HawkEye 360: How to Build a Profitable Space Startup in National Security

You need to recognize that the world, or the sun, the sun does not revolve around your startup. The sun revolves around the warfighter, the customer, and you need to make sure your technology fits into the complexity of the systems that they operate in. Welcome to the Mission Matters Podcast, a podcast from SHIELD Capital where we explore the technical opportunities and challenges of developing and deploying commercial technology to national security customers. I'm Maggie Gray, and I'm David Rothside, and we are your host from the investment team at SHIELD Capital. All views expressed by the hosts and guests on this podcast are solely their own and do not reflect the opinions of their employers or investment advice. References to any securities are for informational purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. In this episode of The Mission Matters Podcast, we're joined by John Seraphini, the CEO and founder of Hawkeye360, and a partner at SHIELD Capital. Hawkeye360 operates a constellation of more than 30 satellites that detect and analyze radio frequency signals from space, providing insights into activities that can't be seen with traditional imagery alone. Radio frequency, or RF for shorthand, is what we use to communicate with technologies like Wi-Fi, AMFM radio, Bluetooth, LTE, and more. So anytime someone communicates using one of these technologies, a Hawkeye360 satellite could detect their location, which provides signal intelligence for a plethora of mission sets useful to the intelligence community, military, law enforcement, and non-government organizations among others. You know, for instance, it could help a customer monitor maritime activity like illegal fishing, or it could help a law enforcement agency gain visibility into trafficking routes or cross-border movements used by illicit networks like terrorists and narcotics smugglers who might rely on things like push-to-talk radios and satellite phones, but who might be difficult to detect using solely satellite imagery. Hawkeye360 is the first truly scaled startup we've had on the Mission Matters podcast. Since it was founded in 2015, Hawkeye360 has launched more than 30 satellites, achieved nine figures of annual recurring revenue from the government customers around the world, and they've also reached profitability. They've raised more than 400 million and grown to over 200 employees. John has a long history in the national security industry. After graduating from West Point, he served as an airborne ranger-qualified U.S. Army Infantry Officer for several years. He then received his MBA at Harvard Business School and joined the investment team at Allied Mines, a deep-tech venture firm before starting Hawkeye360 in 2015. I've had the pleasure of working with John for several years at Shield Capital on our space portfolio, and he is absolutely one of the foremost experts in how to build and scale enduring space startups. In this conversation, we dive into what it really takes to scale a spaced hardware company. How John evaluates space startups as an investor, the trials and tribulations of working in classified environments and with foreign partners, and along the way, John really delivers some hot takes on the current state of the industry. Now, onto the conversation. John, I want to start out, you personally have spent a lot of time building companies, investing in companies, scaling companies. What would you say is the best piece of advice you've received over the years about building a company like Hawkeye? I've been blessed with a wonderful chairman at Hawkeye360. That's Mark Spodom from Razor's Edge. They led our series A-Round back in 2017. Mark's been a great partner to me, and at the time it was probably more of a flippant remark that he made to me from his own thinking, but it really stuck with me. I was having a conversation with him a few years after we started the company about what metrics he really wanted me to focus on, reporting out to the board, and what would be our co-occal KPIs at the time. I remember thinking through revenue, ARR, ACV, bookings, and backlog, etc. He kind of stopped me. I think he probably said it was a flippant remark, but to me it's stuck. He said, "John, just build a serious company. Just build a serious company." I think that that was a really great piece of advice because it forced me to recognize that we're not building widgets. We're not building some nameless piece of enterprise software to be deployed by some nameless enterprise entity out in the middle of nowhere. I mean, we're building data and data analytic products that are delivered to the war fighter, to the intelligence analyst, to decision makers who are operating very difficult circumstances with no margin for error. And accordingly, our technology, it has to work the first time. It has to work every time. And that mindset's got to permeate throughout the entirety of the organization. It has to filter up to the KPIs that we care about. From that small piece of advice grew my own personal thesis of how to build a real serious company in the defense technology ecosystem. Thing one is you have to be trusted. You have to be trustworthy. And this is a hard thing for young companies to understand. If you're going to sell mission critical functionality to customers like the NGA or the NRO or the CIA or the combatant command or the international equivalence, you have to be trusted. You gotta do what you say you're gonna be able to do. There can't be any kind of a gap between what your capabilities are and what you actually say you're capable of doing. And the customer's got believe not only in you, the CEO and your management team, but believe in the integrity of your product. That's kind of thing one. Thing two is you have to be humble. And I don't mean humility in the traditional sense. I mean it in the sense that you have to recognize that you are one small component of many different products and services and technologies that are supporting the war fighter or the intelligence analyst. And they have complex systems beyond your understanding that you have to fit into. That you have to be compatible with and interoperable with. Your technology's gotta be ruggedized. It has to be cyber hardened. It has to be proverbially camouflaged to work in very austere and difficult environments. I like to say that you need to recognize that the world or the sun, the sun does not revolve around your startup. The sun revolves around the war fighter, the customer, and you need to make sure your technology fits into the complexity of the systems that they operate in. The third, which is the hardest for my peer companies to understand, is you have to be sustainable, which to me means you have to be profitable. And you can't be dependent upon one or two or just one source of revenue or customers. You have to have high quality margins. You have to be able to attract sustainable consistent capital. And you need to have a diverse set of revenue inbound to be able to reduce your exposure to any one source of customer. That's difficult for startup companies to understand. So when Mark said to me, "Hey, you need to build a serious company, a mature company, a thoughtful company," you know, to me it meant that we had to be trustworthy, we had to be humble, and we had to be sustainable. John, what's a company that you admire that you think embodies a lot of the principles of being serious and sustainable? I think it's easy to say a company like SpaceX because they've accomplished so much in such a short period of time, but they've also had an ungodly amount of capital to grow with. But I also at the same time appreciate that their growth has not been linear. Their first couple of years were really challenging, and they were the true pioneers. So it's easy to say SpaceX. At the same time, I have a lot of respect for Peter Beck and what he has built at Rocket Lab. I mean, not only did he build a national security-oriented space startup company, but he's been able to build it out of New Zealand, which is not exactly known as the bastion of defense technologies, or doesn't have a huge local government requirement set for him to fulfill naturally. So he's had to be able to build a company that not only has real functionality that customers can depend upon, but then export it to the United States into other advanced economies where space-based launch and other space-based capabilities were of demand. None of that is easy. We take for granted building space-related companies today, which is a totally different environment for building a space-company that was 10 years ago when he got started. It was probably five or so venture capital firms that would take him seriously in his seed and series A round, and even his series B round back then. Today, there's dozens, if not a hundred, that would take that meeting and would sincerely consider financing his round, but I'm also impressed by how he thinks ahead and how the organization thinks ahead. I mean, they've not only achieved a great amount of scale in the launch business, which is a very difficult business to be in. I think it's almost impossible, especially when you're competing against SpaceX and all the scale that they have, but he's also been able to use his initial success in launch to get himself into other complimentary business areas, particularly in building spacecraft, building parts of the supply chain, and to leverage that success and access to those customers to contemplate becoming a constellation operator in other business areas. They're all complimentary to his larger business thesis. I think with a relatively small amount of capital and a public listing, albeit a spec, which I think was a challenging way for him to go, and he could have I peered the company the regular way, he's built a lot in a relatively short period of time. So I tip my hat to Peter. Of course, I tip my hat to SpaceX and Gwen and Elon and what they've collectively built, but I think both of those companies have a lot of great, they're great exemplars for us to follow. Yeah, John, I think it's a great point on rocket lab and SpaceX, certainly pre-eminent companies in the space economy, maybe responsible for a lot of the goodness that we've seen. You've got to mention that both of them have been able to orient themselves around the national security environment, and you know, you've been working in and around government for over two decades, both as an army officer and now as an entrepreneur. And Hawkeye 360 coincidentally started in 2015, the same year that Defense Innovation Unit, then Defense Innovation Unit Experimental got started. I'm curious, is it easier now to work with the Department of War and the intelligence community relative to when you started or anything that you'd like to impress upon, you know, other founders as they think about partnering with the Department and the overall national security environment. Well, answer the first part, which is, you know, compare contrast to the environment in 2015, 2017, we started Hawkeye and today, and I actually started Defense Tech investing in company building all the way back in like 2010 timeframe. You know, I could even tell you the stories of 2008 timeframe. And back then, Defense Technology didn't exist. It was really about guards guns and gates. It became a thing, the commercialization of C4 ISR became a thing with the advent of cyber security, right? When cyber became an investable technology area where people could put capital into what they perceived as enterprise software and it would be adopted early on by government entities that need to be protected and those bona fides allowed them to then scale into the enterprise and to highly regulate industries, that became, that was a start from my view point of this Defense Technology experience. And when Hawkeye was getting started, I would classify that there was a mindset of, let's get all these companies drunk on RDT&E. What I mean by that is there was a lot of RDT&E dollars research development testing evaluation capital sloshing around in the system. And Pentagon leaders, IC leaders who wanted commercialization, equated commercial and innovation and moving fast with putting more RDT&E capital into the system and seeing what would happen. But ultimately, they just created an ecosystem where companies were jumping from one SBIR to an in-cutal work program to a DIU contract and back and around and they were never incentivized or provided with the capital to get towards production contracts where you could take advantage of the goodness that was created in these TRL called 3, 4, 5 activities in order to be able to do the productization 6, 7, 8 and then deploy that technology to actually help the war fighter. So I like to say that back then, you just had a bunch of startups that were getting drunk on RDT&E work and they were just skipping around and they weren't creating meaningful value. And the naysayers would point to that and say why are we funding all this work for a company to get to TRL 6 and then they want to have money or they pivot or their investor goes away and they just can't be sustainable. What's the point of us, the defense ecosystem, the intelligence apparatus, the national security community, getting engaged and starting to depend upon these technologies when we can't trust that they can make it through the quote-unquote value of death, right? That was the environment in kind of 2015 to maybe even 2019, 2020. There was this mindset that the U.S. government shouldn't be in the business of picking the winners, meaning that as you came and graduated at this RDT&E phase and there were clearly companies that were capable, the government was hesitant to say, okay, that's the one that we need to pick and scale and provide production contracts and a program of record to support this and bring it out to the war fighter community. No one wanted to make that call. I saw some change in the Biden administration, certainly the overarching philosophy became something a kin of buy what we can and build what we must. I think people paid that a lot of lip service but things got much better in the current Trump administration. I think people got religion and it wasn't just a mantra of buy what we can build what we must. It became buy what we can buy what we can buy what we can really like if it's out there and it's affordable and it's capable and the war fighter wants it buy it and get it and scale out to the war fighter ASAP. Let's do it. There's no caveats to that or no requirements placed on the company or lots of policy that made it very difficult for that company to achieve that program of record. It was simply, hey, you know, if you can be successful then we're going to drop all the safeguards and the guardrails and we're going to put the capital behind you so that you can go forth and create value for the war fighter and that's been exciting. I think today we are in a golden age of defense tech opportunity but that comes with a real being in the pool risk meaning that as the community opens up its arms and says, hey, we're going to start to work with commercial at real scale. If one of those companies screws up, it pees in the pool for everyone else. It makes it very difficult for the rest of the CEOs and the companies that are doing the right thing and creating really meaningful value for the ecosystem to be successful if somebody lies. If somebody forgets their humility and doesn't recognize that the sun revolves around the war fighter, if they can't be sustainable and they disappear, US government can't trust you and provide you programs of record if you're not going to be there a month from now. So the best behavior out of all companies is necessary for us all to succeed. So I guess that the answers your question being that back then it was really tough to scale. It was very difficult to get through the value of death. Companies had to make stupid decisions like become SPACs in order to be able to get through that value of death because there weren't great programs of record available to them to be able to scale linearly. Today it's a different environment and with a more aggressively supporting and interested customer base comes access to more capital. But we're really missing now, I'm sure we'll talk about in a little bit, is the exit opportunities, particularly in space. That's always what's held back commercial space is a lack of exits and that's just a natural thing associated with a smaller base of strategic acquires that we're going to have to work through as an industry to be successful longer. Well, John, maybe we get into it. I know we definitely want to come up to the present time about Hawkeye 360 and the success that you've had, working with the national security, although I just can't help myself. We could be in a golden age of defense technology and space technology where we might end up in a bit of a golden pool. So we'll see how the good actors operate to make that such. But maybe just talking about the SPACs of 2020-2021 when we had zero interest rates and money was just flowing from the government to people's pocketbooks creating a bit of a market frenzy. But again, like a couple years later, after a bit of a fallow period, we're seeing a real uptick in the marketplace. One of our portfolio companies Apex, they've raised that over a billion, K2 space raised that three billion. There seems to be some significant momentum coming for us. Oh, and of course, how could I forget, you know, SpaceX highlighting that they are signaling to go public in the next year to 18 months at 1.1 1/2 trillion, right, with a T. So I guess what can this current generation of startups learn from their predecessors who spacked to include Rocket Lab in 2020-2021? And how might they think about ensuring that they don't make the same mistakes? Yeah, so there is a lot from the system. I would point out that you can probably make a case that SpaceX's valuation is defendable based upon cash flows. They have very meaningful cash flows and very meaningful revenue, unlike many of these other companies that we're talking about. Go back to the point number three I made early on, you have to be sustainable. Part of it being sustainable is raising capital on the right terms that you're going to be able to grow into and be able to make your investors money and your employees money without setting expectations of for everyone that is just unachievable, particularly once the larger macro environment changes. Some of these companies, and I won't point towards the ones that you mentioned because we have a financial interest in one of them and we think very highly of the company, but other companies are raising capital because it's available because at some point it becomes, well, if I raise at this level, you need to raise above me in order to prove a point, etc. This is going to become a tower of courage that's going to fall down at some point. And I think there was some of that in the lead up to the SPAC boom in 2020-2021, where some of these space companies had raised private rounds that they were not going to be able to grow beyond just accessing the private markets and they didn't have the opportunity to get access to the scalable amount of capital necessary to build their constellations and they had to start thinking outside the box. For them, these SPAC vehicles which enabled a relatively painless pathway to the public markets in which they could market themselves in the basis of four looking projections and that's no longer the case, but it was at the time it became an antidote for some of the sins of their past in a way for them to be able to preserve an upground while getting a public listing and everyone, quote, unquote, making money on paper, at least for a short period of time. I mean, before the 2020-2021 SPAC boom, the only known SPAC that had been really successful was like Burger King from the 80s. I mean, it's just not a sustainable vehicle for accessing the public markets and you wear that stink as a SPAC company for a long time. I mean, no one associates that with Burger King anymore, but the companies that have SPAC and they're still around have seen depressed share prices because of their origins that's been very difficult for them to shake. Probably the two exceptions to that are AS&T in the space industry and in our friends at Rocket Lab, who frankly, they could have IPO the regular way, but I think they saw the ease of the SPAC transaction as being really attracted to them at the time. The SPAC boom, to me, it's indicative of the fact that accessing the public markets is, in some ways, mutually exclusive to your partner companies accessing the public markets because the more companies that access the public markets, the higher likelihood that the quality will go down and you got lower quality companies and the less scarcity value on the public exchange that can be invested in by public style investors. And so as more companies SPAC and as more companies contemplate going public in the future, I think it has a deletrious effect marginally on companies that have already gone public, as well as the ones that want to go public in the future, which is why you saw the whole SPAC craze kind of peter out relatively quickly as some of the companies that clearly were not prepared for the public markets took that route in late 2021 and that's when the pipe market dried up and redemption rates were hitting 90 percent on their SPAC dollars and it just all went downhill in the hurry. And I am concerned about that in today's environment that as companies that may be lower on the quality curve, contemplate going public, again, we're taking SpaceX ad this conversation because it's a very special case. But as other companies contemplated, how are they going to perform in the public markets? And if they perform poorly, I won't point any fingers, but as they perform poorly, what does that do to the companies that are behind them and their potential for being able to IPO on high quality terms and then their potential for being able to trade sustainably? Ultimately, go back to point number three. If you're going to sell defense technology companies in applications that matter, you have to be stable. You have to be sustainable. And if your stock price is going to look like a zigzag going up and down every other day because there's no basis for the market to value you, there's no cash flows for them to associate a fair value on. That's a problem that leads you to being the kind of company that could be fly by night and could be gone the next day. You need slow linear, solid growth up into the right every day. That's what I'm trying to solve for a Hawkeye is how do we continue to grow accessing the types of capital that's available to us to grow in a sustainable manner for our company, for our shareholders and from our customers? I want to turn back the clock 10 years or so back to the early days of Hawkeye 360. Specifically, I want to ask about how Hawkeye 360 was really formed. I know you were previously an investor at Allied Minds, which really looks specifically at taking companies, investing companies that were spinning out some tech from academic or federal labs. And that the initial technology for Hawkeye 360 came out of a lab from Virginia technology. So could you tell us a little bit about the story of taking some piece of IP and turning it into a scalable business? And what are some of the challenges and opportunities of building a company this way? I had a great partner, a guy named Dr. Charles Clancy. Charles and I have built two other companies together, one called Federated Wireless, another called Optiolabs that were doing very well in 2015, 2016 timeframe. Charles ran the Hume Center for National Security and Technology, which was a University of Affiliate Research Center, average in tech. I did a good amount of classified work on behalf of the National Reconnaissance Office. Today, Charles is one of the seniors at MITRE. I believe he's the CTO and doing amazing things for our country. But Charles had this idea and there was a two other gentleman that we worked with who helped found the company at the time, one named Christa May, another named Dr. Bob McGuire. And the four of us came up with this concept of, hey, you know, ultimately if you can take pictures from space, a company like Digital Globe at the time, now Max R and since changes name again. But Digital Globe was taking pictures commercially as was a plant, which had just gotten started in Black Sky. Satellogic might even been around. But, you know, if you can get a license to be able to image from space, be it electro-optical or synthetic aperture radar and sell that to government customers and commercial customers, then why can't you also do signals intelligence, which is another highly-appreciated modality of intelligence that can be gathered from space, right? And ultimately, my simple viewpoint, there's three interesting things that you can do from a government perspective in space. You can take pictures, image, you can communicate both of which along since been commercialized and you can analyze signals and we've been doing that for decades, but it never been commercialized like the communications domain and the imagery domain had been. So we saw that there was an opportunity for someone to do something in a white space that was unique and we could create space vehicles, satellites that were relatively inexpensive. That was highly correlated to SpaceX initiating the transporter missions where you had rocket launches that were relatively cost-effective and hence began the democratization of lower Earth orbit that Hilo-24 just wasn't available because there wasn't the launch capacity of reasonable prices, but we could build satellites relatively cheaply and we can get them on orbit relatively cheaply. As long as the regulatory environment was conducive and the stakeholder community was interested being the customers and the defense and intelligence and national security ecosystem and this made a law sense for us to pursue. It took us so wild to build the advocacy, particularly in the intelligence community and to make sure that people were on board with the regulatory environment to support commercial signals intelligence and we got there over time. It wasn't immediate. I'm pushing this rock up a hell for a long period of time, but it was well coincident to our first launch. We got our first satellites on orbit at the end of 17 early 2018 commissioned and we became really operational in Canada 2020-2021 timeframe. We had enough clusters on orbit to get the revisit right down, but that was about when we started to see a real adoption and advocacy and interest from the stakeholder community to work with us. It took us a while to be able to build that engagement base. That doesn't happen overnight and it's just not a factor of working with customers. It's the whole stakeholder community. It's engaging with the executive branch. It's definitively being on Capitol Hill and advocating for your equities to working with the customer base, but there's a whole environment of other stakeholders that have to be engaged and had their equities addressed to make this whole thing work. Speaking of the customer base, I know unlike the vast majority of startups out there, most of the work that Hawkeye does is in the classified space. How can early stage startups even get started working with classified customers, like the intelligence community and what are some of the technical and operational hurdles you've had to navigate to work with those kinds of customers? Part of our value proposition, Meg, is that we own and operate a constellation of satellites that those are ours. We've used 400-plus million dollars to build, so they're inherently commercial assets, meaning that the data that we collect is inherently commercial and shareable. Yes, we have to get ITAR licenses to be able to sell internationally to our foreign customers, but inside the US, what had previously been a highly restricted group of people who had access to signals intelligence data coming from national systems, we could provide our Hawkeye shareable data to them and to everyone else inside the US government, everyone else is a US citizen and they're allies with the appropriate ITAR licenses. So we do engage in the classified environment because our customers, you know, they have a whole lot of classified equities and have to be taken into consideration and requirements that can only be shared and in certain information about what they want us to perform that can only be shared in a classified environment, but what we actually produce, the data, the data analytics, nine times at 10, it's an unclassified, totally shareable work product that is sold on an exceptionally high gross margin basis. So that's the reality of what we do. To answer your question, though, we did start needing to do a lot of work in the classified environment. And it's, in my viewpoint, it's exceptionally difficult to build technologies, products, or services that are going to service the classified environment if you're not a practitioner. If you're some guy waking up on arbitrary Tuesday in Silicon Valley who's never served or never worked inside the classified environment who doesn't have a clearance, doesn't understand the requirements and thinks that you can hang out with your dog and you're in your Silicon Valley garage and come up with this new classified technology that the practitioners are going to immediately try to adopt and say, this is the greatest thing ever, you're just wrong. And you can't put yourself or the the war fighter or your investor is in a situation where you're trying to push that thing that might make sense to you in your brain that you came up with in your garage, push that onto the requirements or the conditions of that classified customer because they're just going to reject it. And it's just going to be a waste of capital and waste of time. But yet we do see this quite a bit where companies who don't understand the environment under which these operators are conducting business emissions try to bring technologies that they think will work in the classified environment. But they just don't know because they don't have clearances. They don't understand that the the unique circumstances and the missions that these folks are working under. So I think the first answer is you have to be taken seriously by being a practitioner. Ultimately, if you don't have a clearance yourself, I think it's really difficult to try to build a capability that will be used by those in the cleared environment. Obviously, if you what you're building is valuable, then the customers are going to come find you. Probably the best meeting place is at Inquitel, right? If you can get Inquitel to be an intermediary for you to help vet your technology, match it against classified users and help secure some kind of a work program by which you can further develop and prioritize your capability, then deliver it to customers that might consider it. I think that's a good mechanism. It's been valuable for many, many companies, particularly those that she'll works with. But outside having that kind of intermediary, you just can't expect that there are customers out there who wake up thinking, oh, I gotta go find the next commercial thing that is going to solve my problems. And I'm going to give them an FCL such that they can have unfettered access to our nation's classified apparatus. Like it doesn't work that way. And folks need to temper their expectations if that's what they're thinking will occur. Yeah, John, that's great. And I think one of the areas I think this boils down to is trust. And Inquitel, the investment arm of the Central Intelligence Agency is certainly a great way to broker trust with the end customer. One other area that is often talked about or you least highlight, especially with some of our other startups, is working with defense primes. And for a lot of people, they get really a bad rap. They're going to steal your intellectual property. They're going to move slowly. They're going to be a challenging partner. But it seems like you've done a really good job partnering with them. For other startup founders, how would you coach them and thinking about engaging with the defense primes? People like to use the primes, like a lockheed or a Northrop has some kind of proverbial whipping child that they point as the source of all evils. And the case of the matter is, yeah, they move slower. Yes, they have different incentive in sand structures. But ultimately, what they build works is a reason why the M182 Abrams tank works like it does. Now, compared that against other countries and their defense industrial base, they may cut corners. They may not have the quality and the QAQC emphasis that ours does. And they may not be anywhere near as effective on the battlefield as the capability that we deliver. So what we have to do is we have to find a way to marry the defense industrial base who moves slow, don't innovate very well, but build stuff that work and can be trusted to work in extreme conditions on the battlefield with the left hand side, the Silicon Valley ask mentality where we're going to leverage innovation. We're going to move fast. We're going to break things. We're going to leverage private capital and intellectual property in order to create new functionality. We got to marry that together where you're taking the interesting ideas, but you're creating them in such a way that they can be trusted to work the first time and every time. Again, goes back to taking care of the warfire. They need a ruggedized piece of technology that is actually going to work. This isn't nameless widgets that we're building for some nameless enterprise customer. So I look at defense industrial base partners as phenomenal investors and as phenomenal partners for building better productization or prioritize capabilities that I can deliver to meet the customer's needs. The defense industrial base has been working with the warfighter for decades, 50 plus years. They understand the requirements, they understand the missions, they understand the restrictions, they understand what it's like to be on the battlefield. That company coming out of the Silicon Valley does not. Maybe they've got a couple of veterans, maybe they've done some work in the past, maybe they've been practitioners, but they don't understand it to the extent that the defense industrial base is. So how do you take the best of the defense industrial base and then marry it with the move fast, innovate quickly, mentality of Silicon Valley? And I think part of the rationale is having those defense industrial base entities invest in your companies. So for each of our financing rounds, all eight institutional financing rounds that we've done, just about all of them, we've had a strategic partner. Some of them they've led those finances, Raytheon led our A3 round, our Airbus led our B round, Lidos and Jacobs for meaningful investors in our C and our D financing, we had Lockheed invests materially in our D1 round and they've been all wonderful partners to work with. The idea that these defense industrial base companies wake up wanting to go steal the startup, some arbitrary startups intellectual property and people is asinine. I mean, that's not how they work. They wake up wanting to take care of the equities of the warfighter in the American public just as much as this new defense technology company ecosystem does as well. So I've taken the perspective that they're not competitors to me, they're not the boogie man, they're good people. They know how to build great systems and they probably, if I work with them, can get my technology to that warfighter so I can actually create value faster, better stronger than if I tried to do it myself. And I would say if that strategy has worked for Hawkeye, it's works for other companies that we've we've seen replicated. Awesome. Well, just so for our audience members, you know, John, you highlighted getting an FCL, which stands for facility clearance and that allows you to do classified work. Another acronym, ITAR, the International Traffic and Arms Regulations, which is the State Department's program to protect sensitive technology from getting into the hands of our adversary. And so for sensitive tech, like the stuff that Hawkeye is building, you actually have to get licenses to then work with international partners. But what would typically be an impediment or a massive hurdle you've used and gotten and now work with a lot of our allied partners and sold to them. So maybe you can talk a little bit about what has that process been like to allow you to take, you know, ostensibly sensitive technology and sell it to our foreign partners and not through something like foreign military sales, but actually going direct to them to provide them the type of service and data that Hawkeye 360 uniquely collects. When I was growing Hawkeye in its incubation stage, one of the things that we heard a lot from potential customers and stakeholders was don't be a war to the state, meaning don't create your company such that it's highly correlated to the US government to purchase it or if the US government stops, it goes away. You can't put the government in that kind of position. Someone's forgotten that along the way and now you've got this whole crop of single use technology companies that should the US government stop buying certain types of functionality from the defense tech ecosystem. Those companies are just going to fall away in the hurry. But at the time, if we architected ourselves to be wards of the state, we would have never have gotten dollar one in revenue because we would have been pariahs. So I had to, by virtue of showing that we could be sustainable outside of government anchor customers, I had to show that there's a diversity of customers for us, not wanting to really focus on commercial industry at the time. I still think it's not the right area for us to focus. I went naturally to the international markets and that was a great decision for us in 2018-2019. We were fortunate to be able to pick up a couple of real meaningful anchor customers early on who wanted access to commercial signals and tellages because they'd never had it before. You know, some of them might have had rudimentary organic signal overhead capabilities but they weren't sophisticated and they were excited to be able to get access to new forms of overhead signals intelligence and they're willing to spend significant amount of money and pay a premium on the pricing in order to be able to do so. And that's been a meaningful achievement for our company. I'm very proud of the fact that 50% of our revenue comes from U.S. government sources across a dysbora of different agencies and customer types inside the U.S. government and similarly, there are dozens of customers for Hawkeye and the international side. Recognizing that's not easy to be able to do this when your ITAR control. You have to get licenses. You have to get technical assistance agreements and DSP-5s to be able to market your technology to the international customers. And you're certainly at disadvantage when you're competing against international entities that can market ITAR free capabilities and will do so. But the diversity benefit and being able to have, I would say, premium pricing on the international side is rewarded with very loyal customers. And what we've found is customers are very sticky and in particular are willing to sign up for longer contract terms than in the U.S. government side. So ultimately, our business is kind of bifurcated where you've got a U.S. government customer across a number of different buying entities that tends to be shorter term, very quick views like the sales cycle is literally negligible. It could be hours before we're on contract on requirement. And then on the international side, it's a longer term sales cycle. You sell something to a country like the Philippines, for example. It takes a long time to manage that sales process. It's not exactly linear, especially for an American company. But the contracts tend to be longer and the pricing tends to be to be better. So it's an interesting dynamic between the two. And having that diversity in our revenue base I think has really helped us. Hawkeye is definitely the most mature startup that we've had on this podcast. And I know, according to some other interviews you've done, you're at nine figures in revenue, you have several hundred employees. So I really want to spend some time talking about what it actually takes to scale a defense tech hardware company in a sustainable way. So maybe one of the first questions is what were some of the unexpected challenges you faced in scaling up your technology? You know, going from that first cluster that you launched to the 12th cluster that you launched earlier this year. As I mentioned earlier, in 2015 and 2000, you know, called 2020, the number of capital providers for defense technology and space technology. Yeah, negligible. We're talking about maybe a dozen by 2020 timeframe. And finding people who are willing to do a B-round, the B-round's hard, but it was especially hard for a space technology company in 2017 timeframe. It was particularly challenging. And being able to go into that series B-round, having taken all the tech risk off was really challenging as well. Because if you're going to be a space technology company, the only way for you to legitimately show that the technology risk is off the table by the time you do your series B-round, which should always be the goal is by having space heritage, putting stuff into space and making sure that it works and works correctly for a long period of time. You know, today you're seeing companies raising exorbitant evaluations in series A and series B rounds, even series C rounds without having much of a space heritage to be able to claim. And I think that's a challenge. And that did not exist seven or eight years ago. We had to think very thoughtfully about how we were going to de-risk each component of our of our technology architecture. And for us, it's pretty complex because you're talking about a space component, the sensor actually collected, which is flying in a collection of three satellites. So you have to be able to showcase three assets working in harmony to be able to geolocate a signal from 550 to 600 kilometers in space. You had to be able to demonstrate all the processing of that data, which is entirely complex and the geolocation and the analysis and the conversion of that data into something that's actionable. There's a tremendous amount of different types of intellectual property that's got to be proven throughout the continuum of that technology set. That was not, you know, linear for us to be able to say, check the box. It's done. Go go the financing. So that was that was a hard thing to work through. Ultimately, when I think back to it, to where I learned, there's four things that really helped us. And I would point towards thing one was start with a base of employees that you that is right sized. It's thoughtful, mature individuals who are previous practitioners who understand deeply the technology. And secondly, they understand the requirements and what the customer is operating around. You can't have any daylight between what you're building and what the customer needs. If you're trying to create in your mind and your Silicon Valley garage, what you think that warfire needs, and it's not lined up with the reality of what that warfire actually wants, you know, the warfire being a proverbial person for all of the U.S. government customer, I think that's a real challenge. And it's very difficult to bridge that gap, especially to get towards program of record type contracts that'll make all of it worthwhile. So the first thing was having a small cadre of really committed thoughtful practitioners and small. You don't want to get over your skis, which is, I think point number two, which is being really thoughtful about how much overhead you take on at each phase of life. I have a just in time resourcing mentality, right? Like as we achieve milestone with customer X, Y and Z or technology milestone, A, B and C, then we take on additional overhead, then we grow additional people into our head count, then we open up an office, etc. You don't do it beforehand. A lot of companies get into trouble by growing too fast on their overhead, and then they find themselves in situations where they have to reverse course and do riffs, and that's painful. I never want to be in that situation. That was kind of thing number two. And the last thing was just the good housekeeping of having a thoughtful fundraising plan. In knowing what milestones you need to achieve in order to be able to unlock the next tranche of capital, engaging with a good group cadre of investors that you know are waiting for you to produce those milestones, and then hitting those milestones on the timeline that you told investors, nothing generates investor interest more than someone doing what they said they would do. And every investor should have a logbook that says when that company comes to me for their series A round, I'm going to go back and say, okay, when you were raising your seed, you told me you do x, y and z, did you do it? And I was always room for, oh, well, this came up and we had to work around it and we had to we had to find another way, blah, blah, blah, blah, blah, blah, blah with the tack. Now, I'll always give people credit for that. But ultimately, if you don't have a track record for achieving what you said you were going to achieve with your milestones, why would I be, you know, provide you as a fiduciary of investor capital, why would I provide that capital to you knowing that you're not going to be able to guarantee that you'll be able to achieve milestones going to the next financing round. So that, those are the four things I really focused on was having a small committed cadre of practitioners, thing one, second being very careful and resourcing our overhead on a just-in-time basis, three, having a well-thought-off and executed tied to milestone fundraising plan. And then lastly, making sure that everything I do is highly aligned with the needs and requirements and mission expectations of the customer. Speaking of major company milestones, you said in an interview earlier this year that Hawkeye is officially profitable. So when do you think is the right time for hardware startups to focus on profitability versus growth at all costs? Somehow we've gotten into our mindset that it's neither or thing. It's not. It's not. And if you go talk to public equity investors, they've become almost schizophrenic. They want both value and growth. And so you can deliver on that. There's no reason why you can't grow with 30 to 40% year over year and be profitable. And if you're growing at 60%, but you're deeply unprofitable, like how does that math work? Ultimately, valuations really should be based on your cash flows. That's how you ground evaluation and reality is on the basis of the cash flows, on the basis of EBITDA. We should be valuing our later stage companies in the D and beyond rounds on a basis of a multiple of EBITDA. And the only questions should really be the range of the EBITDA multiple and what year you're taking that off of, be it trailing 12 months or leading 12 months or two years leading 12 months, depending upon the kind of financing. So to me, sustainable companies starts with having an excellent cost structure. What are your gross margins? What is your EBITDA margin? How much are you spending in CapEx? How is that going to change over time? And are you going to be able to achieve free cash flow break even? Not just EBITDA break even, but free cash flow break even in the space industry. When you're spending a lot of money on CapEx, when can you achieve free cash flow break even? When can I value on the basis of your free cash flows? Because if you don't have free cash flows, I really can't utilize a free cash flow multiple, right? So that to me is when a company becomes mature is when you're able to value it thoughtfully on the basis of its cash flows. So John, I think that's awesome to hear and definitely something I think other startups should take into account. And for Shield Capital, you're a bit of a talisman, right? You're an active CEO, and then you're also an investor with us. And so what are some of the things you're looking for in the early stage deals that space entrepreneurs should exhibit when trying to raise capital? There's the obvious things like, is this a mature, thoughtful group of people who are working together in harmony to create something that's important? You can look at the team, you can look at whether or not the team has been successful in the past. Do they have a track record? Do they have a track record of working together? You can tell these dynamics and in pitches and indulgence whether or not the CEO and the CTO are aligned. And there's all kinds of intellectual property, milestones and technology milestones, depending upon the phase of development of the company. But the thing I like to think about, beyond the technology and the early adopter metrics that every startup wants to, wants to flout, all that can be gained ultimately. What would I really care about is if you build this thing with your idea, does anyone give a shit? Like, is this a big deal? If you create that, if you use potentially hundreds of millions of dollars, venture capital and LP capital to build this ecosystem that you're trying to conceptualize in space, and you're able to develop a commercial product to sell to government customers and everyone else around the world, is it meaningful? Does it solve a real problem? Is it sustainable? Is it going to be a functionality that's going to exist for a certain period of time, and then we'll be competing away because someone can replicate it really quickly, or you're going to lose your economics? You know, so that's what I think about it. It's less tangible. It's totally intangible. But it's like, if I look at that, it's kind of like that Supreme Court justice. And you said, how do I know why I see pornography? Well, I know it when I see it. It's the same way. Like, if I can conceptualize what that person is building and know that it's going to be a meaningful thing, then it gets me interested. But it's got to, it's got to excite me from that perspective. John, we want to transition as we close out here just to a couple rapid fire questions. So, my first one is, what is the technology that 20 years ago you expected would be further developed today than it actually is? That one's easy for me. We built a company at Ally Mine. It's called Bridge Sat. Then became Bridgecom. I actually think the company just got acquired by Voyager. Its purpose was to commercialize optical communications, optical comms through lasers from free space. We've got a bunch of intellectual property out of Los Alamos National Lab, who were the leaders in developing quantum capabilities and had a bunch of intellectual property. What we found is that it was really, really difficult to build high-quality, small transmitters to push optical data. No one had really invested in the time to start to build the optical receivers to support that ecosystem. You've got that happening today with space development agency and with the SpaceX Starlink constellation, its optical relay networks and it's working really well, but it's not working well for the rest of the space architecture that are smaller and can't fit. I'm pre-materially sized optical terminal on their spacecraft, even with a gimbal. I've been surprised that no one's figured out how to package a small scale optical transmitter in such a way as to really commercialize optical connectivity at the scale that we need because the better it is, the faster we can get data down the ground, the better the mesh networks will be. It does amaze me that when I built Hawkeye in 2015, we counted one day. There was over a hundred launch companies that were out there and had raised some amount of venture capital. It could have been $C or something. But jeez, you would think that with all that innovation, with all that capital, with all that focus and with the demand signal being what it is, that there would be a lot more fully vetted and highly commercialized launch companies. Instead, you just have this monopoly of just a handful. It's SpaceX, its rocket lab, at a premium. It costs a lot to use a rocket lab decade launch. There's Firefly coming up. People talk about Stoke. I haven't seen it yet because they haven't demonstrated it. And then what? It's just like, wow, with all that capital that's gone into the sector, we really haven't seen the results that we were expecting 10 years ago. Yeah, maybe for our next rapid-fire question, certainly an area where we do seem to see more pitch decks right around launch and we've sort of stayed out of it, given some of the trials and tribulations of others. But what are some of the white spaces in the space domain that you see could be addressed with emerging startups? Or what gets you excited for areas that haven't yet to be tackled? Yeah, I mean, go back to the optical relay question. I think that that's interesting. There's a fundamental problem with getting data down to the ground, leveraging RF technologies alone. And there's only so much RF and there's only so much bandwidth and there's only so many ground stations. And the answer can't be ground station densification all the time. The answer has to be more on-board processing in space in order to be able to sort the data, process the data, and then I'll bring down the data that you really need. And then we need better relay networks. We need better mesh networks that are available to all to get that data to the ground faster. Because ultimately, constellation companies, their value is highly correlated to speed. Like the faster you can get that information to the warfighter, the better and more valuable it is. It's certainly a case in Hawkeyes perspective. I'm sure it's the same for many other modalities and intelligence. So we, I think that there's some wide space to be developed of trusted relay partners and on-board processing technologies that can be leveraged by constellation companies that would be of interest. Okay. And for your last rapid fire question, you can plead the fifth that we're hoping for the spice. The fate of Hawkeye 360 rests in the hands of working with one specific customer. Are you taking A, the United States Space Force, B, the intelligence community or C, other? Yeah, I mean, obviously that's a hard one to answer. I think ultimately, there's a lot of different stakeholders that have to be addressed. It's not just the warfighter, right? It's the appropriators and it's the executive branch. To me, the ultimate customer is going to be those stakeholders on Capitol Hill and in the White House and their international equivalence of our other customers. So it's a multi-faceted customer situation. I like to say, when we're doing our international sales, we have to sell twice. We got to sell bottom up to the actual warfighter and the person who wants to build the spacecraft and the functionality, and we got to sell from the top down to get political support. So I guess I'd say that for me, that political engagement really matters in making sure that everyone is aligned with the interest of commercial technologies. Well, John, you've been a successful investor, a great entrepreneur, and then clearly, maybe you could be a politician moving forward in life with an answer like that. Maggie, over to you to close this out. Yeah, John, thank you so much for coming on the Mission Matters podcast. We really appreciate your time and appreciate all the learnings from the past few years of working with you. Thank you guys. Great to spend time with you. Hey everyone, thanks for listening to the Mission Matters podcast from Shield Capo. Tune in again next month for another conversation with Founders Building for a mission that matters. And if you yourself are looking to build in a national security space, please reach out to us. [BLANK_AUDIO]