Investment Thesis on the Future of Space Technology
Author: Shuyej Uddin (Venture Capital Fellow at Sutton Capital)
Space technology is based on an ecosystem. According to Morgan Stanley, the ecosystem consists of Satellite Launch, Satellite Internet, Deep Search Exploration, Lunar Landing, Earth Observation, Asteroid Mining, Manufacturing Space Debris, Space Research, and Space Tourism. All of the factors of the ecosystems develop the topics of this investment thesis, although we will not be covering manufacturing.
However, like all topics within the investment thesis, we provide a definition before our discussion. As manufacturing is not discussed as a topic individually, you can think of space related manufacturing by finding relevant information from all other topics. But to achieve that, you must know the definition of space manufacturing for which the definition is based of Morgan Stanley, like all other topic definitions. So, the definition of manufacturing is as follows. Definition: Manufacturing companies design and develop spacecraft, hardware, propulsion systems, engines and other technology.
Moving forward, most people (probably) assume by space we mean asteroid mining, or satellite internet or even Lunar Landing according to popular media and TV shows. This is true, but there is more to our universe when we talk about ‘space’. In this thesis we look into space, specifically focusing on space technology in the form of space tourism and space research.
Space industry has been the least talked about industry, compared to other tech driven industries such as the Electric Vehicle Market. However, since the last few years, suppose five years, and very recently, the industry has become much more popular than usual. For the last quarter of 2020, $2.9 billion was invested, and a total of $8.9 billion, during the pandemic. Why is space investment suddenly becoming so popular? We will research this by assessing all factors - Satellite Launch, Satellite Internet, Deep Search Exploration, Lunar Landing, Earth Observation, Asteroid Mining, Space Debris, Space Research, and Space Tourism.
Next, we turn to who has been investing most in space technology and which regions. From our data, in figure 1, we find that angel investors have had an increasing interest in space technology, but more so venture capital firms recording more investment in 2020 than previous years. The last period venture capital firms recorded such interest was in 2018, prior to 2018, in 2017, they were the least interested. What this is likely to mean is that many small companies operating in the space sector are likely to experience substantial investment, which could lead to more firm growth, but this is conditional on their activity which is later discussed in topic ‘space research’.
Figure 1: Annual Investment Source and Cumulative Investment Geography
What has become popular in investment is infrastructure investment. With $30.9 billion invested in total equity since 2011, we will look into space infrastructure investment in this report, later. Part of the drivers of the investment is the fact that previously, in the US, who are a region that dominate the global space industry by 64% as seen in figure 1, have been investing less in NASA. In figure 2 we can see that there has been a 89% reduction in budget funding when space technology allowed Astronauts in the US to land in the moon around 1968, to 2010. Even though this is a old figure, the point is that since government funding for space has reduced, the industry has many potential inefficiency, and improvement to be made, as less investment in the space industry by the global leader which is the United Sates implies ground breaking changes and growth. Hence, companies such as Space X, Blue Origin, Rocket Lab, Relativity Space, Planet Labs, Spire Global, to name a few, have been investing in the industry, and venture capital firms, according to figure 1, are likely to be supporting their venture. Even the second largest contributor to the industry, the United Kingdom with 15% of market share, acknowledge the power of the industry and is investing in the industry of which supports 42,000 jobs. Overall, the investments by private companies and the United Kingdom suggests there is a lot of growth, with interest from the UK government growing as it is a ‘fast growing sector’
Figure 2: NASA budget as a % of federal budget
Next, how does Europe compare with the USA? Focusing on the fact that the UK is growing an interest in the space industry is important, but their interest will not be sustainable if other European countries do not also grow an interest in the space industry. Why? Well, the UK their empire has grown by competing with other empires such as Italy, France, Spain, Germany and Portugal to name a few. Therefore, we need to understand if Europe as a whole is growing an interest in Space. The data suggests so with $5 billion in funding for US Space Start-ups compared to $189 billion of European Space Start-ups. In the article hyperlinked, China and Japan are also growing an interest in Space, who are major international leaders. So, global competition with Asia and other European countries could be suggested to have driven UK’s interest in space, but holistically all countries know the benefits of investing in Space, and the market has strong potential to grow substantially. To add to that, to make our last point stronger, Thiery Breton suggested “Europe is a space leader and can lead ambitious space missions and programs”. Therefore, the market has substantial chances to grow, and by learning of the topics, particularly space research, this point will be better explained.
Next we turn to the factors driving the space industry’s growth and investment.
Definition: Satellite Launch companies focus on technology and infrastructure to deliver satellites to near space or low Earth orbit areas.
Satellites have many benefits which help us understand the universe. Satellites have helped us better understand Astrophysics and Astronomy, but at the same time more of the Earth and the atmosphere. For instance, we have found out about ozone layer depletion in the atmosphere, and discovered on black holes. However, the aerospace sector has reduced in popularity and discovery over the last 10 years, but now there are more business opportunities abroad which has led to more new ways of discovering space.
Even though there have been more business opportunities, what has been happening is that the cost of satellite technology is very expensive. There are two few customers for buying space technology such as satellite’s, and what this means is that the market has inelastic demand for space satellite’s making them expensive. Satellite’s have benefits such as helping TV’s with signals, monitor weather, business (i.e. help authorise payments) and more. Expensive satellite means less benefits mentioned. Nevertheless, only recent projects Pico and Nano satellite missions have improved the launch of satellites which have operational benefits. As you read that satellites have benefits, which is another business opportunity related to satellite launch. In addition, companies such as SpaceX have been using reusable rockets to launch satellites at a cheaper cost compared to traditional cost, which may suggest we will potentially find satellite launches a more common theme, since a) it has business value and b) improve connectivity on earth through the internet communication and connectivity is key for business transaction on earth. What this means for space technology, in the form of satellite technology, is more satellites.
Moving forward, satellite technology is important for the current generation. The current generation are focused on ESG related investment, that is Economic-Government and Social (ESG). Space technology related to Satellites includes monitoring plastics for which of the 10 million plastics floating on earth, 70% is within the sea and 30% on land surface. Satellite high resolution cameras can at least help monitor plastic on land surface. As a result, to utilise the benefits of satellites on Earth seems encouraging and one the future generation is likely to further fund towards, and potentially based on the power of satellite camera, can in the future (maybe) track plastic on sea too. This is the implication of advancement in satellite technology which is a reason we will see under ‘space research topic’ investors have invested in space sector start ups.
Definition: Satellite Internet companies focus on improving connectivity through low Earth orbit satellites, wireless broadband, optical communication as well as other technologies.
Although the report will not focus much towards satellite internet, the factor - satellite internet, is worth discussing individually due to current advancement in transportation within earth. In the next topic, we will speak of the Deep Search Exploration, focusing on transportation, but that is related to transportation outside earth. Next, we already are aware of driverless cars, but driverless cars depend on good internet connectivity. More to the idea of driverless car, is captain-less ships where ships will be automated. Satellites can encourage the development of the shipping industry, which has become an underdeveloped industry through routine monitoring of departure points, and relocation of ships at sea, ship tracking and monitoring of suspicious activity such as pirates, immigration or cross-country drug distribution. Another driver of satellite internet development, even if society was against captainless ships, what makes the idea an increasingly popular reality is to avoid harbour time collisions. As delivery depends on ships in some cases, cross country delivery, harbour time collisions can lead to delay in delivery. So improvement in satellite technology, a form of space technology, can lead to better distribution of products, which can help businesses with providing a better service.
Figure 3: Map of worldwide ship traffic (in white)
Deep Search Exploration
Definition: Deep Search Exploration companies develop high level missions to allocate humans through transportation, and cargo, beyond the Earth’s atmosphere to the Moon, Mars and beyond.
Space stations which allow us to use facilities such as internet technology are the origins of space investment. Most countries are interested in space stations, particularly Russia and USA, although Japan, Canada and 22 other European countries have invested in space technology. NASA, a publicly funded space organisation, is continuing to invest in space technology with a recent launch of their program Artemis, to expand space stations to the moon.
Next, The International Space station (ISS) program has been the highlight of Deep Search Exploration. It has allowed global economies to integrate and support the development of discovery of the universe through astronauts. However, recent ventures of the ‘Artemis program’ by NASA seems to suggest that the international space station program will receive less support post 2024, once contracts have ended. What this means is that the ISS program has led to development in science and technology, supporting human spaceflight and exploration, but that would become less popular within the United States, as NASA targets its focus on the Artemis program.
So far, we discussed the changes in relation to less focus on space stations which support human life outside the earth. What is more interesting is space travel. Travelling to space can take months, but what do rockets rely on to fly to space? Rockets rely on the Propulsion System, and existing propulsion systems have significant limitations in terms of cost and speed. Travel time is one of the biggest constraints in space technology. What this means is that unless technology around propositions improve, we are limited in space search, and the space industry would have under development growth. Nevertheless, the recent interest in Nuclear Termal Propulsion, it has been suggested space travel will improve, with particular interest by NASA to support the transport of humans to Mars, much faster.
Part of discovering the universe, supporting transport and space stations, is allowing humans to inhabit the universe. In order to study and build the facilities so humans can adapt to the space environment, Nasa transported a baby squid to the international space station (ISS). The aim was to understand how the animal digestive system and immune system adapts to a challenging environment, and this was an excellent move as squid’s can adapt to challenging environments than human life. What this means for Deep Search Space exploration is that measures are being taken to not only support human travel to earth, but more so that humans can sustainability adapt to outside the earth, such as in space stations, the moon, or even Mars.
As for space technology, what this means is they can be further developed to support human life in space.
Moving forward, as humans adapt to different environments, outside the earth, which are biologically more challenging, means further exploration of the universe can be made possible. NASA is aware of the advancement of humans to sustain farther into space, much of what we talked about, and in another article NASA’s new Orion Vehicle, appears to be an innovation which is increasingly becoming realistic based of the biological transformation of humans into space. More to the story, the purpose of the vehicle is to send humans farther into space, beyond ISS. What should be noted here, vehicles are being developed to support deep search space exploration by NASA, in the current moment in time. This is the future of space technology and themes we should expect to grow in time.
Definition: Lunar Landing companies focus on missions on the Moon, or even building products and infrastructure for moon missions.
NASA is continuing its mission on the moon. NASA has had a popular program named as Artemis, to build infrastructure around the moon. They are planning to increase funding post 2024 on the program, to increase its popularity. Other ventures include to land Astronauts to the lunar south pole by 2024. There have been further developments such as the Gateway lunar which is focused on finding more parts of lunar space. So, lunar discovery is still popular, but not so much compared to other topics, particularly in the advancement of space technology. Hence, in this thesis we will not discuss much of the lunar related technological advancement, as the future of space technology is not too focused on lunar landing advancement.
Definition: Earth Observation companies develop imaging, tracking and analytics technology to monitor the weather, climate, maritime data, GPS technology and more.
Space exploration has helped with finding data to help with technological advancement on earth as the definition of Earth Observation suggests. More to the technology, The EU Space Program is a program to develop value added space services and applications which will help gather space data. In addition to the program, the main motivation is to help European recovery. Well developing space technology can gather data to monitor data on weather, as the definition suggests, which can support the planning and maintenance of agriculture, so European countries can grow in agriculture, or even climate management so Europe can prepare for natural disasters which have substantial financial costs. By saving funds, gaining economically, after controlling the effects of natural disasters or protecting industries through space technology advancement, Earth Observation and its related ventures seem to have strong interest and drive space projects, especially tech driven projects.
Finding space technology to better understand the earth is important as we live on earth. By understanding the earth, we can better understand how to comply with the earth so humans can live sustainably. So, NASA has developed a few technologies to better understand the earth. One notable technology developed is the launch of Landsat 9 in 2020 with the goal to help decision makers make decisions on land use and resource availability for humans. Another notable technology developed is Surface Water and Ocean Topography (SWOT), yet to launch, will study how water bodies change over time and support societal needs in dams and shipping. The last technology worth mentioning, is Cyclone Global Navigation Satellite System (CYGNSS) satellites which will use GPS technology to support scientists pre planned a on a storm’s strength and direction. The last point is related to satellite technology, but is distinct on the focus on space technology to improve life on earth, which is why the technological advancement is mentioned within this topic heading. Nevertheless, we find that space technology is a growing field, one that NASA has invested towards, other than Lunar landing and discovering Mars. So, the future of space technology seems to suggest a focus on earth’s environment.
Definition: Asteroid Mining companies are developing technologies to extract water, rare materials and metals from near Earth asteroids.
Asteroid mining is one of the least popular topics of this report, due to the fact that it is one of the least drivers of space technology. More to the point, asteroid mining seems profitable by finding rare minerals. However, most mining equipment is expensive, and so will be the cost of transportation of expensive equipment, and due to gravitational problems in space, there is no confirmation that mining equipment for which work on earth, will work on space. Platinum group material is one factor motivating asteroid mining, but this would require at least a decade. More to the point, only recently we discovered ice molecules. There is yet scope for growth, and can it be suggested in the near future we should expect advancement in space technology for the purposes of asteroid mining, but in the present moment, and due to recent activity for instance Donald Trump’s cancellation of the Asteroid Redirect Mission (ARM) in 2018 for which was to control asteroids within earth’s orbit, evidence suggests asteroid mining is not driving space technology for the future.
Definition: Space Debris companies track and analyse human objects orbiting in the atmosphere. Debris themselves have to be analyse as there are risks that they can collide with satellites or spacecrafts or at worst fall on the Earth
Space Debris is an increasingly popular topic, although we will not discuss much of the topic, it is worth mentioning as we will explain as follows. Space Debris is related to space waste management. We have noted that management of waste on earth is already an issue, which is difficult to solve and talked about satellite technology to track land waste. However, if we struggle managing waste on earth, how can we track waste in space, further noting that in space, there are far less humans than on earth limiting the opportunity for individuals than technology discovering space waste. What this means is we rely on technology to discover space waste, but how effective are these technologies? The number of active satellite’s will increase by 50%, and we already introduced current issues on space waste management. However, the key is for private companies to invest towards Space Debris, but it is costly, for instance Russia set out a £2billion plan to tackle space debris, and it is not too profitable and the chances of space debris is not that common. More to the latter point, space debris is mostly an issue when something gets destroyed. Therefore, space debris is not a topic which has much financial reward, yet, and that means less interest in private companies to fund technology to tackle space debris, so we can suggest space debris not being a popular topic for driving space technology, and further adding weight to the judgement is the point that “we are not doing enough” on space debris.
Definition: Space Research are groups that research, explore and educate about space and space technology.
We begin with discussing SPAC (Special Purpose Acquisition Company) to make a distinct point of space research driving the future of space technology. SPAC refers to companies with no commercial functions of which are formed strictly to raise capital through initial public offering (IPO) in order to acquire an existing company. Virgin Galactic most recently announced plans to fly a researcher to experiment and test healthcare technologies on a human attended spaceflight. The goal is to understand weightlessness to then offer repeatability-affordability and quality of a weightless environment. The experiment uses bio monitoring sensor systems, for instance, which will help measure the biological effects of launch, weightlessness, and landing of spaceflight participants, which will be key when designing space flights. What this means is for space research, technological advancement is being made to help biologically support space flights.
More to SPAC, is that the research mentioned earlier is one of many measures conducted under SPAC. Virgin Galatic are the oldest player in SPAC, which may be a indicator of why analysts expect Virgin will outperform the market overtime. What this means is since Virgin’s SPAC program is adding value to their overall company value, more companies at an increasing rate are more than likely to be more involved with SPAC. To further add to the previous point it is worth mentioning the most recent SPAC’s which had happened and their reason. First, Vector Acquisition announced that Rocket Lab will go public which is at a market cap of $4.9 billion. What has driven the funding is that Rocket lab had 16 successful rocket launches with 97 payloads in orbit, with plans to become the only company with reusable rockets. So, one can suggest the SPAC had happened to introduce more rocket launches, but those that are reusable, and as we note in the next topic, SpaceX wants more reusable rockets, to promote affordable space flight, we may see a collaboration in the industry. Second, Stable Road Acquisition has plans to acquire space tug company Momentus, the latter company partnered with SpaceX to promote small satellites. So, the main reason the SPAC is happening in this case is to encourage more satellites which have many benefits (mentioned earlier). We also note that Momentus partnered with SpaceX making our argument mentioned earlier on a potential collaboration between Vector Acquisition and SpaceX also increasingly likely. Third, Osprey Technology Acquisition will publicise BlackSky. Blacksky provides real time geospatial intelligence, imagery and data analytics through five satellites, and plans to launch nine more satellites in the short term, near future, that will monitor earth’s location every 30 minutes either day or night. Blacksy is worth $1.5 billion in valuation. So, what this means is that the SPAC happened to utilize space technology for the purpose of the Earth’s observation. Overall, SPAC’s show the space industry companies are valued highly as the technologies developed by start ups in the industry can be pivotal to satellite launches, satellite internet, space flight and earth observation. In other words, all other topics discussed in this report other than space research and market size.
SPAC’s have had many acquisitions in the space industry. However, it is important to understand venture funding within the industry. It is found that compared to the 12 months prior to the COVID-19 pandemic, the investment in the sector over the previous year has grown by 95%. Is there further growth to report? Data suggests investment in the first quarter of 2021 was $2.7 billion compared with $1.6 billion in early 2020, which is a growth of 68.75%. Investors are not only finding the research undertaken by SPAC companies ground breaking to the fact that each acquisition is worth billions as noted in the earlier paragraph, but investors are also finding that the industry has more growth, specifically from start ups which is why venture funding, holistically, is growing.
Are SPAC’s profitable? We know that there has been an increasing number of SPAC’s in the space industry. That is because SPAC’s are easier to manage an acquisition than traditional methods. However, they are only beneficial if they deliver on their promises on growth and financial projections. Nevertheless, as the topics in this thesis explain, we find SPAC’s in relation to the space companies, those companies being acquired are working on interesting technologies which can have substantial impact on many industries on earth, and life on earth, which can then ensure the promises on growth and financial projections being met.
Figure 4: SPAC deals in October 2020
Aside from the Venture Industry, we need to understand what Bank’s are suggesting. Bank’s dominant economic activity in the UK and US, which is of common knowledge, and US is the leader in the global space industry with the UK investing in the industry, and growing within the industry, at an increasing rate as noted under the topic ‘Market Size’ earlier’. Now that we justified why Banks are important, if bank’s take an increasing interest in the sector then one can say, the space sector can be large enough to control substantial economic activity due to the fact banks dominate economic activity, and logically if banks invest most in space, overall as a proportion of other industries, then it can be suggested the space sector dominates economic activity. Now that this point is clear, we find that Morgan Stanley estimates the industry can generate $1 trillion in revenue in the next 20 years, compared to $350 billion in 2020, this is an increase of 186%. In addition to that, some experts suggest that satellites will deliver capabilities to transform society, which makes sense since we mentioned how satellites can transform the shipping industry, for example, and what that can lead towards, and supported by that is drone delivery systems being more common in relation to utilising ‘satellite internet’. These satellite transformations can drive economic value, which may have led to Morgan Stanley estimating the 186% increase in the industry.
However, the launch of more satellites can be costly to telecom companies. They will have to build more infrastructure to keep up with technological advancement. Nevertheless, this can be subsidised by governments, as we mentioned in this reprt how the UK government is investing in the space industry, and Russia already investing in Space Debris, and US having NASA - publicly funded organisation, to name a few countries, and so for countries to benefit from space technologies, they may, although highly likely subsidise space technology. What this can mean is that the disengagement from telecom industries, as an example, and being hesitant to space technology, will be unlikely if government’s can subsidise the costs. There is evidence to suggest governments are further supportive of disruptive space technology. Rocket Lab which we mentioned earlier, gained government support when it launched $300 million in venture funding.
Much of the space research has been dedicated to SPAC’s. Although, SPACs have been the driving force of space research, and are fundamental to be able to understand all the other topics, space research has other means to be explained. Another form of space research is the development of a NASA led project, The James Webb Space Telescope, which is the next premier space science observatory. The goal is to understand distant worlds around starrs to understand the universal structure and origins of our universe. What this means for space technology, is further study and investment in technology, could suggest robots to explore the distant world.
Definition: Space Tourism companies are developing access to space for private citizens, space explorers, space adventure programs and others.
ESA is an organisation driving Europe’s focus in space exploration with a key opportunity for private sectors. The motivation of space exploration is to generate ideas to further improve the current situation of the earth, in terms of robotics and technology. The program is focused on a robotic landing with Russia, in partnership with Russia who are known for space innovation, and the purpose of the tour is to explore water ice which scientists believe exist in the “dark polar regions”. What does this mean for space exploration? Uncovering the mechanics of water ice, can support us here on earth, create ‘water ice’ which can then support the water industry in providing even more refreshing water, that can help people who dehydrate more frequently than an average human due to health complications or so.
Part of space tourism are space explorer programs with the focus on Mars. Why has Mars become a trending topic? What is special about Mars? You probably have seen ExoMars scooters in the movies, now they are there to search for past or present life using a 2m long drill. There are more advances to explore Mars with ESA planning to begin the first round trip to Mars to utilise and study samples. The objective of ESA is quite popular gaining international support, in the past we saw international division between the two major space industry dominators the US and Russia, but over the past decade there have been much more international corporation over the past decade on space project, which suggests ESA’s project seeks to be increasingly likely to succeed.
However, there are a few drawbacks that can defer ESA’s project. Not only has the director Aschbacher has mentioned the projects to explore space will answer human questions, but not during his lifetime or ever, and that he also mentioned the firm have a troubling relationship with the EU which can defer any project advancement. We spoke about countries becoming more integrated to support ESA, but the EU can set policies or regulate ESA’s activity which can affect individual country interest on the ESA ExoMars Scooters project for example. What this would mean is the ExoMars scooters project may not be able to achieve its objective or even there can be a delay in time for which the project is effective due to limited international support following EU involvement that discourages support on ESA projects.
Other than space exploration, in relation to space tourism, there also exists space flight. The industry, which is worth $3 billion by 2030, has had many space flight related innovations. SpaceX wants to invest in reusable rockets to make space flight more affordable, as well as Virgin Galactic and Blue Origin to provide suborbital space travel. Although this space flight is dedicated to the private (wealthy), soon, yet not confirmed if possible, ordinary citizens will be able to travel to space too. What this means, the space flight can generate strong returns, and soon even stronger returns once ordinary people can be able to afford space flight too. So, we should expect further technological development to make space flight affordable for ordinary citizens.
In relation to much of what was discussed, we find the main driver of growth in the industry has been SPAC’s. The reason for that is companies are being acquired who are focusing on a select niche which have business value, as they have benefits on earth. Although to make the thought clear, without purposely repeating the earlier points, satellites were explained to have business value on earth for companies, and driving overall stock valuation of companies investing in space technology such as Virgin. Another driver has been building the technology to help humans travel outside earth. In the near future, one who is interested in producing a investment thesis should focus on Space Debris, for which is a popular topic, and was not fully focused in this report, as well as Manufacturing.