Make Space — Orbex is Launching!

Sunstone led the equity round in a small satellite launcher

Until a couple days ago very few people had ever heard about Orbital Express Launch Ltd (Orbex), the UK-based spaceflight company with subsidiaries and production facilities in Denmark and Germany. Following Orbex’s announcement about securing £30 million ($39.6 million) in public and private funding, the company is not exactly in stealth mode any longer.

I’m thrilled to announce that Sunstone has invested in Orbex and that I will join the company’s board of directors. The fellow backers of Orbex are the “who’s who” in the European space industry, including High-Tech Gründerfonds, Elecnor Deimos Space, a series of private shareholders, the UK Space Agency (UKSA), the European Space Agency (ESA), and the European Commission Horizon 2020 programme. An endeavour like launching vehicles into orbit requires a healthy partnership between private and public players, I’m happy to see that such a relationship has been established inOrbex.

Admittedly, investing in rocket companies is far from Sunstone’s core investment thesis and we are certainly not domain experts in space technology — at least not yet. My more than 15 years in venture capital has taught me that focusing on a core thesis is a far superior investment strategy than pure opportunism. Often, entrepreneurs come by and present ideas that do not fit our investment strategy. In most of these cases we simply politely decline to invest. However, in rare cases we take the contrarian’s view and end up making investments that would be perceived as very high-risk by most of our peers and sometimes even by members of our own partnership. Orbex is such an investment.

Over the years, I’ve found that there are a few common denominators in these perceived ‘contrarian’ investment cases.

Firstly, the founder team is determined, passionate and authentically connected with their vision. Orbex CEO Chris Larmour and co-founder Kristian von Bengtson and the rest of the team are fully set on launching their own rockets from the newly announced spaceport in the Scottish Highlands. As Chris keeps pointing out: “A smallsat launcher service is going to be a very good business — I would not invest my life into it, if I did not believe that”. Orbex constitutes a dream team of rocket engineers with experience from NASA, ESA, Copenhagen Subortibals and other space companies and they represent healthy mix deep rocket science theorist and experienced engineers that have multiple rocket launches and deep space mission on their CV. When you meet them, you don’t doubt their passion and authenticity. They are building a small rocket from the ground up, and they are proud of it. When you ask the team about the launch site (which most other micro-launcher contenders have not yet started to worry about), you are shown 150 page documents with detailed road descriptions of how the rockets are going to be taxied from the production site to the launch site and extensive CAD drawings of the fueling station at the launch site. That is determination.

Secondly, there is a significant emerging market opportunity and a believable envisioned future (with significant existing market opportunities, investments tend to be less contrarian). Moreover, there is what I call a core inner logic to the investment case. The core inner logic in Orbex’s case is that most observers expect that we will launch up towards 12,000 small satellites between now and 2030, compared to less than launches 350 last year. Interestingly, most attention and investment focus today are on the satellite companies and the subsequent myriad of potential service providers that leverage the ant-like low-orbit satellite networks. Very little focus is given to figuring out how to get the satellites up there in the first place. My colleague Philippe Klintefelt Collet, whom I worked together with on the Orbex investment, has written a more detailed post “Next stop: SPACE” on the core inner logic and underlying investment rationale for the Orbex case. I refer to his post for more insights (to our luck, Philippe has a master of science degree in engineering physics, which proved quite useful in our due diligence!). After months of educating ourselves on topics like Earth observation services, polar orbits, missile proliferation regulation, export controls, availability of vertical launch sites, and rocket engine and tank designs, we have come to believe that the smallsat launcher business opportunity is massive indeed.

Lastly, these investment opportunities are ones that tend to spark our interest. As a venture capital firm, you rarely have the resources to develop and maintain a prepared mind in all areas of interest. While we predominantly invest in areas that we have previously more carefully explored, we sometimes allow excellent entrepreneurs to broaden our minds. These sparks sometimes become formative in shaping a new investment thesis for a new category of investments. To qualify as a new sub-thesis in Sunstone’s partnership, the thesis sponsor has to make a strong case that we can identify multiple investment opportunities in the category and profit over not only one, but perhaps two or three fund generations.

I was first introduced to Orbex in late 2017 by Bart Markus, an old friend from the venture industry and a former general partner at Wellington Partners. In my conversation with Bart, he explained how he had initially been skeptical about the idea of building a micro-launcher company in Europe — how he, as a joke, had shown the Orbex investor presentation to some of his friends with the comment and classic Dutch etiquette of “Look at the crazy stuff that enters my inbox!”. Bart went on to explain to me that he and Chris had chosen only to reach out to a small set of venture investors, given that European venture capitalists typically would not be bold enough for a project of this type. When I then asked him why he had reached out to me he laughed and said: “You are one of the few VCs in Europe that would be sufficiently crazy.” I chose to take that as a compliment.

I’m a firm believer that early stage investing is all about risk taking and not about risk reduction. We are not shy of taking risks — it is uncertainty we dislike. The Orbex investment is risky and a fresh reminder that we are not afraid of assuming risk. Some will find our investment in Orbex ‘crazy’, and that’s okay. The best investments are rarely those where everyone is in agreement. We are risk willing, but by now we are convinced that we are not crazy.

At Sunstone we are now committed to building a micro-launcher vehicle and service in Europe. It is going to be a fascinating journey ahead and meanwhile we’ll sit back and enjoy the ride!