Despite COVID-19 impacts to the global economy, global space continues to attract strong investment from leading venture capital firms. Bank of America expects the space industry to triple to a $1.4 trillion market within a decade. The second quarter 2021 witnessed record deal activity in both amounts invested and deals done, with private capital investment from January to June 30 reaching $11.9 billion, and 14 “mega deal” financing rounds of $50 million or higher, according to the Seraphim SpaceTech Venture Capital Index.
The coming of a trillion-plus space economy doesn’t surprise Candace Johnson, venture partner and advisory board chair for Seraphim Capital, the world’s first space tech fund, which has funded six space constellations and over 50 space startups to date.
“We are in the golden era of space. The space investment sector is booming,” she said. “From autonomous vehicles, to location-based services, to critical communications to Earth and near space observation, the world depends on satellites.”
Johnson points to three factors driving this space investment boon. The Internet of Things (IoT), which allows space operators to put sensors on everything everywhere, be it the Earth, ocean, space and the universe, providing a critical role in collecting and then analyzing data to gain crucial insights on our planet and space;
The miniaturization of components, which exponentially drives down the cost of accessing space. This has propelled more people to build their own rockets, cubesats and nanosats, and emerging countries to play a role in space and allowing investors a healthy ROI;
And finally, the exposure and awareness to New Space brought by the billionaire trio of Elon Musk, Jeff Bezos, and Richard Branson.
Mike Collett, founder and managing partner of Promus Ventures, which invests in early-stage deep-tech software and hardware companies, is equally optimistic. “We are trending toward record levels of investment in the space sector this year, as growth and hedge funds have opened their wallets to fund later-stage space companies at head-shaking valuations,” said Collett, a venture capitalist for two decades.
Promus Ventures first invested in space in 2014 with Spire Global, a global space-based data analytics company whose nanosatellites collect maritime, aviation, and weather tracking data. Since then, Collett said his firm has steadily invested in a host of startups, from Rocket Lab and Iceye, to Mapbox, Cape Analytics, and Swift Navigation.
Johnson of Seraphim Capital brings a unique perspective, given her longevity in the space industry. She co-founded SES in Luxembourg in 1983 with private banking backing at a time when Europe’s space community was focused strictly on large government-led satellite programs.
She later served as the chief architect of SES Global, today the world’s largest satellite operator. Johnson played instrumental roles in bringing about Iridium, Loral Teleport Europe, and ILS in the 1990s, as well as founding Europe Online. Johnson has also never done a government-sponsored space venture. She’s focused on privately financed, commercial space ventures for almost 40 years.
“Back in the '80s and '90s, it was all about space being used to provide universal access to television, telecommunications, and the internet,” recalled Johnson. “Now, with IoT [Internet of Things], we are using space to access the universe and the planet. It’s all about location with the GPS satellites, mobility, the environment and the rise of Internet of Things. We can put sensors on anything.”
SPAC Wave Changes the Game for Going Public
Collett points to a big positive for today’s space startups: more flexible funding options with special purpose acquisition companies (SPACs). “The SPAC market has opened a path for many space startups to go public in a different manner than the traditional initial public offering,” he said.
Investors form SPACs to raise money through an initial public offering to buy another company. At the time of an IPO, they have neither business operations nor stated targets for acquisition, and SPAC investors range from well-known private equity funds to the general public.
Space investors as well as space startups are going public. Seraphim undertook an oversubscribed IPO earlier this summer with their $300 million Seraphim Space Investment Trust listed on the London Stock Exchange. Johnson adds that the new Seraphim Space fund is investing $20 million to $30 million in growth-stage private companies and space companies globally. Another high-profile example involves Virgin Orbit’s decision in August to go public through a SPAC merger with NextGen Acquisition Corp. II, which gave Virgin Orbit a $3.7 billion valuation.
But is the market’s passion for space investment sustainable, or will there be an inevitable market correction?
“Many valuations for some of these businesses are clearly ahead of themselves,” cautioned Collett, who anticipates dramatic repricing of some space firms that have raised significant capital if they fail to execute and deliver on expectations. He said the market will ultimately back the teams “that can execute their models to the projections they have shared.”
While many space funding headlines focus on the large rounds and SPAC transactions, there remains significant activity at the early stage, observes Collett.
“Early-stage businesses are reaping the downdraft of these large rounds and valuations, and we continue to see new early-stage space businesses funded at higher prices and larger rounds than in the past,” he said. “A rising tide lifts all boats, and this continues to be the case in the space venture capital world.”
The Venture Capital Mindset
With so much activity, how do investors determine which startups to bet on? Both Johnson and Collett asserted the merits of trusting in investment teams with solid experience in not only finance but also multiple technology sectors.
“We have excellent venture capitalists and we also have excellent software, AI, and robotics people,” Johnson said of the Seraphim team.
The advisory board recently added software VC pioneer, Ann Winblad of Hummer Winblad Partners as well as Jan Wörner, former director general of the European Space Agency, and other appointments are coming soon in areas such as robotics, AI, manufacturing, chemistry, physics and quantum technology to help identify where trends are heading.
“We're also building the pipeline,” Johnson said. “Almost all our companies are data and software-based even though they often have hardware platforms, which provide unique data sets and serve new markets such as space situational awareness, in-orbit servicing and next-gen telecommunications 5G services.”
Throughout her long space career, Johnson has never lost her passion as an entrepreneur and her appreciation for angel investing in startups. Whenever she starts a new venture as an entrepreneur, she asks the question: “Are we making the world better? I apply my heart, mind, and gut.”
The role of angel investors in the VC and private equity worlds should not be overlooked, she said. “Because angel investors are not investing anybody else's money; they usually take the first risk, and they believe in the purpose. Our first investor in SES, way back in 1983 was an angel investor, Count Roland de Kergorlay. This is also why we at Seraphim have an angel group and an accelerator, in addition to our VC funds.”
When looking at new firms to back, Johnson shies away from the word “disruption” in favor of “creation,” or companies that can create an entirely new market. She considers Spire a great example of a firm that has created two markets – one in precision weather, the other as a turn-key satellite bus and satellite data analytics provider to other space operators. She also points to U.K.-based Arqit, a provider of satellite quantum key distribution.
Added Collett, “We have been fortunate at Promus Ventures to have invested up and down the geospatial stack since 2014, including launch, constellations, and data application businesses. We also have professionals in the U.S. and Europe to serve each ecosystem well and the startups in each area.”
He continued, “It is vital for investors with an interest in space to know how the stack plays, which constellations are reserving future launches, which data companies are contracting with various industry sectors for contracts, and the size of ARR contracts various downstream businesses are able to get over the line among others.”
Given the global nature of space, Collett said it’s equally critical to build strong relationships with sovereigns, space agencies, and funding sources focused on space.
“Ultimately, it is always about the team, and if they have shown they are able to define their unique technical advantage and convince other enterprise and government customers at an early stage to contract for their platform,” he concluded. VS