Attempting to break free of their corporate personas and tap into a source of innovation, local aerospace behemoths are going out of their way to mingle with the new kids on the industry block.
Several large aerospace manufacturers, including Aerojet Rocketdyne Holdings Inc. and Lockheed Martin Corp., attended a seemingly unusual event in Long Beach last week that saw the big companies asking smaller startups for help with projects. The event, SwitchPitch, was produced by aerospace and defense consulting firm Glacier Point of Arlington, Va.
“You have a lot of pressure to go out and look for innovative solutions,” said Kate Maliga, director of business development and strategy for El Segundo’s Aerojet, who attended the event. “We want to be a company that constantly innovates. To do that, you can’t just look inward. You have to look outward to see what everybody else is doing.”
The rebirth of the L.A. aerospace sector, led by Virgin Galactic and Space Exploration Technologies Corp., or SpaceX, has put pressure on these legacy businesses to keep up with upstart rivals, whose ranks and funding are surging. Nearly $5 billion worth of investment poured into startups in the industry between 2011 and 2015, more than double the amount between 2006 and 2010, according to a report by Bryce Space and Technology.
“What we’ve found is that a lot of the corporations are overwhelmed with the trend of startups,” said Van Espahbodi, co-founder and chief operating officer of the El Segundo branch of aerospace accelerator Starburst. The accelerator, which launched in 2012, hosted a cadre of legacy aerospace businesses and startups in March for a pitch competition.
“This is the last industry to figure out and wrap its head around startups,” Espahbodi said.
The way many aerospace corporations have opted to deal with this growing threat is to seek out innovative startups as potential partners, he added.
“The corporates are getting better at saying: Let them do it, and we can have some skin in the game,” he said. “You’re kind of outsourcing your own product development by working with startups.”
That has prompted many local startups to attend industry events, cold-call business development offices, and network with corporate engineers, according to industry executives.
Starburst is one business trying to formalize this activity. In addition, the company, which is headquartered in Paris and also operates accelerators in Munich and Singapore, looks to back aerospace startups through a $200 million fund. Marina del Rey accelerator LightSpeed Innovations, which launched in 2015 and offers venture capital investment and networking opportunities with established aerospace firms, is also trying to forge partnerships that could result in revenue streams for fledgling businesses.
“Our initial goal is to be suppliers to these companies,” said Deepak Atyam, co-founder and chief executive of Cerritos-based Tri-D Dynamics, who attended the Starburst pitch event.
Tri-D uses additive manufacturing methods similar to 3-D printing to build rocket engines faster than rivals, according to Atyam, who said his company has a rocket engine purchase order from an undisclosed buyer and is raising a seed fund of $1.5 million.
Legacy aerospace firms have worked with startups in a variety of ways. Some have licensed their technology to smaller companies in the hope of future payouts, while others have co-developed ideas, loaned out engineers, or guided small businesses through the government-purchase process. In exchange, they can receive royalties, intellectual property, or equity, according to industry experts.
Aerojet’s Maliga, whose company has offered assistance to startups in improving quality controls, explained that such partnerships can also aid older firms by reinvigorating corporate thinking.
“Sometimes they will come up with an innovative solution because they are closer to the research or university, or because they are small and nimbler,” she said.
Legacy companies such as Lockheed Martin and Boeing Co. have also launched venture capital arms. Lockheed Martin Ventures opened its doors in June, while Boeing’s HorizonX debuted last month. Aerojet doesn’t have an official venture capital arm, but the company has made some undisclosed startup investments, Maliga said.
Yet industry insiders caution that these types of collaborations are still in the early stages. While most of the big aerospace and defense companies are exploring these opportunities, Ryder of Glacier Point said the economic benefits have not been established on a wide scale.
“It’s not a slam-dunk business case that large aerospace-defense companies should be working with a startup,” he said.
Maliga said Aerojet is taking a long-term view regarding potential partnerships and isn’t looking for an immediate payoff.
“Space projects take a long time,” she said. “A relationship today may not work out, but in one year, two years, or 10 years, who knows?”
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