Case Study – Hadrian

The eighth and final session of the Course on “The Business and Economics of Space” was on Tuesday, Nov 30. This session was a case study on a startup company looking to do Precision Component Manufacturing for the Space and Defence Industries , Hadrian.

We were to use the classic Harvard Business School Case Study method to analyze a potential investment in an early stage start-up factory, Hadrian. The scenario was that we were a family office with $1B under management. We were given an early Hadrian deck for fundraising. Simultaneously, a private equity firm is raising $500M to buy, merge and update existing factories in a Leveraged Buyout model.

Using the tools and techniques and knowledge we had learned in the course we broke out into teams to discuss the following;

  • The difference between a startup vs a rollup ?
  • What market do each of them serve – the same of different ?
  • Which would we invest in ? Start-up, LBO, or neither

I wont share the deck or discuss the specifics of Hadrian here. For that I suggest taking the Course !

Things we thought about included

  • How fragmented is the market ?
  • How do you scale the solution ?
  • Who are the end customers ?
  • What is the relative power between suppliers and buyers ?
  • What are the barriers to entry ?
  • What returns do we expect for VC vs Private Equity ?

Some of the things we discussed in our groups were the ;

  • Market Opportunity ; the Dynamics, the TAM size and growth, and the attractiveness
  • Startup Advantages ; The potential for disruption, with breakthrough technology , Return on invested capital
  • Private Equity Advantages ; Revenue Stream Profile, Risk Profile, Return on Invested Capital
  • Team & Capabilities ; Did they have Domain Expertise ? Was there Founder – Market Fit ?

There was very lively discussion both in the breakout groups and also when we all got back together. There was a wide range of opinions on whether to invest or not and for how much.

The last hour we had a Q&A session with Chris Power, Founder & CEO of Hadrian

It was a very interesting and informative session where we got to use a lot of what we had learned to date.

Case Study – Varda

The seventh session of the Course on “The Business and Economics of Space” was on Monday, Nov 29. This session was a case study on a startup company looking to do In-Orbit Manufacturing , Varda Space.

We were to use the classic Harvard Business School Case Study method to analyze a potential seed investment in Varda. The scenario was that we were a $200M seed-stage VC fund. We were given an early Varda deck for fundraising. Then using the tools and techniques and knowledge we had learned in the course we broke out into teams to discuss the following;

  • Do we invest ?
  • How much ?
  • At What Valuation ?

I wont share the deck or discuss the specifics of Varda here. For that I suggest taking the Course !

Some of the things we discussed in our groups were the ;

  • Market Opportunity ; the Dynamics, the TAM size and growth, and the Attractiveness
  • Technology Advantages : what was the potential for Disruption ? What was their breakthrough tech ?
  • Product Readiness ; How was the Fit to Customers, to the Market ?
  • Product Advantages ; Vision and Roadmap, Category Leadership
  • Growth Readiness ; Was there a Sustainable Competitive Advantage ?
  • Team & Capabilities ; Did they have Domain Expertise ? Was there Founder – Market Fit ?

There was very lively discussion both in the breakout groups and also when we all got back together. There was a wide range of opinions on whether to invest or not and for how much.

The last hour we had a Q&A session with Delian Asparouhov, a Principal at Founders Fund and Cofounder of Varda Space Industries.

It was a very interesting and informative session where we got to use a lot of what we had learned to date.

D-Orbit – Space Logistics

This weekend I listened to the Space Business Podcast hosted by Raphael Roettgen, where his guest was Luca Rossettini, founder and CEO of D-Orbit, one of the most prominent European NewSpace companies. It was very interesting and informative and you can find it here.

I thought I would use some of the tools and techniques that I have been studying in the course on “The Business and Economics of Space” with Sinead O’Sullivan. Tonight we are doing a case study on Varda Space, tomorrow on Hadrian so today I thought I would practice with a look at D-Orbit. Their website is available here.

Founded in 2011, D-Orbit is the first company addressing the logistics needs of the space market.
The Company is based in Como, Italy, it has subsidiaries in Lisbon, Portugal, Washington DC, and Harwell, UK.

One of the first things that caught my eye as a key differentiator is that D-Orbit was one of the first European companies to be registered as a Benefit Corporation, and the first certified space B-Corp worldwide ! D-Orbit places equal emphasis on three pillars: profit, social benefit, and global impact. Their products and services are designed to solve global challenges with a high social impact. D-Orbit’s business approach goes beyond the mere economic benefit: all of their activities aim at producing a wider benefit that can impact positively on humanity.

Their Vision is to create the first space logistics infrastructure company to enable the next trillion-dollar space economy. The Mission is to provide end-to-end solutions to improve new and traditional space businesses by streamlining in-space and on-ground operations with unique, innovative and proprietary technologies. So what does that mean ?

D-Orbit is a service provider for the traditional and new space sectors, with capabilities in satellite manufacturing, launch, deployment, satellite operations, end-of-life strategies and solutions, space propulsion, and critical software. The initial offering was focused on the last phase of satellite missions, i.e. orbital debris mitigation. Today their products and services cover the entire lifecycle of a space mission, including mission analysis and design, engineering, manufacturing, integration, testing, launch, orbital transportation, and end-of-life decommissioning. The future roadmap is even more exciting expanding capabilities to the cis lunar and inter-planetary markets. D-Orbit is well positioned to benefit from a rapidly growing space economy that is expected to grow from 2020’s $425B estimated size (Space Foundation) to over $1.4Trillion in 2030 (Bank of America, Morgan Stanley)

D-Orbit already has an impressive record of flight heritage. They have successfully launched 63 payloads to date for paying customers. The current flagship platform is the iON (in-Orbit Now) , a platform capable of transporting a customer’s satellites into the right orbit and right place in space. They can raise satellites to 1,200 km, change planes, even change inclinations. This solves a number of issues for their customers, not only reducing the cost of launching their satellites but also getting them into the proper orbit and generating revenue faster.

In the rapidly evolving NewSpace market where LEO (Low Earth Orbit) market is king we are moving from an environment where there are 3,300 satellites operating today to one where there have been announcements for another 65,000 more sats to be launched in the next decade. LEO sats are built for shorter lifespans (ie 2 to 3 years) than traditional legacy GEO sats that were designed for 15 years lifespans. Time to revenue is hugely important to them, they don’t want to spend 25% of the sat life just getting into the proper orbit so D-Orbit is ideally positioned to grow.

If that was not impressive enough, the iON is designed to do even more. Once its satellite loads have been launched, the ION can be used as a testbed to validate hosted payloads. If a NewSpace company wants to validate and test their technology or sensor in space they can hitch a ride on the iON to test it there. Wait, there’s more ! The ION can also be used as an orbital data centre, and in the future be scaled with advanced robotics for in-orbit servicing to satellite operators; refilling, phasing, maintenance and eventually active debris removal ! Multiple missions and revenue streams from the same platform !

There have been three successful iON missions to date , Origin (launched Sept 2020), Pulse (Jan 2021) and WildRide (June 2021). The first was on an Arianspace Vega with the latter two launches on SpaceX Falcon9 Rideshares. There is another launch scheduled for December of this year per press releases on their twitter account. I also saw an announcement that they will be testing ION with India’s Skyroot Vikram launch vehicle so it looks like iON is designed to be compatible with many different launch vehicles.

On the latest mission I also read about their Nebula project as well. (read more here) Nebula is a game changer; an on-demand, in-orbit cloud computing, and data storage service. Designed to provide distributed high-performance data analytics computing and storage capabilities in space, Nebula is a hardware-software environment that enables end-users to uplink and run software and artificial intelligence and machine learning (AI/ML) apps in a way similar to conventional, terrestrial cloud environments. The test campaign successfully executed 23 separate applications developed by a variety of partners for disaster monitoring, video and image data transfer optimization, space domain awareness, advanced image processing for precision agriculture, defense early warning, and integrated satellite communication.

D-Orbit also provides space Components and Subsystems as well as their proprietary cloud based mission control software suite, Aurora . They are well positioned to provide a host of services to their satellite customer base. Satisfied customers, lead to repeat business as their constellations and networks grow.

The podcast highlighted the future roadmap of D-Orbit, a step-by-step expansion alongside their customers into the growing NewSpace Ecosystem. The longer term markets would include transporting to the cis-lunar market, inter-planetary (very complementary to the large rockets being planned for such missions), asteroids ; anywhere where there is a need for transport of people and goods in space.

My Deep Dive into D-Orbit left me very impressed with their technology, their heritage, the roadmap and the team. The commitment to sustainability and being a B-Corp also definitely sets them apart. This is a company with a very bright and long future ahead of them. They have proprietary solutions for a growing market, have been able to technically and commercially validate their approach and have an exciting roadmap for growing alongside their customers. Plus, unlike some of the companies I have read about recently they actually have revenues from paying customers !

This is definitely a company I will be keeping a close eye on and will watch with interest.

Space Law & Geopolitics

Will Caterpiller and John Deere become Space companies ?

The sixth session of the Course on “The Business and Economics of Space” was on Thursday, Nov 18. This session was on Space Law, Geopolitics and Sustainability. From a commercial viewpoint the session would help answer questions about appropriate legal frameworks if you wanted to find, own, use or sell space resources. It was also very timely due to a recent geopolitical event with the Russians blowing up one of their defunct satellites with no warning to the rest of the world.

The key takeaways were in the following areas
– There are a variety on National and International Legal Frameworks on Use of Space Resources
– What the Regulatory Roadmap would look like for Commercial Space Miners
– A primer on Geopolitics from our cohort member, Joseph Abakunda
– The need to enforce responsible behaviour of space for the benefit of all

To guide us on the legal aspects of exploiting space resources we had a guest professor Christopher Johnson. In his in depth presentation he discussed

· the 1967 Outer Space Treaty - Rights, Obligations and Prohibitions
· the 1979 Moon Agreement
· National Approaches ; USA, Luxembourg, UAE, Japan
· International Approaches; UN Working Group on Space Resources 
· NASA and USA led Artemis Accords
· Regulatory Roadmap for Asteroid Miners

I won’t get into the details of the legal frameworks that he outlined. Interested readers can find resources online on each of those treaties and legal frameworks. As a Canadian , who grew up in Northern Ontario hard rock mining country, I was very interested in what the regulatory roadmap look like for space miners , whether asteroids, lunar or other planets. There will be a role for Canadian mining and geophysical expertise in such ventures (plus I am old enough to remember when the Apollo astronauts came to my hometown of Sudbury, ON to train for their eventual lunar missions because of our black rock !)

United Nations Committee on the Peaceful Uses of Outer Space

The Artemis Accords drafted by NASA and the U.S. Department of State, the Accords establish a framework for cooperation in the civil exploration and peaceful use of the Moon, Mars, and other astronomical objects like asteriods.They are explicitly grounded in the United Nations Outer Space Treaty of 1967, which signatories are obliged to uphold, and cite most major U.N.-brokered conventions constituting space law.

Even under the Artemis Accords there remain many open questions to space resource exploitation;

· What governmental agency should you seek permission from ?
· What is the application process like ? What do you need to disclose ?
· How long does it take, how much does it cost ?
· How is an interest in a space resource perfected
   a) Just claim it and its yours ? Or do you have to protect it first
   b) What is to prevent a "gold rush "of claims ? Klondike days in space !
   c) Whats the review process for applications of claims ? Interagency ? International ?
   d) Will a regulator enforce claims against "claim jumpers" ?
· What are the limits or boundaries of a permit to mine space resources ?
   Time bound ? i.e. you can mine location x for y years
   Extent bound ?  i.e. you can recover x tons or resource y (but nothing else)
   Activity bound ? i.e. you can mine, but must sell to x, or utilize only for y purpose

That led me to think that there are a lot of similarities to the law and practices that have evolved in other frontiers such as the Ocean, Antarctica, the Internet and radio. There are two great books that come to mind for those interested; “The Pirate Organization : Lessons from the Fringes of Capitalism” by Rodolphe Durand and Jean-Philippe Vergne and “The Outlaw Ocean : Journeys Across the Last Untamed Frontier” by Ian Urbina. You can find more about them here and here

We then got a primer in Space Geopolitics, from Joseph Abakunda of the Rwanda Space Agency. Joseph told us of the activities of China, on the African continent, with their Belt and Road Initiative . China would finance enormous loans to developing nations for building infrastructure . The loans became a Debt trap when the nations could not afford to repay and were forced to cede China with goods, land, strategic resources or ports. Often there were corruption scandals, and human rights violations. This is underreported here in North America.

We then had two distinguished guests; Dan Ceperley, the Founder and CEO of LeoLabs and Christopher Johnson of the Secure World Foundation. We had a lively hour long Q&A session mainly centred around the recent Russian DA-ASAT test .

LeoLabs image with ISS in Orange and Space Debris created as thos white circles

Russia’s surprise direct-ascent anti-satellite (DA-ASAT) missile test on Nov 15, blowing apart a defunct Russian satellite raised important legal and policy questions about the prohibition on the use of force in outer space. The highly destructive weapons test – which forced astronauts aboard the International Space Station to seek shelter and created a long-lasting field of space debris – underscores the need to urgently develop and enforce international standards for responsible behaviour in space.

Two hours went by quickly but we were able to at least get a taste of some of the very complicated issues in the Space law and Geopolitical realms.

Deep Dive Space Tourism & Exploration

The fifth session of the Course on “The Business and Economics of Space” was on Tuesday, Nov 16. This session was a Deep Dive into Space Tourism and Exploration. You can find my earlier post on the Deep Dive into Launch and Satellites here.

Space was in the mainstream news this summer with plenty of excitement over Jeff Bezos and Richard Branson becoming “astronauts” as each took short flights to sub-orbital space on their own company’s rockets. This was followed by the Inspiration 4 mission by SpaceX launching a crew of four civilians for a 3 day orbital flight that also served as a fundraiser for St. Jude Children’s Research Hospital. These events kicked off a new era of space travel in which billionaire-backed companies offer high-flying excursions to anyone who can afford it.

Space Tourism, however, has been around a lot longer than that. Dennis Tito was able to visit the ISS as a private citizen in 2001. The trip was conducted by the Russian Space Agency (Roscosmos) and arranged by Space Adventures. This was well before Blue Origin, Virgin Galactic and SpaceX were founded.

How does one commercialize Space Tourism ? We have to look beyond the technology to see what the problem is these companies are trying to solve ; ie what is the customer use case ? The core problem is to figure out what is the job to be done. One of the most famous quotes in marketing comes from HBS Professor Theodore Levitt: “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!”

We can get some idea by looking at the charts below to see the functional jobs that need to be done for a Virgin Galactic flight to space, followed by a chart showing the personal journey each customer gets when they sign up for a flight on VG. Perhaps Space Tourism has more in common with Disney rather than a rocket company ?

It is apparent that what Virgin Galactic is selling is a luxury good item, a premium experience that offers High Net Worth signalling. There are segments of the population that it would appeal to, those into conspicuous consumption and those looking for a unique adventure like going to Antarctica or climbing Mount Everest.

In the previous session we debated the price elasticity of rocket launches, and if demand for them rose as the price declined. Space tourism does not follow a typical demand curve, demand does not go up when the price declines, as it would lose the “snob value”. It is more like a type of good called a “Veblen Good”. Wealthy people by luxury goods for many reasons and will spend a lot of money on what they want. A Space Tourism company needs to be able to fulfill these needs at the highest efficiency to maximize returns.

What then happens if there is democratization and expansion of the space tourism industry , if it moves beyond a bespoke , luxury experience through efficiencies of scale to one that more and more people could afford ? Will the demand curve shift to one more like a business class airline ticket ? Perhaps these flights evolve from tourist hops to rapid continental travel to disrupt that industry.

The other topic we looked at this session was the economics of space exploration. What was the utility of the Space to Earth economy, the Space to Space economy or Earth to Space ? There are examples of each of those that were examined, for example the often touted mining of asteroids . There are potential asteroids that may have resources that might be valued in the trillions of dollars. Finding one and actually being able to extract those resources and bring them back to Earth is a whole different story. What would happen to the market for such scarce precious metals if they were brought back in bulk ? Supply demand curves would indicate that prices would decline.

Perhaps there would be better use cases for mining asteroids, or the Moon or Mars for resources in the Space-Space economy. It is expensive to launch everything required for establishing space stations, Lunar (or Martian) outposts from Earth. Ideally resources for fabrication, for fuel as well as oxygen and water for life could be obtained from these sources.

That assumes that there is an intrinsic utility in establishing such outposts in space. There are those who advocate moving heavy industry to space to avoid polluting the Earth further. Others tout establishing humanity on Mars so be a multi-planetary species to avoid the eventual extinction events of being only on Earth. Space exploration ties into the natural urge of humans to explore new frontiers, and Space is the ultimate frontier.

These were all topics worthy of discussion, especially with the guests we had in the second hour of the Session; retired NASA astronaut Nicole Strott and Blue Origin’s Head of Corporate Strategy Kylie Lucas and Corporate Development, Zach Havanec.

Deep Dive Launch & Satellites

The fourth session of the Course on “The Business and Economics of Space” was on Monday, Nov 15. This session was a Deep Dive into the launch and satellite markets. You can find my earlier posts on the first three sessions here, here and here.

The key takeaways were in the following areas
– Launch is hard . Only a handful of NewSpace companies have successfully launched to orbit
– Launch is a Supply Chain Driven market that is highly competitive
– Satellite market is driven by Demand Side
– Satellite use cases like EO are not (yet) scalable and do not follow SaaS investment models

Launch is always the sexy part of space. Who doesn’t get a thrill watching a rocket blast off into space ! We are seeing to two forms of Disruption happening concurrently in the NewSpace model;

  • Businesses that are taking on the activities that NASA used to do
  • Businesses that are taking on the activities that the primes are currently doing

Launch is a good example of the second form.

Boeing is the poster child of the Prime that lost its way. A storied engineering and manufacturing company that after a leadership change ended up being run by MBAs and financial types who were more focussed on cost optimization. They decided to farm out all hardware, components, parts, assemblies and sub-systems to suppliers as a financial decision. Their focus was just on the system level integration. The number of companies manufacturing those 100,000 precision parts declined through consolidation led by Precision Castparts. PCC realized that these niche manufacturers had little competition. They could buy them and raise prices, and new entrants would be kept at bay by quality and regulatory barriers.

Old Space launch prices rose to the point the US government begged to use EU and Russian launch vehicles. Lockheed and Boeing convinced the government to bless a merger called United Launch Alliance (ULA) to reverse their losses. The government could maintain American launch capability (at far above market prices) for national security launches and ULA wold keep both the Atlas and Delta families of rockets. It was a bloated system with no innovation and high costs, all at the expense of the American taxpayer.

Boeing and Lockheed have both kept their in-house space businesses that feasted on cost-plus government contracts. Their lack of competitiveness became exposed in the new environment of fixed cost contracts in the COTS environment. The Boeing Space Launch System (SLS) is a good example of this. It is years overdue and billions over budget.

Competition to the primes is coming from NewSpace Launch providers, like SpaceX. SpaceX decided early on to vertically integrate. They make as many of the parts and components in-house as possible to be able to control the total supply chain. It not only reduces the costs dramatically, it also means the process is resilient and robust. Rockets can be classified by their Payload Capacity to LEO. The chart below shows the differences between four classes of rockets with examples such as SpaceX Falcon 9 and RocketLab’s Electron.

Vertical Integration is one factor but what if you could also horizontally integrate ? What if you not only provide launch services but can control your own launch manifest and cadence by increasing demand with your own satellites ? Let’s look at the demand side for launches, which mainly come from the satellite industry.

Satellites are classified by the orbit that they operate in. Geosynchronous orbit (GEO) is 36,000 km above the surface of the Earth. At this altitude a satellite appears stationary to someone looking up from Earth. This is where legacy communications satellites used to be parked. You could cover the whole surface of the Earth (outside of the polar regions) with only 3 sats. It is a great spot to beam down TV signals from, but it has drawbacks for communications purposes (ever try to talk over a satellite connection and experience the delay ?). Lower orbits like Medium (MEO) and Low-Earth Orbit (LEO) take a lot more satellites to provide global coverage, but have a lot of advantages as outlined in the chart below.

Often in NewSpace S1 documents filed with the SEC before they go public, you read a variation on this quote; “Over the past decade, launch costs have been lowered by an order of magnitude, thus laying the foundation for the emergence of a new, expansive space economy. But is it true ?

On average the real cost to launch to GEO has dropped by 30% in the last 3 decades, while the price to launch to LEO has dropped by 50% in the same time period. The rollout of the SpaceX Falcon 9 and its aggressive pricing policy has been responsible for most of this decline. But has cheaper prices led to a boom in demand ? That issue is still being debated by economists since much of the increase in satellites being launched have come from SpaceX Starlink satellites ; the aforementioned horizontal integration. They are creating their own demand, with almost weekly launches in the first half of 2021.

That demand is being led by consumers, the classic “serving the underserved” or “connecting the unconnected” business case. This is the market that Starlink and OneWeb are trying to serve. It is also one that has historically led to bankruptcy for those that tried it (Teledesic, Globalstar & Iridium back 20 years ago, LeoSat and even OneWeb last March !) It is not because of lower launch prices.

If we look at the next biggest use case for satellite constellations, Earth Observation (EO), it is still difficult to see a business case. The commercial demand for EO is not nearly as robust as for SatCom. The government and lettered agencies (NASA, NOAA, DoD, CIA, etc) are the primary market for EO data still. We are waiting for clear commercial customer demand to emerge. Typical EO is not yet scalable and doesn’t follow the SaaS investment model, regardless of what their SPAC investment decks purport !

The speakers for the second half were Josh Brost, VP of Relativity Space and Rei Goffer, Co-Founder of . Both had interesting comments and insights into the launch and satellite markets respectively.

Space Financing; VC, PE & SPACs

The third session of the Course on “The Business and Economics of Space” was on Thursday, Nov 11. This time the topic was the Financing of the Commercial NewSpace Industry. You can find my earlier posts on the first two sessions here and here. This post will contain not just what was covered in the course but also my personal opinions of the various financing options available to a NewSpace venture.

The key takeaways were in the following areas
– The funding cycle of high Growth Businesses
– Private Market Financing options such as Angels, VC and PE
– Public Market Financing alternatives such as IPO, SPAC and Direct Listing

First, lets take a look at the activity in Space Financing in 2020. The chart below shows that $7.6B (all figures in US$) was invested in start-up space companies. We are seeing more funding, to more companies from a bigger pool of investors than ever before. Almost two thirds of the investment comes from Venture Capital Firms. More on Space VC’s later.

The bulk of the funds went to a handful of companies ; SpaceX, OneWeb, Relativity etc as their follow on rounds were larger and larger.

If we look at the trends over time, two things become apparent. The magnitude invested in start-up space companies was fairly stable from 2015 to 2018 and then exploded from 2019 to now. Public offerings also entered the mix with Virgin Galactic going public via a SPAC deal in 2019 leading to an explosion in space firms going public.

At each stage of a start-up companies life, there are financing options that are appropriate to their needs. Each option has trade-offs, positives and negatives that can influence the founders or company’s management on deciding which way to go. The next chart highlights investment options such as Angel investors, VC’s, Private Equity, Corporate money, Banks and Public Markets.

Initially, a start-up is usually boot-strapped by its founders. All of my companies; AurorA, Amitel, AMI Telecom etc were all boot-strapped as I chose to never take outside investment. All growth was funded from internal cash flow. Obviously that is a constraint , but it also fosters self-discipline. Conversely , I was able to retain 100% of the equity as well as 100% of the decision making. Once a company takes outside investment, the management is responsible to make decisions for the welfare of all the shareholders. Some of those shareholders may demand representation on the Board of Directors and may have a vision for the company that is not aligned with what management would like to see.

Raising less money, or raising it later in the company’s timeline can lead to better outcomes. Industry dynamics play a key role as a analytics based SaaS space business is very different from a capital intensive hardware based space business. Taking investment capital too soon, with too much dilution can lead to poor consequences. In theory, VC’s should provide no only cash but validation as well and also guidance such as advice, connections and resources. Choose your VC partner wisely though, because VC’s take big bets on risky companies because they want a big payoff.

If we look back at the chart, you can see that each form of financing has a typical lifetime or exit horizon. Angel money typically comes from “Friends and Family” or Seasoned Investors that have been in the sector of your business. It is patient money, not looking for a quick exit; usually it is heavily invested in the dream of the founders to see the venture succeed .

VC firms operate on a different model. They raise funds from a group of limited partners with the intent in investing in a selected group of very high, very fast growth companies. The fund will typically be wound up in six to eight years and the portfolio operates according to a power law rule i.e. one or two home runs (10x to 30x) from a portfolio of ten to twenty companies. Taking money from the wrong VC could be disastrous; they may push management for insanely fast growth at all costs.

For the investors to make money, they have to be able to exit the investment. If an exit comes up for a venture backed company, say an acquisition offer from a strategic buyer or corporation that would let all parties have 50% returns, the VC may not be interested and veto it (if that right is in their term sheet). Such an exit would have little impact on their portfolio. Often VC’s operate from a “go big or go home” mentality which may be at odds with the management team’s desires.

Space companies tend to be very capital intensive by nature. Whether a launch company, a satellite constellation Earth Observation company, or any form of antenna or Earth Station network provider, often times a very significant upfront capital investment is required before any revenue is seen. If we look at the chart above, the business financing cycle for a typical company, for a space company that Valley of Death is often much deeper and extends much longer into the timeline. Thus they are riskier investments with long time horizons.

Ideally, each stage of investment raised by the start-up company is deployed to make the whole venture more valuable. Angel and seed money let the founders prove the concept. The Series A will fund them enough to be able to retire some risk, perhaps technical risk. Another round may validate the product market fit, or scale up. At each stage the valuation should be growing to be able to justify the dilution of taking on additional investment.

Continuing on the venture backed path, or taking money from private equity investors can work for a space company. Staying on that path has costs too; like everything in life there are tradeoffs. There is the obvious dilution from each VC round raised as well as more and more restrictive terms and covenants. The CEO and CFO may find they are on a constant treadmill of fundraising, spending most of their time raising capital rather than growing the business. Running out of cash means death, so you have to keep meeting milestones to justify the next round to keep extending your runway.

The final point about VC’s ; choose your VC partner carefully. You want one that has loads of Deep Tech or SpaceTech experience, that can truly provide the advice, guidance and networking I mentioned above. Seraphim Capital or Promus Ventures are two good examples of VC’s with deep sector experience. Vinod Khosla, founder of Khosla Ventures, has said that most VCs “haven’t done sh*t” to help startups through difficult times, and he estimated that “70% to 80% percent [of VCs] add negative value to a startup in their advising.”

At some point it makes sense to look at taking the company public. This means listing the company on a public stock exchange like the NASDAQ, NYSE, TSX or LSE. This can be done with an Initial Public Offering (IPO), Special Purpose Acquisition Fund (SPAC) or Direct Listing.

Operating as a public company requires a lot of preparation from the management team. They have to be ready for the public scrutiny, as their financial results will be reported to the public every quarter. They will need to ensure their past financial results are fully audited and meet the proper accounting standards. Often the C-Suite team will need to be augmented with new hires familiar with the rigour of operating as a public firm including investor relations, communications, human resources let alone an experienced CFO and legal counsel.

But the advantages are numerous. First, being public provides liquidity for the shares. Not only is there an exit for previous investors, but you can provide employees and management with stock option based compensation that is readily cashable. Future fundraising is far less onerous once you are public as you can tap the debt and equity markets easier. If your business strategy involves acquisitions then the company can use its shares as currency for the transaction, retaining precious cash.

The IPO process can be very onerous and time consuming. After preparing the company in a process that can take up to a year, and a time sucking roadshow, the investment bankers retained decide upon a valuation for the company and a share price. Often times even the best banks can be off on what they expect the public to see as fair valuation for the company. Thus there is no guarantee for the amount of money that can be raised in the IPO. The end result can be disappointing a) for not raising sufficient funds in the IPO or b) for underpricing the offering and leaving too much value on the table.

SPACs offer a different and faster route to go public that have some very unique features that are very advantageous , especially to a space firm. The SPAC sponsor team sets up what is known as a blank cheque company on the stock exchange . The SPAC files with the SEC and the exchange and then does its own simplified IPO to raise funds that are held in a trust account. They then seek to merge with a target company in what is known as a reverse merger. The target space firm and SPAC negotiate an agreement that may take a few months and the company can negotiate a valuation and the guaranteed cash proceeds that it requires.

Once a deal is struck, typically the SPAC investment bankers will raise a PIPE (Private Investment in Public Equity) with institutional investors. This ensures that outside institutional investors can vet the transaction and valuation, raising confidence in the deal. Also, the PIPE money, along with the funds in the trust, will be used to meet the minimum cash thresholds needed by the space company.

When the deal is announced, both the shareholders of the target company and the shareholders of the SPAC vote on the deal. In the presentation deck prepared for the transaction, the target is allowed to use forward looking statements. That is not allowed during a traditional IPO, where you are limited to showing audited historical results. Imagine a space company that has had significant upfront CAPEX expenses and is just emerging from the “Valley of Death”. Would it not be advantageous to show potential investors the type of forecasted future revenue and cash flows from all that investment ?

There are concerns that have been expressed by some who consider public stock markets to be a casino, exhibiting irrational behaviour. That the purpose of SPACs and the market in general is only to provide an opportunity to sell overvalued equity to a “Greater Fool” . Personally, I think that fear is overstated. In my view we have had over a decade when too many great companies stayed private, became “unicorns” with billion dollar valuations but weren’t available for the general public to be able to invest in.

There is a great appetite from the public to invest in Space, whetted when they read stories online and see the exploits of companies like SpaceX and Blue Origin. When Virgin Orbit went public via a SPAC in 2019, it received the benefit of this space halo because the public had no other vehicles to invest in. Now there are over a dozen public NewSpace companies that have SPACed, and more will follow.

There has been a study by McKinsey in September of 2020 (here) that made a very astute observation.

One year after merging, operator-led SPACs outperformed both other SPACs (by about 40 percent) and their sectors (by about 10 percent). “Operator led” means a SPAC whose leadership (chair or CEO) has former C-suite operating experience (versus purely financial or investing experience). The findings, while not statistically significant, strongly suggest that operators make a meaningful difference. Operator-led SPACs behave differently from other SPACs in two ways: they specialize more effectively, and they take greater responsibility for the combination’s success.

So just like in choosing the right VC to partner with, if your are looking to go public via the SPAC route, it is imperative to choose the right sponsor team. Celebrities, or large Private Equity or VC led SPACs may not align with what your goals are. The right sponsor team will take a long term approach with you to not only complete the transaction successfully but also provide guidance into being a successful public company and managing the quarterly scrutiny that entails.

Ad Astra !

Private Sector Space

Really Big !

The second session of the Course on “The Business and Economics of Space” was on Tuesday, Nov 9. This time the topic was the Private Sector of the Space Industry, as distinct from the government, civil or military side. You can find my earlier posts on the first session here, as well as my remarks from pre-school here and here.

The key takeaways were trying to answer three basic questions.
– How big IS the Space Economy ?
– What does the Industry Supply and Demand look like ?
– What are the current industry dynamics ?

There is no easy answer to the question of measuring the size of the Space economy. Different people and organizations come up with different estimates as there is disagreement about how it should be measured. We know that some reports, such as a very busy industry map from SpaceTech Analytics, grossly overestimate who is a space company. Estimates from reliable sources like Euroconsult and Bryce Tech would put the range from $290B to $370B

Image from Bryce Tech 2020 Sat Industry Stats

One of my personal favourite sources is the Space Foundation and their quarterly Space Report. They estimated the Global Space Economy in 2020 as $446.88 B

Image from the Space Foundation 2021 Q2 Space Report

The breakdowns are interesting for people outside of the space bubble. Roughly just over a third of the revenues are from Ground equipment and just under a third from Satellite services. Government Space Budgets (including Human Spaceflight) are about 27% of the total with the USA by far the biggest of that. Sat manufacturing (3%) and the sexy launch sector (only 1.5% or $5.3B) round it out. Launch gets a lot of attention but it is not a large amount of the total.

How fast is this growing ? Well, the average CAGR is about 4.3 % per annum but that hides a lot of variation within sub sectors. One of the biggest satellite service sectors is TV, particularly Direct-to-Home (DTH) service like Dish & DirectTV or Bell & Shaw Sat TV in Canada. Streaming services like Netflix and Amazon Prime have caused a lot of cord cutting, not only of cable connections but also Satellite TV connections. Hence it is declining by about 8% annually.

Yet, there are industry forecasts that are regularly touted that space will grow tremendously in the next decade. Most famously there is the Morgan Stanley forecast (here) that says Space Sector will be a $1Trillion industry by 2040. Bank of America (here) expects the space economy to triple in the next decade to $1.4 trillion. The U.S. Chamber of Commerce estimates the space economy will grow from approximately $385B in 2017 to $1.5 trillion by 2040.

Where is this forecasted explosive growth going to come from ? Especially if cash cows lie DTH TV are declining. That is the trillion dollar question. That is why we are taking this course !

Where is the demand for space economy services coming from? Historically it was governments, and specifically the U.S. government and its lettered agencies (NOAA, NRO, DOD etc). Currently the public sector still dominates the demand side outside of Satellite Communications (SatCom). The key would be to see more space services migrate to a model where the government as just an anchor tenant and then eventually to be just one customer among many to a private venture. That is the holy grail.

Who are the space sector actors trying to solve this riddle, pursuing this holy grail ? Some are household names now due to their famous billionaire founders ; Musk’s SpaceX & Starlink, Bezos’s Blue Origin & Project Kuiper and Branson’s Virgin Galactic & Virgin Orbit. But there are hosts of companies, as shown in this industry map by Seraphim Capital, the largest Space VC and now a publicly traded investment trust in London, U.K.

Image from Seraphim Capital SpaceTech Map 2020

The next session will be on Space Financing. Really looking forward to this session ! Expecting to learn more about IPO’s, SPACs and Valuations. Stay tuned for my synopsis on that session next.


SpaceX Falcon Heavy Launch

The first session of the course on “The Business and Economics of the Space” was last night, Monday Nov 8. The topic was the History of Space and the Contemporary Space Agency. My key takeaway from the session was the rise of the NewSpace industry.

Earlier this summer I wrote about “Space; the final telco frontier” here. Much of the subject matter of the history of space is covered there. I did get a great comment on my post from Charles Miller, the CEO of Lynk who was also co-founder of NanoRacks and founder of ProSpace, a non-profit that lobbied to space policy legislation on Capital Hill including passage of the Commercial Space Act of 1998. He went on the be Senior Advisor for Commercial Space at NASA. He told me that he was part of the movement to jump start the industry and helped coin the term “NewSpace” in the early ’00s.

Access to space used to be limited to governments, specifically those of the United States, Russia and China. The “Space Race” in the 1960’s between the Soviet Union and the Americans during the Mercury, Gemini and Apollo programs could only be funded by national governments . Government contractors built the rockets and other equipment and they were typically subsidiaries of the defence industry. Those contracts were for cost-plus and programs were large, expensive, bureaucratic and slow.

There was a commercial space industry in SatCom after the USA passed the 1962 Communications Satellite Act that enabled private companies to own and operate satellites. We saw the launch of the Telstar satellites , Intelsat and our course Canada’s own Anik 1. The world could relay television, telephone and high speed data communications across the oceans ! It was an application of space that was private and commercial and not tied to civil, defence or the military.

NewSpace accelerated the move to privatization and commercialization of space beyond just SatCom. Through those early efforts of people like Charles, NASA and other space agencies expanded the playing field beyond Prime Contractors and Cost Plus programs. They moved to Build-to-Order and Public-Private Partnerships which was a game changer for the space industry. Contracts based on competition, performance and fixed price milestones moved more of the risk from governments and space agencies to the private sector.

With New Space we have witnessed the emergence of novel actors, primarily private and their ventures and implications for the global space sector. Some names are known widely like SpaceX, Blue Origin, Virgin. There have been billions invested in startup ventures, not only by VC’s and private equity, but also by the public markets. A dozen NewSpace startups have gone public, or are in the process of going public, using SPACs. The space industry is ready to explode with opportunities that have been unleashed by entrepreneurs.

I am looking forward to the rest of the sessions in the course as we dive deeper now into those opportunities and ventures.

Ad Astra


Tomorrow, Monday Nov 8 is the first session of the course I am taking on the Business and Economics of Space. The last few days I have been getting acquainted with the student portal and going through the onboarding process.

Also, I have met my peers on this journey. What an impressive group of people ! We were encouraged to introduce ourselves to each other on the site, so I did that plus reached out to connect with them on LinkedIn and follow them on Twitter as well, if they were users of the platform.

Some interesting trivia about our cohort;

It is a diverse group by many metrics. A quarter of the group is female, which I was pleased to see. Often at telecom events the ratio skews much lower than that.

I am not the only one that can claim to have seen Neil Armstrong take his historic steps on the Moon back on July 20, 1969 live on TV. About 15% of us qualify as “experienced” !

Two thirds of the class are from the United States with a full third being international. Strong representation from Australia, with Canada coming in second most. Other nationals from the UK, Ireland, New Zealand , Germany, Belgium, Sweden, Spain, India, Singapore, Oman and Rwanda were also represented. I was a little surprised not to see more from the UK and also would have expected Italian students.

There were far less Twitter users among this cohort of people than I expected. Space Twitter is a real thing, and they are a great group of people. There is a lot of good info on Space Twitter and sharing of information. Genuine camaraderie. I think I may have to advocate that they check it out. Twitter doesn’t have to be toxic; if you avoid the hot button topics it can actually be a good experience !

After tomorrow’s class I will try to write a synopsis of the material. It is on the History of Space and the Contemporary Space Agency. Fingers crossed that is, as i promises to be a very full day otherwise.