“Next stop: SPACE” — why we invested in a European space launch company

Update: On Feb 7, 2019, Orbex held the public opening of their new 2000 sq m HQ and design & assembly facility in Forres, Scotland, showcased a finalized engineering prototype of the second stage of the Prime rocket (incl the world’s largest 3D printed rocket engine) as well as announced their first two launch customers, SSTL and Astrocast SA.

When venture capitalists talk about their work they often jokingly remark “it’s not rocket science” — for Heartcore Capital it is just that.

As announced at the 2018 Farnborough International Airshow, Heartcore has become a shareholder in space launch company Orbital Express Launch Ltd. (Orbex).

In this post I will discuss our investment into Orbex and clarify the thought process behind investing in an area that, so far, has received little VC attention in Europe. I will address:

1. What we have invested in
2. Why micro-launch is a vast blue ocean market
3. Why Europe craves native launch capacity
4. The people behind Orbex

For the backstory of how we came upon this opportunity, I refer to my Heartcore colleague Jimmy Fussing Nielsen’s story of unexpected introductions.

Figure 1: Early 2017 hot-fire test of Orbex’s proprietary rocket engine.

1. What we have invested in

We have invested in a Europe-based orbital micro-launch service provider.

In plain English, this means that we have invested in a European “space courier” for orbital deliveries: Orbex’s mission is to take other people’s payloads from the ground and into orbit.

Specifically, Orbex will be capable of sending satellite payloads of up to 250kg to altitudes of up to 1,250km, inserting them into sun-synchronous or polar orbits. This places Orbex in the micro-launch segment.

An integrated value chain

In order to provide a comprehensive launch service, Orbex will control multiple steps of the value chain:

1. Launch vehicle: The launcher (i.e. the physical rocket) and associated guidance and payload deployment systems.
2. Launch site: A European launch base — Orbex will launch its orbital vehicles from the newly-announced UK Vertical Launch spaceport in Sutherland in the Scottish Highlands.
3. Launch services: The service layer required for customer launch capacity purchase and associated logistics.

A 21st century rocket — lighter, more efficient and powered by renewable fuel

Orbex is constructing a completely rethought and redesigned orbital launch vehicle to deliver small satellites into Earth’s orbit. The launcher has a novel architecture which eliminates the fundamental mass-to-power challenge of small launchers, being up to 30% lighter and 20% more efficient than any other vehicle in the small launcher category and producing more power per cubic litre than many heavy launchers.

Minimising the environmental impact of launches was a key consideration in the vehicle’s design. Orbex has developed a low-mass and low-carbon launcher using bio-propane as a single renewable fuel which cuts carbon emissions by 90% compared to old-fashioned hydrocarbon fuels. The rocket uses a zero-shock staging system which leaves zero orbital debris and has built-in reusability with an innovative new low-mass recovery and reflight system.

Figure 2: The Orbex micro-launcher vs. current full-scale launchers (to scale).

A high-profile operation supported by leading private and public organisations

Orbex just announced that it has secured £30 million ($39.6 million) in public and private funding for the development of its orbital space launch systems.

In addition to Heartcore’s contribution, Orbex has received funding from German venture capital fund High-Tech Gründerfonds, strategic investor Elecnor Deimos Space, private investors, the UK Space Agency (UKSA), the European Space Agency (ESA) and the European Commission Horizon 2020 programme. Furthermore, the Highlands and Islands Enterprise (HIE) has committed a large grant towards the co-development of the UK Vertical Launch spaceport in the Scottish Highlands.

Orbex is the first commercial orbital micro-launch company of its kind in Europe — we expect many to take interest in this extremely exciting journey.

2. Why micro-launch is a vast blue ocean market

“Space is not far. It’s just an hour away, if your car could go straight upwards” — Fred Hoyle

Hoyle’s statement is true — the problem is that driving upwards is quite tricky.

The micro-launch market is a blue ocean in its sincerest sense: demand is immense and in explosive growth, competition limited and barriers to entry high. In 2017, only 320 micro-satellites were launched to orbit despite many multiples of that being in the backlog waiting for launch capacity. Between 2018 and 2030 more than 11,500 small satellites are expected to be launched, corresponding to a total $62bn 2018-2030 smallsat launch expenditure.

Strong dynamics for growth

Micro-launch is currently a ~$1.5bn international market. North America and Europe are the primary markets: Around 60% of today’s demand is from the US and Canada, 25% from Europe and the rest mainly from China, India, Japan and Russia.

The segment is in explosive growth, having doubled in size over the past two years. The key growth-driving fundamentals are

1. A trend toward micro-satellites: There is a technological trend within the world of satellite applications towards micro-satellites and constellations thereof. The key reason for this is that clusters of lower-altitude micro-sats now have performance on par with larger deep-space satellites but at a fraction of the cost.
2. Need for regular satellite replacements: Micro-satellites typically have lifespans of 3–5 years after which they fall back towards earth and need to be replaced. This means that micro-launch service providers can expect recurring demand from active customers.
3. Demand explosion in an under-served market: While 320 micro-satellites were launched globally in 2017, many multiples of that were in the backlog waiting for launch capacity. By 2030, micro-launch is expected to be a $10bn market, with nearly 2,000 launches per year.

Predictability in numbers — launch preschedules

The long lead times and significant preplanning inherent to satellite projects means a large number of launches are being scheduled far ahead of time.

Figure 3 sums up the total micro-launch expenditure associated with already-planned small satellite projects (in addition to these — of course — are many unannounced projects which will require further launch capacity).

Figure 3: Launch expenditure attributed to today already-planned smallsat launches.

The near future of satellite applications is astounding: Constellations of small satellites are now, at low cost, able to perform tasks previously far out of reach. Figure 4 and Figure 5 give two examples of such game-changing developments.

Figure 4: Finish micro-satellite company ICEYE uses clusters of low-altitude Synthetic Aperture Radar satellites to observe earth with unprecedented temporal and spatial resolution across any imaging conditions (including clouds and the cover of night). This allows highly accurate monitoring of time-sensitive developments such as natural change (e.g. monitoring of floods and storms), agricultural events (e.g. harvesting) and security-related movements (e.g. immigration flows).

Figure 5: UK research consortium COMET uses a constellation of InSAR micro-satellites (launched in 2014-2016) to obtain high-reslution earth deformation measurements, allowing accurate monitoring of magma flows and tectonic movements, yielding high-fidelity earthquake predictions across the globe.

Options for smallsat launches are limited and unreliable — causing global frustration among operators

Operators of micro-sats have two options for getting their payloads into orbit:

1. Ride-share: Ride-share on a full-scale launcher.
2. Micro-launch: Use a dedicated micro-launcher.

Ride-sharing can be organized in two different ways:

1. Type-1 — piggy-back ride-share: A ‘piggy-back’ ride on a launch dedicated to a much larger satellite.
2. Type-2 — smallsat-only ride-share: A shared ride on a large-scale smallsat-only launch — launching as many as 50 micro-satellites with a single full-scale rocket.

To date, operators of larger satellites have been very reluctant to allow smallsats to ride-share on their launches — primarily due to the increased mission failure risk caused by the piggy-backing payloads. This means that very few type-1 ride shares have taken place to date.

On the other hand, type-2 ride shares are oversubscribed, riddled with delays, typically costly and relatively high-risk.

The best option is always to micro-launch. However, the micro-launch market is significantly underdeveloped, with globally very few companies conducting actual commercial micro-launch operations.

Micro-launchers provide clear value over alternatives

To small-satellite operators, micro-launchers are preferable over ride-shares for multiple reasons:

1. Direct cost reduction: Micro-launchers are typically inherently cheaper than ride-share solutions. For example, Orbex will offer launches at a price point distinctly lower than any ride-share alternative.
2. Opportunity cost reduction: Micro-launchers offer smallsat operators direct and schedulable access to launch capacity. This is in contrast to ride-share models where individual satellite providers are not in control of the launch schedule. Significant delays (not seldom caused by other ride-sharing satellites) are regular and often associated with enormous opportunity costs from lost operational time.
3. Satellite system cost reduction: Micro-launchers are able to bring satellites directly into operational orbit — something typically not possible with ride-shares. Micro-launchers therefore remove the need for the on-satellite propulsion and guidance systems normally necessary to correct into operational orbit after deployment, thus reducing satellite weight, cost, and time-to-operation.

3. Why the European market craves native launch capability

The lack of European orbital micro-launch capacity has been and remains a serious concern for European satellite operators.

A European-native launch capacity would benefit European satellite operators by offering:

1. More reliable and prioritized service: Most European satellites launch from the US, competing for capacity with US-native satellite players.
2. Reduced logistics: Space tech logistics is highly complicated, with cross-continental transports being cumbersome, time-consuming, highly regulated and expensive.
3. Reduced risk of technology transfer: For many satellite segments (including all military applications) technology transfer risk is an important and immediate concern. This issue often makes it impossible to use non-US/non-European launchers such as Indian, Russian or Chinese launchers.

Figure 6: Orbex will launch from the UK Vertical Launch spaceport in Sutherland in the Scottish Highlands.

4. The people behind Orbex

Spearheaded by Chris Larmour (CEO), Orbex has assembled an exceptional team of professionals experienced in the field of space flight and rocket technology.

Orbex staff members have professional backgrounds with NASA, ESA, Ariane and several other commercial spaceflight organisations. Equipment developed by Orbex team members has flown on more than 50 deep space missions, and collectively they have developed more than 50 rocket engines and a wide range of orbital and suborbital launch vehicles.

Jean-Jacques Dordain, the former Director General of the European Space Agency has joined Orbex as Chairman of the Advisory Board. He is joined by other notable figures from the space industry, including Jan Skolmli, Orbex’s recently-appointed Chief Commercial Officer, who was formerly Head of Launch at SSTL, the world’s leading small satellite manufacturer.

Speaking on behalf of Heartcore, we are very excited to be part of this team and endeavour. Thrilling times lie ahead for European space flight.

To be continued… 🚀