How To Win Big Investing In The Space 2.0 Boom


How To Win Big Investing In The Space 2.0 Boom

Space 2.0 is upon us! But how should we think about operating and investing in it?

Back in January 2016, space research institution, The Tauri Group, illustrated the recent surge of funding into Space 2.0 ventures. “Venture capital investment totals $2.9 billion with 80% being invested in the last five years.” Some of the largest venture rounds occurred in 2015: SpaceX’s $1.0 billion Series E and OneWeb’s $500 million Series A.

Yet early in 2017, Softbank announced that it would invest $1.7 billion into OneWeb as the company merges with legacy satellite company, Intelsat, for a combined valuation in the tens of billions should regulations and debt holders comply.  This is immediately after OneWeb raised $1.2 billion from Softbank this past December 2016.

Through my experience in the venture business investing with DFJ, Rothenberg Ventures, and as an angel investor, I have been fortunate to invest in a broad range of space companies including SpaceX, Planet, Ursa, Worldview, Boom, and RBC Signals.  I’m also a consultant with CASIS, which was chosen by NASA in 2011 to manage, promote, and broker research on the International Space Station (ISS) U.S. National Laboratory capable of benefitting life on Earth. Their mission to maximize utilization of the ISS National Lab (CASIS receives not less than 50% of the U.S. research allocation for the ISS, with NASA receiving the remainder) combined with the opportunity to meet a myriad of entrepreneurs active in Space 2.0 has provided me with a unique perspective into this emerging investment opportunity.

As investors, how should we think about the opportunities in space?  This question is particularly timely in the wake of the OneWeb deal and Google selling their satellite company Terra Bella to Planet earlier this year.  Planet also made history by launching the largest microsat payload of 88 micro satellites this past Valentine’s Day.  Their constellation of 149 satellites is the largest ever operated by a commercial entity.  The earth observation market consolidated even further this past February with the $2.4 billion acquisition of DigitalGlobe by Canadian space company MDA.  These events among others have catalyzed interest in space by the VC community.

With these recent developments, what opportunities lurk ahead?

Let’s begin with a commonly understood investment architecture.  The dynamic enterprise technology framework of today reflects the same investment dynamics available in Space 2.0.  By studying the evolution of enterprise technology, we can extrapolate how the Space 2.0 ecosystem will likely create value for VC investors.

Enterprise Stack

Numerous enterprise investors have done an exceptional job articulating this new cloud enterprise stack.  Billion dollar companies have been, and will continue to be created at all layers of this stack.  This succinct framework, comprised of infrastructure and application layers, goes something like this, bottom to top:

  1.  Cloud Infrastructure (distributed computing, databases)
  1.  Data creation and connectivity (connected sensors to unlock data)
  1.  Machine intelligence (insights gleaned from proprietary datasets across verticals/industries)

With 90% of the world’s data created in the last two years, according to IBM, this enterprise framework plays a critical role in harnessing, understanding, and commercializing this data.  Copious “pixels and bits” come online as more photos and videos are created and widely-shared.

It’s these pixels that contribute to the burgeoning opportunities in space for investors.  Let’s look at how.

Space 2.0 Stack

Moore’s Law and cloud computing advances have engendered a revolution for space – referred to as Space 2.0 or “newspace.”

We now have a proliferation of inexpensive, feature-rich microsats that have unleashed multitudes of proprietary data that is used for a variety of applications, with earth observation being the key structural theme.  Microsats represent a disruptive force in the space industry as they have faster innovation and deployment cycles in addition to much lower cost structures (below $100,000 to build vs tens to hundreds of millions depending on payload).  Small satellites have sub classifications ranging from <0.1kg (called “femtosats”) up to 500kg (called “minisats”), according to Keysight Technologies.  The early success and exciting future ahead for these microsats in part drives the space opportunity.   In terms of magnitude, SpaceWorks estimates that over 3,000 microsats will be launched between 2016 and 2022.  Only roughly 130 were launched in 2015.

First, what does this investment opportunity look like vis a vis the enterprise stack?

  1. Enabling infrastructure and support services for microsats

Similar to the enterprise infrastructure layer to support new applications, novel enabling technologies have emerged to support the space 2.0 ecosystem.

  • Rapid inexpensive access to low earth orbit (LEO) via launch providers: Virgin Galactic, Rocket Lab, PLD Space, Interorbital Systems, Relativity Space, etc with SpaceFlight to broker and manage the mission
  • Engine innovation and propulsion for microsats post launch: Rocketstar, Accion Systems, Phase Four
  • Terrestrial and interspace communications: RBC Signals, Kepler Communications, Astranis, Analytical Space, Atlas Space Operations
  • Asset tracking and debris tracking in LEO: LeoLabs

From high accuracy debris tracking to communications and launch providers, an ecosystem of support for Space 2.0 has emerged dedicated to helping build the space economy. Launch providers are innovating to bring down the cost per kg ($/kg) to bring assets to space. Rocket Lab, for example, recently raised a $75m Series D led by Data Collective elevating the business to over a $1 billion valuation.  With a robust backlog of customers, they are building a rocket called the “Electron” to carry payloads of microsats into orbit.

Additionally, RBC Signals provides “infrastructure as a service” to the space economy by aggregating ground stations enabling communications for satellite operators.

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