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.

Back to School

Some of you may have noticed that I write on here about more than just international telecom. There are book reviews, conferences that I attend, the fight against telecom fraud and space. On my twitter feed and LinkedIn there is also more and more about space. Why is that ?

The NewSpace industry is one that has captured my attention and interest. There are so many parallels between what is happening in space right now and where we were in telecom back in the go-go days of liberalization and deregulation in the ’80s and ’90s. From a telecom perspective, there is over a petabyte of data coming down daily just from the Earth Observation satellites. The amount of bandwidth available for providing broadband from space is about to increase 30x ! Telecom edge computing is not just migrating from the data centre to the hyperscalers (AWS, Azure and GCS) but also 1000 km up into Low Earth Orbit (LEO )

Need less to say I am excited about the opportunities. So I am going back to school ; I am lucky enough to have been accepted into the cohort for a live course on the Business and Economics of Space.

The instructor is the brilliant Sinead O’Sullivan. Sinead is a global expert in space economics and early-stage space businesses. Currently at Harvard Business School, she works with governmental space agencies, CEOs and investors to understand space market dynamics, identify sector opportunities, create strategies for growth and execute in challenging environments within the aerospace & defense sector

Beginning her career as an aerospace engineer, she project-managed human spaceflight missions at NASA and the Jet Propulsion Laboratory, designed a satellite constellation with the Brazilian Space Agency and worked on astronaut training for long-duration missions at the European Space Agency.

Now working in the business and economics of space, she works with emerging national space agencies to develop local space economies within the private, startup sectors. She sits on the Board and Advisory Board of over $1 billion of early-stage space investment funds. She advises and invests in several startups from the earliest pre-seed stage right through to IPO. She is in space-specific leadership positions within prestigious organizations such as Sainsbury Management Fellows, Royal Aeronautical Society, the International Astronautical Federation, the US Center for Climate and Security and the Harvard Rock Center for Entrepreneurship.

The course is aimed at Aspiring Founders, Investors and those seeking a career in space related startups or enterprises. There will be guest speakers and cohort members from all aspects of the space industry including SpaceX, NASA, LeoLabs, Virgin Galactic, Axiom Space , RocketLab, Varda, Lux and Founders Fund. The chance to work and build a network of space business leaders is invaluable.

The sessions will cover topics like
1 – The History of Space and the Contemporary Space Agency
2 – Private Sector Space
3 – Space Financing
4 – A Deep Dive into Launch and Satellites
5 – A Deep Dive in Space Tourism and Exploration
6 – Space Law and Geopolitics
7 – Case Study ; Varda Space and In-Orbit Manufacturing
8 – Case Study – Hadrian and On-Earth Manufacturing

This will be vary exciting but also a huge challenge ! I will still be operating AurorA and Amitel, doing my Movember fundraiser by doing 200 Kettlebell swings a day and taking these courses all throughout November. Plus making sure everyone in the family gets a good breakfast and that we eat together at dinner. Nothing I cant handle !

If you are interested you can find more details on this course here

If I find the time, I will try to post an occasional summary on here of what we are learning.

“Liftoff” ; True Life Astounding Stories

"Liftoff: Elon Musk and the Desperate Early Days That Launched SpaceX" by Eric Berger
“Liftoff: Elon Musk and the Desperate Early Days That Launched SpaceX” by Eric Berger

Elon Musk can be a very polarizing figure. There are legions of fanboys online on various platforms who obsessively follow him and his companies ; Tesla, SpaceX, SolarCity, Boring Company, OpenAI, Neuralink. Then there are the haters, of which there are also legions, who find his brash style arrogant and some claim he is a snake oil salesman. His tweets can, and have, moved markets (stock, crypto etc), more than once.

It is hard to argue with success though, and by all measures, SpaceX is successful. In April of this year SpaceX raise $1.16B of equity funding at a valuation of $74 Billion ! Since its founding in 2002, it has had a series of astonishing accomplishments; the Falcon 9 and Falcon Heavy launch vehicles, several rocket engines, Dragon cargo, crew spacecraft and the Starlink LEO satellite constellation. Along the way it has “democratized space” by dramatically lowering space transportation costs not just for governments and militaries but for a burgeoning commercial sector. We would not have a NewSpace renaissance without SpaceX.

That is why this book by Eric Berger is so important. It chronicles the early days and history of the company and the people who built it. It goes through the trials and tribulations and the many, many obstacles that were overcome and how perilously close they came to going bankrupt and failing. It is also an incredible story, reading more like a novel at times, a page turner, than a non-fiction business book.

Many aspects attracted me to this book and it making my birthday wish list last month. As a kid growing up I was a science fiction and space nerd too, just like the billionaires Musk and Bezos who are now racing to space. I was 9 years old when I watched the Apollo 11 moon landing on our old black and white TV. Through my early teens I used to tinker considerably, taking apart old TV’s and radios and building my own electronics. Becoming an engineer and then eventually starting my own companies was my path and is a huge part of my identity. This story resonated deeply.

It covers Elon’s recruitment of key talent like Hans Koeniggsmann, Tom Mueller, Gwynne Shotwell and many more. The company’s growth and evolution from Hawthorne CA to McGregor, TX and from Vandenburg AFB to Omelek, an island in the Kwajalein Atoll in the middle of the Pacific ocean. Elon had funded SpaceX with half the proceeds from the sale of PayPal (the other half funded Tesla). No half measures, no retirement plan, no safety cushion.

Some key things stood out for me. No one thought SpaceX would succeed in the beginning other than the team themselves. The competition was huge heritage aerospace companies like Lockheed Martin and Boeing that were defence contractors with tens of thousands of employees, billions of dollars in revenue and inside political contacts in the US government, NASA and the Pentagon. Every other challenger that had tried to build a low cost rocket prior to SpaceX had gone bankrupt. It reminded me of trying to compete against Big Telco with their huge resources and lobbying capability.

SpaceX brought a new process to the game from Silicon Valley. Agile methodology calls for an iterative approach to design; constant prototyping, testing, analyzing and refining the product or process. It takes a willingness to embrace failure, and especially hard is to be able to embrace failure in public, something that was anathema to the space industry. Living in Waterloo, a high tech town, this approach is quite familiar to me. It is frustrating to watch Big Telco still struggling with digital transformation, the legacy companies fighting against modern methods.

The drama escalated in 2008, when after three unsuccessful attempts to to launch the Falcon 1 rocket to reach orbit, came the “fly or die” moment. It was middle of the global financial crisis, there was no VC or PE money to be had and Tesla, SolarCity and SpaceX were all burning cash and out of funds. Elon Musk was in the middle of his divorce and personally out of funds, he had sunk everything into his ventures. He had budgeted for only three rocket launches and had seen them all fail. “I thought that if we couldn’t get this thing to orbit in three failures, we deserved to die,” Musk said.

Man, can I relate to that.

That is what the haters will never understand. The true skin-in-the-game moments of an entrepreneur like Musk where he risks it all, trusting his own judgement and self-belief.

The scramble to prepare a fourth flight in six weeks, including an incredible C-17 Globemaster ride to get the rocket to Kwaj was pivotal. The pulling together in the face of impossible odds to success was a key takeaway for me. This is what defined SpaceX and continues to define them. It is the root of their company culture, their DNA, and why I would never bet against them. Those early years and how they overcame so many obstacles to successfully launch a private rocket and also a whole new industry is key to understanding SpaceX , its mission and its belief.

At a recent LEO satellite digital forum in April of this year, Gwynne Shotwell was quoted as saying “I just always smile when people make projections about what can and can’t be done with technology,” she said. “I don’t think we have any idea how technology can evolve.”

I highly recommend this book. And I look forward to watching Elon Musk and SpaceX making humanity an interplanetary species and reaching Mars with Starship. I certainly wouldn’t bet against them.