How To Win Big Investing In The Space 2.0 Boom
Brandon Farwell | CASIS
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.
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:
- Cloud Infrastructure (distributed computing, databases)
- Data creation and connectivity (connected sensors to unlock data)
- 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 $100,000 to build vs tens to hundreds of millions depending on payload). Small satellites have sub classifications ranging from <0.1kg (called “femtosats”) up to 500kg (called “minisats”), according to Keysight Technologies. The early success and exciting future ahead for these microsats in part drives the space opportunity. In terms of magnitude, SpaceWorks estimates that over 3,000 microsats will be launched between 2016 and 2022. Only roughly 130 were launched in 2015.
First, what does this investment opportunity look like vis a vis the enterprise stack?
- Enabling infrastructure and support services for microsats
Similar to the enterprise infrastructure layer to support new applications, novel enabling technologies have emerged to support the space 2.0 ecosystem.
- Rapid inexpensive access to low earth orbit (LEO) via launch providers: Virgin Galactic, Rocket Lab, PLD Space, Interorbital Systems, Relativity Space, etc with SpaceFlight to broker and manage the mission
- Engine innovation and propulsion for microsats post launch: Rocketstar, Accion Systems, Phase Four
- Terrestrial and interspace communications: RBC Signals, Kepler Communications, Astranis, Analytical Space, Atlas Space Operations
- Asset tracking and debris tracking in LEO: LeoLabs
From high accuracy debris tracking to communications and launch providers, an ecosystem of support for Space 2.0 has emerged dedicated to helping build the space economy. Launch providers are innovating to bring down the cost per kg ($/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.
The RBC Signals Partner Atenna Site. Credit: Jeff Beiderbeck (UAF/ASF)
- Verticalization of Microsats by purpose and design
Akin to those on robots, drones, or autonomous vehicles, microsats have various sensors that capture valuable data mainly for remote sensing purposes. In the last few years, new start-ups have arisen in the wake of the emerging success of legacy players. These companies pursue differentiated microsat designs or focus on specific market applications, yielding a verticalization and specialization of the industry. Everything from sensor type to resolution (30cm to 30m) differentiation.
- Optical and hyperspectral: Planet, Hera Systems, Satellogic, Astro Digital, Hypercubes
- Synthetic Aperture Radar (SAR): Ursa, Iceye, Capella Space
- Thermal imaging: Koolock, Bluefield Space, Promethean Labs, GHGS
- GPS radio occultation: Spire
Within this framework, companies initially focus on certain applications for the data. For example, Koolock focuses on weather prediction using infrared (thermal) imaging and Bluefield has built a robust sensor for methane gas detection to identify gas leaks. Capella Space combats the downside of optical imagery (limited by night-time and cloud-cover) by utilizing SAR that can capture images independent of atmospheric conditions. Other applications for remote sensing include defense, tourism, natural resources, industrial supply chains, and maritime activity–thereby tracking and analyzing global economies. Hedge funds are becoming more and more keen as these novel datasets reveal differentiated insights never before utilized in developing trading theses. With more complementary data coming online from disparate sources, customers can glean even sharper insights.
Although the earth observation data market was valued at roughly $2 billion in 2015, according to Euroconsult, the market should expand precipitously as the efficacy and scalability of these new datasets illustrate ROI across industries–expanding beyond government and into commercial enterprises.
An alternative to microsats, Worldview builds gas-filled balloon crafts called “stratollites” that are equipped with numerous sensors, telescopes, or communication arrays. They can be rapidly deployed and sent to stratospheric altitudes of space (70k feet above earth) where they can maintain their station for applications including defense, disaster recovery, communications, and weather forecasting. They have completed over fifty flights.
- Deep Learning with Remote Sensing Data
This is where the raw data becomes magic! Software driven by data-infused deep learning networks informs customers of certain KPIs or predictions. Ursa, using multitudes of SAR data, illuminates context for oil price shifts in China. Orbital Insight, with $20 million of fresh capital from GV last June 2016, partners with these satellite image providers. They apply their AI to these pixels to unlock insights for their customers–such as helping the World Bank better assess the accuracy of poverty data. Spun out of Los Alamos Labs, Descartes Labs is applying machine learning to microsat images, keenly focused on agriculture (notably corn and soy) first with ambitions to understand much more. SpaceKnow, armed with a $4 million Series A, is another satellite imagery analytics company. They use proprietary algorithms to monitor industrial plants across China to measure levels of manufacturing activity.
Synthetic aperture radar (SAR) can give context for changes in commodities prices.
I’m excited for a future where data processing (and machine learning techniques) occur on-board and in-flight vs data downlinking to earth and post-processing. We can not only image our earth on a cadence of our choosing but also have machine intelligence to uncover solutions for our business priorities.
An example of an optical base layer image for machine learning training. Image courtesy of Descartes Labs.
Detecting fire density and boundaries in Parque Nacional do Araguaia, Brazil through Koolock sample data from DLR satellite TET-1. Image courtesy of Koolock.
Some initially meager but growing percent of the world’s data will come from these next generation space sensors and the AI layer plays a critical role in harnessing and commercializing its value. A billion dollar business can be forged when founders figure out how to compile and integrate disparate, cross-correlated satellite data into one rich feed that can be manipulated by customer’s AOI (area of interest). Can we please build an easy API to query these pixels, preferably after they have been standardized? A few folks are pioneering this, notably Skywatch, and I’m excited to see who can break-out. Marc Andreessen was right; software is indeed eating the world – even the space world.
Detecting China building artificial islands in the South China Sea. Image from DigitalGlobe, courtesy of SpaceKnow.
Images illustrate that China built a platform on reclaimed land in less than one year. They appear to already be building a military facility on top of the platform. Image from Digital Globe, courtesy of SpaceKnow.
What else can space do for us?
Space 2.0 is dynamic. In addition to the schema outlined above, entrepreneurs are pursuing even greater frontiers.
- Space R&D Economy
- Experimentation in low earth orbit (LEO): protein crystallization, tissue bioengineering, in-orbit manufacturing, etc
Through the ISS National Laboratory, major industries like manufacturing and healthcare (examples include Merck, Novartis, Eli Lilly) are now able to leverage the microgravity environment of the space station to both test and build novel products. A few of the companies supporting or performing in-space R&D include NanoRacks, Made In Space, Space Tango, FOMS and Firmamentum (division of Tethers Unlimited) among many others. These companies work heavily in collaboration with CASIS, who authorizes access and manages ISS National Laboratory commercial operations. Examples of in-space R&D platforms include Space Tango’s TangoLab 1 and Made In Space’s Additive Manufacturing Facility. Space Tango’s customers are testing plant germination in new environments in addition to semiconductor crystallization, botanical drug development, thin film manufacturing, and 3D tissue cultures. Made in Space is manufacturing space assets using 3D printers on the ISS. Can we manufacture numerous forms of panaceas across multiple industries in space?
TangoLab 1. Image courtesy of Space Tango
- Tourism with trips to low earth orbit (LEO), the moon and Mars
Startups like Moon Express and Astrobotic are helping pioneer space travel and exploration. For example, Moon Express was recently approved in August 2016 to send its robotic spacecraft outside of Earth’s orbit and onto the moon in 2017- marking the first private company to do so. They also raised a $20 million round led by Founders Fund in January of this year; they are now well funded for their first launch. Will these companies champion the feasibility of accessing space and catalyze the new space frontier? SpaceX’s Elon Musk announced that they plan to take two private individuals, who have already paid their deposit, around the moon by end of next year. If successful, Elon would create history yet again as humans haven’t ventured that far into space in over forty years.
Artist’s concept of Moon Express’ MX-1 lunar lander on its way to the moon. Credit: Moon Express
- High speed Connectivity
Among other pursuits, SpaceX is pioneering global high-speed internet access. Via a satellite constellation ~4k strong, SpaceX is substantiating that space is perhaps the most compelling medium to deliver connectivity to the masses. Additionally, OneWeb and Intelset together now invigorated in the wake of Softbank’s capital infusion are building a dynamic constellation to enable faster global broadband access. Even established legacy satellite communications companies, such as Telesat, are experimenting with microsats in LEO. Although not using satellites, Google’s Project Loon is building a network of balloons made of sheets of polyethylene designed to move with stratospheric winds and bring connectivity to rural and remote areas of the globe.
- Space Resources
What rich resources exist in deep space? Some companies are now focused on finding, accessing and utilizing space resources. Planetary Resources, founded by Peter Diamandis (XPRIZE), Eric Anderson (Space Adventures) and Chris Lewicki (JPL Flight Director for multiple Mars programs) secured $28 million in funding from Luxembourg last fall as part of Luxembourg’s $227m SpaceResources.lu initiative. Planetary Resources is focused on sourcing water from asteroids, which would be refined into rocket propellant (liquid hydrogen and liquid oxygen) and sold to in-space refuelable rockets, like the upcoming United Launch Alliance’s ACES vehicle. ULA announced a need for 1000 mT of fuel in orbit last year to support their upcoming distributed launch architecture and vision for a CisLunar marketplace. This vision encompasses harnessing the vast resources of the solar system for human value on earth.
SpaceX also showcased the importance of orbital fuel when they released their plan for the Interplanetary Transport System (ITS), which includes refueling the giant spacecraft after its initial launch. Water sourced from asteroids could also be sold to the International Space Station (ISS) and future commercial space stations for life support functions. Bigelow Aerospace announced their plans for an orbital lunar habitat earlier this year, while Axiom Space emerged as a new player in the commercial space station industry. This is exciting uncharted territory, and likely a catalyst for significant economic expansion driven by resources sourced from space.
Although historically domineered by the public sector, opportunities in space now are dominated by the rapid privatization of the industry. Investors with a penchant for identifying next generation platforms would be smart to take serious notice of this accelerating investment opportunity. It’s these fundamental technology shifts, rooted in falling component costs and complimented by increased captured value, that drive returns for the venture industry. The sky above us is not the limit. Let’s be bold!