon? I want to see if grit has shown up consistently or more in a novelty or inconsistently. I want to understand and unpack motivations how much of it is internally motivated versus externally motivated. And ultimately, does this founder have a history of having done hard things previously without that external validation. And so, of course, the way that you measure and judge these things are very subjective.

And there's not a rubric or a set of questions that are one and the same for every founder. But that's part of the reason why, of the founders that we back, most of the time, we're actually meeting them before they start the company. And we're spending significant amount of time going through what I call the IDMAs, helping them suss out different opportunities, doing customer research, helping recruit co-founders. And it's through that deep partnership and exploration that we're able to answer some of these questions of heart or grit, as opposed to under the confines of a tight fundraising process where you have seven to ten days to get to know someone. You said you didn't want to go into the company that you created Jebitt and your trials and tribulations. Take me back there.

And what were some of the challenges of building that company? And what lessons did you take from it? I started Jebitt with some classmates from undergrad, and we dropped out my sophomore year. And we went on an eight-year journey of transforming an initial idea we had around data infrastructure and online personalization into a scaled enterprise SaaS product. We ultimately sold the company to Vista, so it has a happy ending. And we raised a lot of venture capital over the eight plus years that we were operating it. But it was a test and trial of tribulations across all axes. We encountered multiple pivots because we realized that fundamentally the products that we were initially pushing to market didn't have the largest product market fit that we thought it would.

The market also shifts so quickly that one of the things I have great empathy on with founders is sometimes you can have product market fit, but that is not a static state. It is quite dynamic. And as requirements and customer needs change, the market can shift underneath you. And so being able to constantly reinvent yourself and having a strong slope of intellectual growth in learning is something that I seek in founders that I look to partner with. And ultimately, there were a lot of personal challenges too. We had co-founders leaving. We had deaths in kind of the broader community and families. And so we almost ran out of cash one or two times. And so it's a classic startup story of, of course, if you look at the press release, we won the

press release at the end because we had a well into the nine figures exit as college dropouts. But I just have such a depth of empathy and understanding that that journey was far from linear and that there are many peaks and valleys over time. And I think that for first-time founders in particular, but especially founders looking for VC partners, it just brings a depth of emotional understanding and empathy when you've been through that journey yourself and how I approach challenges with our founders today. I expect there to always be challenges. I expect for the hardest problems at the company to always bubble up and be at the founder's feet. I expect that first-time founders are making hundreds of decisions each month.

That is literally the first time they've ever been asked to make that decision. And so we just approach these things with a lot of empathy and try to partner with our founders to help put them in a position to be as successful as possible. And if you go back to Jebitt and surviving these trials and tribulations, when you were in it, did your grit come from something that you had? or was it an absence? In other words, was it an absence of the ability to give up? Was it an absence to have your ego feel that you lost? Or was it the presence of something that drove you through those difficult times? It's probably both. When you want more for your business, start with Northwest Registered Agent. You could build your complete business identity in just 10 clicks and 10 minutes. Everything you need to launch and protect your business is all in one place. Your business identity is more than what your customers see. It's also legal paperwork, website security, and compliance, behind the scenes. With Northwest, you get more. More privacy, more tools, and more guidance.

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and the determination that came from my childhood. I went to 12 different schools and moved 13 times growing up. I was an elite ice hockey player and also was a, you know, top of class, student class president. I grew up in a small town in Ohio, the son of two educators. And so for me, I had this very regimented disciplined upbringing where no minute of my day was wasted effort or energy. And, you know, I was competing at amateur US Olympic levels on the rink and also competing to start businesses and in the classroom, of course, like many, many folks. and venture have. So I think with my startup, I was always going to be hard charging and the hardest working. But I think once you're in it, to your point, there also becomes a sense of

pride of I don't want to let down my co-founders, these employees who have left well-paying jobs to take our risk on us. I don't want to let down the investors and the capital we had raised. I remember to share a quick anecdote if it's interesting. Darmash Shaw, the founder of HubSpot, was our first angel investor. We were building this company in Boston. Great guy. And I remember he invested in us and it was kind of part of a public shark tank competition. And it was 25K or 28K. It was something around that range. And I remember calling my mom afterwards and telling her and it being the most amount of money I could ever contemplate. $28,000 is so much capital. And I think it just shows, you know, the upbringing that I had and kind of how I approached these problems. And so there's a deep sense of responsibility for every dollar that we raised from anyone, whether it was institutional VC or smaller angel investors. And so I think we just, you know, I think we just. took our responsibility very seriously of making sure that we shepherded the company through any trials and tribulations we faced and ultimately that we got an exit everyone was proud of. I think about this concept of grit a lot and how to predict it. And I think you could even

do better than predicted. I think you could create it or at least develop it more. So one way that I look at it is I try to look at it detached in an immoral way. way. For example, one thing that I found is people with very high ego attachment to a certain business. So I love investing to people that productize themselves because I just can't see how they could fail because it's their entire identity. So if somebody has productized their identity, which happens oftentimes without calling out people, there's very specific people I'm thinking about. That's something that I love, but also the presence of something. Do they like their co-founders? Do they like the city that they live in? Do they, are they,

as you mentioned, have they just discovered this space or have they been learning about and passion about the space for many decades? So I think there's a combination of things that you could look for, but also as you create your team, as you look in the industry, knowing these leading indicators

of what will give you that grit. Because I think oftentimes what's underrated is the compounding of having grit. So being in a business for eight years versus four years is not, you're not twice as likely to be successful. you're probably four, eight, ten times more likely because so many things start to coalesce, the deeper you go. And I think people don't think enough about the staying power and the importance

of grit that allows you to smooth out kind of those compounding returns. I absolutely agree. And I think in this market today where the flow of capital might be even easier for some founders, the presence of grit is even more important to underwrite and to seek out in a first-time founder that you're backing, especially with many of the founders look to be candid that that are spinning out from the SpaceX and Teslas of the world, many of them have already made perhaps seven, eight figures and beyond in stock-based compensation and are a very different profile of founder than maybe historically the image of a Silicon Valley first-time founder might be. And so I think it's paramount to find people that are not only internally motivated and have

that grit determination, have attached some value to the same. success of their company, but are very mission-oriented as well, too. There's a larger existential reason for this company to exist. And certainly with our founders in the space and defense and energy ecosystem, this is an existential battle for many of them between good and evil in terms of the ability for our country to re-industrialize and sustain itself on a path towards prominence in Western domination and not. And so we look as well for when times get tough. when they invariably will, what is the one or two things that the founder or founding team will hold on to, what will corral the company towards that broader mission? And I think some companies

are really exceptional at doing that, and those are the ones that we often end up backing. You mentioned a large liquidity event could affect somebody's motivation. It could also improve it. To previous guests I had, Blake Scholl, Boom Supercersonic, who I'm sure you know, also Ben Lamb from Colossal, who's bringing back the Willie Mammie. they both had exits prior to starting their moonshot, which I think if they're being honest about it, it gave them the grit in terms of the runway and the ego defense in order to pursue something so shockingly innovative. Yes. I fundamentally agree with that. They are more rare than commonplace. So I think it's important to acknowledge that. But when you have a liquidity

event like that, it can give you a degree of freedom of chasing those moonshots. So another way, even the most long-term-minded people, maybe their DNA predisposes them to think long-term. If they can't put food on the table, it's exceptionally difficult, and we're evolutionary wired not to pursue that long-term. You mentioned your mission for dealing with these founders. They needed the support,

and they had these huge potential, they had these huge market opportunities and huge ability to impact the world. Talk to me dollars and cents. Is there an economic rationale to invest into frontier tech startups? And if so, how would you explain that to an economically rational investor? Absolutely, there is. And I also think there's an imbalance of capital requisite to the risk reward and the opportunity

chasing AI and software-oriented businesses versus hardware-oriented businesses. It doesn't take much research in Googling or talking to perplexity or GPT to be able to quantify and understand that of the 10 largest companies in the world, the majority of those are hardware and frontier tech oriented, building in the physical world. I often joke with other investors that your favorite software company lives long enough to become a hardware company. It always ends up jumping the chasm to wanting to control the end systems

and hardware devices that they're operating on themselves. And certainly from a government policy standpoint, from a venture acceptance standpoint, whether it's part of the American Dynamism Movement, whether it's part of the reindustrialization movement, movement, there is a broader tailwind and acceptance of investing in these categories that has given talented founders more of an initial support base and foundation to launch startups in these ecosystems. One of the things that I know you and I have kind of talked about as well is the

outlier effect in the size of these opportunities across both frontier tech but also in software AI becoming even more pronounced. And it's our belief that in specific sectors, maybe space and defense being a good example, quantum could be another example, where the outlier effect will be even more pronounced. We don't believe fundamentally that there will be a hundred defense tech companies that end up IPOing and are worth tens of billions of dollars. We believe venture has always been an outlier business. And for a variety of reasons, some of these industries will be even more outlier driven. And so it behooves venture investors to build ownership as early as possible in as many of those outlier businesses as you can.

And so that's a big part of the reason why we pursue that strategy. And you've now put two funds into the ground. What are the learnings that you got from Fund 1 to Fund 2? And what did you change? When I launched Fund 1, there were some known-nones, and then there were some experiments that I wanted to run. And the known-nones from our estimation, although I acknowledged that at the time this was non-consensus,

because this was before the Ukraine-Russia War, this was before American Dynamism and Reindustrialization were kind of known narratives in the venture ecosystem. This is at a time when in 2021 folks were very focused on crypto and NFTs and kind of thinking about maybe the early semblance of AI. For us, I recognize that there was an opportunity that founder talent had migrated to building in space and defense. And there was a gap at the early stage investing ecosystem of building the premier

early stage firm to support space and defense founders. And so that's what we wanted to go and prove. Upon reflection, after looking at, our successes and kind of what went well and what we learned throughout Fund One, we realized that there were two through threads that we should incorporate into a Fund Two strategy. The first was being pre-seed-only focused, and then the second was having a very concentrated fund vehicle. Now, oftentimes you'll hear pre-seed funds that'll have massive portfolios, and you'll think that it's actually counterintuitive to have a highly concentrated vehicle at Pre-Seat-only,

especially, you know, only 15 or 16 names. These are highly concentrated vehicles. But for us, this came from the belief in understanding that there was a fixed and finite amount of talent and top-tier caliber founders building in these ecosystems. And based on our deal flow and the ability that we had shown to pick and partner and win allocation in those types of companies, that naturally would make sense to build a more concentrated portfolio as opposed to de-diversifying and building a much larger portfolio. Without sharing exact specifics, people can guess from the website. We made 15 investments in Fund 1. Three of those investments are unicorns, early stage investments. We made eight pre-seed

investments in Fund 1. Two of those are unicorns. So obviously, that's an extremely high hit rate. And I think it speaks to the ability to have top-tier deal flow, the ability to have domain-specific expertise. And we wanted to incorporate that in Fund 2. So Fund 2, fundamentally, is the same strategy, just across a broader remit of frontier tech. So we're no longer only constrained to just space and defense. That was always the vision. And now we're spending an equal amount of time in energy infrastructure, robotics, physical AI, autonomy, et cetera.

It's interesting because there's this assumption that you have to be like every other venture fund. But when you look from the LP's perspective, they're trying to put together a portfolio. And if you coach your LPs and if you partner with, with them, there's nothing that says you can't have different returns, like you can't have a lot of variance from portfolio to portfolio with understanding that it is because of your concentration. And there's no rule that says you can't prepare your LPs for this variance. One thing that really stuck with me,

I think this was in the early hundreds episodes, in the early 100, Mike Maples, he talked a lot about finding your true believers and partnering with them in transparent way, messaging what you want to message and make sure that you get product market fit with your LPs. And I think concentration is one of these things, as you mentioned, precede, something that's kind of the orthodox view is that you have to be massively, you have to be, you have to be massively diversified. But I think a lot of that also comes down to how you communicate with your LPs.

I totally agree. And we found tremendous. alignment with our fund's two LPs because we were seeking out LPs that naturally shared our belief in a concentrated portfolio at Preseed and the ability to increase ownership up front and have a very strategic reserve strategy as opposed to more of a peanut butter pro rata strategy. But I will admit that that took time to build. Our fund one fundraising effort, even though it was a small fund, took over 12 months. Our fund two fundraising effort took three months. And a part of that was the track record. A part of that was the alignment between the industry sectors that we were investing in and the LP interest. But a lot of it was also

us building relationships over time and being really thoughtful about what LPs shared our perspective on the world. I think that's maybe one of the differences today in venture compared to 20, 30 years ago is the number of unique LPs that are investing in the asset class, the number of VC firms that exist, the number of founders that are starting company, the complexity and the numbers have just increased across all of those axes. So I think today, potentially, a provocative statement, fundraising as a VC firm is less about convincing an LP of your worldview or your strategy in matchmaking, more about finding LPs that already share that worldview and strategy.

And so for us, we were looking for LP partners that understood the benefits of concentration, understood that precede investing always inherently had alpha based on being the first investor to align with a with a founder and being able to shepherd them to the tier one firms and in partnership with tier one firms. And also we were looking for LPs that understood the downstream co-invest and upside opportunity associated with that as well. And so for that reason, I certainly encourage all VCs, especially emerging managers, to think deeply about what is the unique strength that they have as a firm and to not try and compare yourself to other VC firms and, you know, be like others, truly think about what is the strength fundamentally of your skill set,

of your network, of your thesis, build the firm from first principles around that, and then find LPs that are naturally gravitated and share the worldview that you do for why your firm should exist and succeed. The average LP might see 20, 30, 40 pitches in a week, and they need to choose two or three to talk about the next Monday. So it's not, you're by default dead. You need to find how do I occupy those two or three spots? And that's why LPs will always say differentiate yourself, differentiated strategy, new strategy. That's what it takes to get in those two, three spots. A lot of people talk about BCLP relationships like marriages. And if you take that to its logical conclusion, imagine going out to figure out who you want to marry and

trying to fit yourself to what that other person was looking like. And then ending up married with that person for 10, 20 years, which is a typical VC LP relationship, which is, I think 20 years is three times the length of an average marriage. So I think if you really take seriously this making sure that you're aligned with the LPs, it might take longer to close those LPs, but you might have a much better experience and those LPs will talk about you better in the ecosystem. It has all these amplifying benefits to it. Absolutely. And also to say LPs are not constant LPs change firms as well, you know, depending on the nature of the LP. And so certainly it's about having alignment not only with the individuals, but the institutions that

you're partnering with and understanding over very long periods of time, that's something that I'm constantly reminded. And I would encourage other VCs to continue to reflect on is the nature of this asset class is so long term. And so what does truly long term alignment look like in terms of liquidity, in terms of strategy, in terms of as the market shifts, what quote unquote playing the game on the field means versus being confident in disciplined and sticking to your strategy and pragmatic with your deployment. So I think all of these things interplay together about finding the right LP VC product fit. But I would also say the same with first time founders and early stage founders. It's why I see an explosion of emerging managers

finding success being the first VCs to partner with exceptional founders and working in concert with the tier ones, as opposed to, you know, relying on the tier ones to identify a founder, lead the pre-seed or seed round, and then try to win allocation. I think you need to flip that on its head and think about it the other way around. If you could go back to 2021, when you had just started Space VC, you had already built a valuable asset with Jeba. You're well on your way to having that acquired several years later. What is one piece of advice that you would have given a younger version of yourself that would have either accelerated your success as a VC or helped you avoid cost of mistakes.

There's nothing quite like seeing success firsthand, knowing what the bar for talent is, and having that be the benchmark for all future investments. So I consider myself lucky and blessed to have partnered with some generational companies and founders from our first few investments, because that consistently increases the bar for all net new investments we make. And I wish innately all VCs could have that comparative bar and benchmark innately on day zero to understand what excellence looks like, to understand what a world-class founder truly operates like. Everyone can point to Sam Altman, Elon, Zuck, the Titans of industry today. But that's after 10, 15, 20 years of, to your point earlier,

compounded learning and iteration and grit. None of them looked like that on day zero when they were getting started. And so truly what this is about is about recognizing world-class potential and intellectual compounding and the ability to reinvent yourself many times over, but in its rawest form on day zero. And so I think innately that's a lesson that I've been lucky to experience firsthand and see over the past four or five years in some great founders and companies. And that certainly would be the most valuable thing that I could have shared or try to impart to myself from day zero. The other more tactical piece of advice is being patient with deploying capital and understanding that the benefits of venture continue

to compound over time. The more time you're in the arena, especially if you're a domain-focused firm, the more context you have on the problems, the greater your network with talent, customers and capital is and government partners, your track record begins to speak for the thoughtfulness and the credibility that you shouldn't have. And so oftentimes first time VCs that are starting their career or launching a firm are very excited and aggressive in deploying capital. And I would always urge restraint, maybe over restraint early on, because at least what I've continued to experience is that the caliber of the deal flow and the track record success continues to compound for us

month over month. And so inherently as more time passes the quality of the founders and deals and what we're experiencing continues to compound as well. What makes someone a successful entrepreneur which is quickly failing and iterating does not apply to VC

where it can be extremely costly and have huge opportunity costs. On that same thing, founders fund famously makes their new employees they spend a year in pitches and learning about startups before they write their first check

which allows for this what does excellence look like iterating many times before you kind of make that first check. So it's almost like a yellow flag on investing that has worked and has been sustainable across many vintages.

I absolutely agree with the feedback. It was wisdom that was imparted to me by other VCs when we were launching the firm. And I may have even posted this publicly, but it's certainly something that I've also said privately. I think if you look back at yourself two or three years ago and you're not slightly embarrassed, then you're not growing quickly enough.

And I think that certainly can be true in venture too in terms of the insights or the thoughts or the network, however you would measure that when we got started. I think venture fundamentally, at least for my journey, has been a bet on can your rate of learning and growth compound more quickly and can that give you a systemic advantage to being a partner to best in class founders,

building in Frontier Tech. Awesome. Well, Jonathan, this has been an absolute masterclass. Thanks so much for jumping on. Look forward to continuous conversation in person. Thanks for having you, David. That's it for today's episode of How I Invest. If this conversation gave you new insights or ideas, do me a quick favor.

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