When Redpoint Ventures managing director Elliot Geidt first looked into space tech in 2018 during a time of growing investment activity, his gut told him it was another hype cycle. “I wasn’t prepared to bet my firm’s money on just ideas at the time and wasn’t quite convinced that the risk-reward made sense,” Geidt said. “I was wrong.”
Now, Geidt is leading a $250 million funding round into three-year-old satellite manufacturer K2 Space—the first bet he and Redpoint have made in space tech. With participation from T. Rowe Price, Altimeter and Lightspeed Venture Partners, the round values the startup at $3 billion, quadrupling its valuation in less than a year.
What changed Geidt’s mind was mainly SpaceX’s demonstration of cheap and frequent rocket launches. This year, SpaceX alone has launched more than 100 rockets, more than double the 42 launches from U.S. space companies as a whole in 2018. With SpaceX showing that it’s possible to get to space more often at a lower cost, taking part in the space business has become more realistic for VCs like Geidt, who primarily invests in software. “We had gotten a sense of the opportunity that [SpaceX] created and knew that there were other unique opportunities or potentially could be,” said Erik Kriessman, a partner at Altimeter and early investor in K2 Space.
Founded by former SpaceX engineer Neel Kunjur and his brother Karan Kunjur, K2 Space creates large satellites for what’s known as Medium Earth Orbit (MEO), which falls between around 1,200 miles to 22,000 miles from Earth. There’s far fewer satellites in this area, which has a hazardous radiation environment that’s more difficult and expensive to engineer for. Instead, most satellite manufacturers build smaller satellites meant to orbit closer to the Earth in Lower Earth Orbit (LEO) or larger satellites designed to orbit very far away in the Geostationary Orbit (GEO).
In recent years, many satellite manufacturers have been increasingly building for LEO because of how much faster and cheaper it is (for instance, all of SpaceX’s 7,800 Starlink satellites are in this closer band). “Since 2015, when SpaceX announced they were going to build for LEO, the number of GEO satellites being ordered has been cut in half, and we’ve seen a diminished focus on beyond LEO,” said space analyst Chris Quilty.
But during his time as a SpaceX engineer, Neel noticed two trends. Those smaller, cheaper and faster satellites orbiting closer to Earth came at the cost of less power and thus capabilities. Satellites are powered by solar panels that capture sunlight that convert into electricity—the greater the surface area of the solar panels, the more powerful the satellite can be. On top of that, the rockets going up into space were only getting bigger and ultimately would be able to carry heavier loads more frequently into space (SpaceX’s Starship which, though has been unsuccessful in launching, is the largest rocket on Earth standing at 400 feet).
So, Neel came to his brother, who spent most of his career as a consultant before leading the sales team at AI startup Text IQ, with an idea for a massive satellite built for MEO—in between LEO and GEO. Instead of sending hundreds of satellites into LEO, a dozen or so satellites that are farther out can get the same job done because they can capture more surface area of the Earth. And instead of the lags in quality common to GEO because of how far away it is, MEO captures a sweet spot closer to Earth, Quilty said. What’s more, engineering a satellite suited for MEO meant it would be able to perform well in all orbits.
In November, the team’s first full-size satellite rolled off the production line in Torrance, California. The satellite has 20 kilowatts of power, on par with the highest-power satellites that have been launched to date. But its cost is much lower: K2 will sell each one for around $15 million, a fraction of the roughly $100 million price tag on similar high-power satellites. That’s because K2 is building more than 80% of the satellite in house. Not to mention that building larger satellites is more cost-effective. “Instead of making sure every component is as light as possible to optimize for smaller mass, we can use a simpler, heavier design and, as a result, drive down cost,” Karan said. The larger size also means the satellite can carry more radiation shielding on it to allow it to operate in the hazardous middle orbit.
K2 has reached $500 million in contracts this year, 60 percent of which come from commercial customers, like satellite communications provider SES, that use satellites for internet connectivity and GPS. Demand has never been bigger, investor Kriessman said. “Whether it’s cars, phones or computers, the amount of data that is being consumed is increasing and the percentage of that data that is getting delivered to space is also increasing,” he said. In essence, more data signals coming from Earth require more powerful satellites to process them. And with large tech companies like Alphabet launching initiatives to build data centers in space, a larger, high-power satellite that is able to carry heavier loads and process more data becomes even more valuable.
The other 40% of its contracts are from the government, across both scientific research and national security. From a defense perspective, larger satellites can unlock unprecedented capabilities. “You put more mass up at a cheaper cost, you can start to do things that you weren’t able to before,” said John Plumb, K2’s head of strategy and former U.S. assistant secretary of defense for space policy. For instance, larger satellites can carry bigger cameras to track missiles or carry more powerful weaponry, he added. Across both commercial and government customers, global satellite manufacturing revenues were $20 billion last year, up 17% from 2023, according to the Satellite Industry Association.
While it’s clearly a growing market, the challenge for K2 is execution. The startup has yet to formally launch its satellites. Its first launch is planned for March, and the company said multiple launches are planned through 2027 and deployments with customers planned for 2028. The funding round will be used for research and development and to scale up production to push out 10 satellites next year and 30 the following year. Best case, K2 could capture “multiple billions of dollars” in market share. “As we think about humanity’s expansion across the solar system, different applications are going to need a lot of power, and K2 is going to be in the middle of that,” Karan said.
