James Bruegger (Seraphim Capital): Financing the growth of the space ecosystem
James Bruegger, Investment Director and Managing Partner at Seraphim Capital, the world’s first venture fund dedicated to space, described Seraphim’s approach to investment in this tricky but promising area, including the importance of data and drones.
Transcript
Good afternoon everyone — I hope everyone had good lunches, that I am going to give you something to digest on! I’m here to talk to you about the only thing in the world that’s more interesting than blockchain: space. Just to introduce myself, I’m one of the founding partners of Seraphim Space, which is the world’s only venture fund focused on space tech. I’m also a crypto enthusiast, having been involved since 2013, so amazed that finally the confluence of the two worlds that I’m interested in has resulted in this event today and with me given the chance to speak.
What I’m going to cover in my talk is to try and help everyone understand some of what we see as being the most exciting changes that are currently affecting the space sector, how that relates to investment opportunities, and where we might see some opportunities for confluence of the application of a blockchain technology for some of these space applications.
So, first things first: why space? Well, because it’s cool again, that’s the first reason. If it’s good enough for Hollywood, then surely it’s good enough for the likes of you and me I guess. Actually, I think space has always been cool, but Hollywood is just remembering that. And it’s not just Hollywood that’s interested in this. Some of the most successful technologists of our generation are deploying very significant amounts of their own personal wealth into trying to push forward the advent of the new age of space, particularly the commercial age of space. Again, if it’s good enough for the likes of the founders of Amazon, Microsoft and SpaceX, then they must be on to something.
Why is it that all of these tech billionaires are putting billions of dollars of their own wealth into developing their own space initiatives? Because, our firm view is that space’s PC moment is here now. Just to explain what we mean by that, we think that there is a broadly relevant analogy of looking at the change over previous decades, from mainframe computers to PCs and then ultimately to smartphones, and that actually in terms of what that change in price-performance and form factor is meant is just a flourishing of the digital economy that we see today.
How is that relevant to space? Well, 10 years ago a satellite would have been the size of a small car, it would have weighed hundreds if not thousands of kilos, and would have cost hundreds of millions if not billions of dollars to build and launch. The kind of things that we’re investing in now are taking the kind of components that you will find in every smartphone in every one of your pockets, and using that to build satellites that are the size of a shoebox and can cost below $100,000 to build and launch. That’s a really profound change in the fundamental economics of space. It means that for the first time you’re able to actually look to — at relatively modest cost, for less than the equivalent of one of these satellites 10 years ago — launch constellations of potentially hundreds of satellites. The amount of data that you’re able to collect and communicate about the Earth from space has just increased by several orders of magnitude, and that has some profound implications in terms of the ripple effect that that data can have, not just on the space sector but further afield.
When you then start to layer on top of that the convergence of things like artificial intelligence being able to actually analyse all of these datasets at scale, cloud computing, and I guess more recently potentially blockchain, all of those things combined really mean that we’re seeing what we perceive to be a once-in-a-generational change in the space sector that is catalysing just tremendous amounts of innovation.
What do these massive changes in the economics of space mean? Put simply, it means that space has gone from being a sector that no VC would ever be interested in, namely one that required huge amounts of money, took an incredibly long period of time to find out whether you’re going to be successful or not, and was heavily reliant on, number one, government support and, number two, innovation from incumbents — that’s not generally a recipe for success in the venture world. Whereas now, the kind of businesses that we’re looking at to our minds look extremely similar to those of any tech segment. Businesses that can scale quickly, that can with a relatively modest amount of money hit some really important proof points and validation, that are able to iterate much more rapidly. Good case in point, one of our portfolio company Spire: they are four years in since they launched their first satellite, and they’re now on about their sixth or seventh generation of satellites, and their sixth or seventh generation is many times more powerful and better and cheaper than their first generation. If you compare that to a typical satellite program from a decade ago, you wouldn’t even have your first satellite in orbit.
But perhaps most importantly, what all of these changes have meant is that now innovation and change within this sector is being driven by the likes of the people in this room. It’s young startups, it’s innovators, it’s not big companies that are driving the change, and for us that’s just tremendously exciting.
What we’re already seeing is that there’s an amazing ecosystem that is really flourishing around the kind of dynamics that I’ve alluded to. This is a piece of research that we’ve actually put out, you can get it on our website, which is meant to just be an illustration of just how broad this innovation is happening, and it really is right across the ecosystem. That starts with people that are doing interesting things, with developing new sensors, finding new ways, using 3D printing and robotics, to build satellites, to build drones, to build rockets, it’s people that are finding interesting ways to launch things into space, including most recently a space catapult, which is going to take a bit of explaining to me, quite frankly.
And then perhaps most importantly, as I’ve already alluded to, it’s people being able to actually put up very large constellations of satellites at very low cost to just capture huge amounts of data. But then of course all of that data needs to be got back down to Earth, so you’re seeing lots of innovation around things like laser communications and downlink technologies and antennas, of being able to actually cost-effectively get all of this data down to Earth. Right now this is such a big problem that most of these constellations have to throw away upwards of 99% of all the data they capture, which is just crazy.
Once you’ve got it down to Earth, then there’s a huge cost to actually storing and processing this data. This is where you start to see some of the advents around cloud computing and latest generation of high-performance chips having a real application in the space sector, and this is one of the biggest areas of cost. You’re also seeing lots of innovation in what people are doing with all of this data, so applying the latest developments in deep learning and other forms of AI, to be able to try and extract really useful insight that you otherwise can’t get. Then you’re also seeing people that don’t even think of themselves as being space businesses, who are taking some of this data and some of this analysis, fusing it with a whole bunch of other terrestrial data sets, and then turning it into a product that many of us use on a routine basis, Citymapper being a great example.
And of course there’s also lots of longer-term but perhaps more visionary things that are going on with what we consider the outward-looking elements of the space sector. These are the people, I guess Elon Musk at the top of the list, who have their sights firmly set on making us an interplanetary species, likewise the exploitation of space-based assets, and a whole range of other things in between.
What do some of these opportunities mean in terms of the kind of things that you can now use space to do? One of the ways that we look at this, and I’ll return to this point later, is trying to think about what can you only do from space? One of the things that you can only do from space and you can only do if you’ve got a large constellation of satellites that can revisit and capture data about any particular point on Earth or above Earth on a really regular basis is get a much deeper and better understanding about the weather systems that effect all of our lives. Natural disasters are one of the most pronounced problems for mankind, cost millions of lives each year and tens of billions of dollars. The kind of companies that we’re backing have been able to get a much more accurate and granular view of everything that’s happening around our weather systems and also our climate, enabling a whole range of new and interesting applications, some of which do have relevance to blockchain technologies.
You’re also able to, with all of this data, address some of the major problems that are facing the planet. For example, by 2050 there’s going to be twice as many people on Earth, and we don’t have twice as much arable land, so we’ve got to find a way to more effectively farm and produce the food that’s going to sustain everyone, and satellites have a huge role to play in this. An example here of this very odd-looking heat map is actually a way of identifying crop health as a way of then being more efficient in terms of use of pesticides and also watering your plants.
You can also start to get just a much more granular insight into the heartbeat of global economic activity. For example, being able to identify the flow of trade when an oil tanker is leaving port, what it might be carrying, how many cars there are in a particular parking lot, all of these things that you can only really measure at scale and with regularity from space, that is enabling a huge new range of applications, ultimately with the aim of driving more efficient global trade.
And of course it’s consumer-facing as well. Many of the technologies and applications that we rely on today, everything from broadcast TV to the Internet to mobile telephony, and perhaps, more pertinently, location-based services such as Uber fundamentally cannot work without the kind of technologies that I’ve been alluding to. And as we look forwards over the next couple of decades, actually our reliance on these space datasets and assets is only going to grow more profoundly, as we look at the way in which things like transport is going to change, the advent of autonomous vehicles and drones. None of that is possible without the kind of things that I’ve been talking about.
Another area that I can only really address from space, and again if we’re looking at things that can have a meaningful impact on mankind over forthcoming decades, it’s only really from space that you can deliver ubiquitous connectivity to anywhere on Earth. There’s more than two billion people today that don’t have access to the Internet, but over the next 10 years all of those people should be able to get online by virtue of the kind of businesses that are putting up hundreds of thousands of satellites. So that’s two billion more people who can use the Internet, to learn, to communicate, to innovate and to transact. We think that is a tremendous area of promise.
I’ve alluded to this already, I think this is something that’s a little further away, probably a little further away from even the leading visionaries would think, but ultimately there is a path for, in perhaps our lifetimes, seeing the first baby steps towards establishing ourselves as an interplanetary species, and what could be more interesting than that?
Bringing it back to what it means from an investment perspective, it’s not just us that have caught on to the fact that this is really exciting area to be investing in. You can see here that actually the rate of investment from VCs around the world has grown very significantly, and again this is based on our own research. In the last two years alone there has been more venture money invested into this sector, many of it into things like SpaceX, than has been invested in the proceeding 15 years combined.
Although there are lots of people investing in this, they’re investing in this as generalists that are just interested in finding nascent technology investment opportunities rather than being sector specialists. As I alluded to at the start of my talk, Seraphim is the world’s only space tech venture firm, which is kind of crazy, when you think about the fact that the space sector is a $300-billion industry today and that’s expected to grow to a trillion dollars. So we’re a step in the right direction in being a dedicated funds, less than $100 million committed. Besides myself, the fund is run by a number of the space sector’s most successful entrepreneurs, the guy who invented the technology that he sold to Google Earth and then built at Google Earth is one of my partners. Likewise, a guy who built one of the first satellite businesses that used pictures, taking pictures to develop geospatial intelligence, which he grew to a billion-dollar business.
We’ve also got significant backing from the industry itself. Some of Europe’s biggest space companies, like Airbus and SES, partners with us, as indeed both the UK and European Space Agencies. We’re very proud to be a London-headquartered fund, albeit with a, not surprisingly, global view. We’re an early-stage investor, albeit that definition really depends on whose perspective it’s coming from. What it means to us is we’re normally the first or second investor to come into a business,, investing low millions of pounds at our initial investment, and up to 10 over a more prolonged time frame.
We’ve not just set up the world’s only space tech fund. We’ve also recognised that the overall ecosystem needs a massive amount of support, and that actually a very significant amount of the really amazing innovation that we see happening is still at a very nascent stage, too early for us as a fund, so we set up a couple of other initiatives. We’ve set up a space tech angel network specialising in this area, both in the UK and across Europe. More recently, we’ve launched the world’s first space tech focused accelerator, the imaginatively names Seraphim Space Camp, which is currently underway, and I think the first cohort was announced yesterday, so if you go on TechCrunch I’m sure you can find some detail about that.
What’s our view of this really amazing sector to be investing in? I’ve covered a bit of this already, but our overriding thesis is that we’re really focused on backing businesses that observe, connect and guide the Earth from above, as illustrated here. The more astute of you will notice that it’s not just satellites, its also drones and UAVs, which might seem slightly odd for someone who says they work and run a space fund, and the reason for that is really twofold. If you actually look at what goes into building one of the shoebox-sized satellites, and then you go and look at what goes into building a DJI drone, it’s actually remarkable similar. It’s using much of the same componentry leverage from the consumer electronics industry, tapping into Moore’s law, that is able to build these really low-cost devices that can now capture huge amounts of information.
Also, equally importantly, we’d like to work back from what the customer need is, what their problem is and how you can solve it. Believe it or not, not many people want to buy a satellite or a drone image, because they don’t really know what to do with it. What they want is to have a solution to their problem; they don’t really care how you do it. Very frequently, what we find in that context is that it’s a combination of satellites and drones in concert, rather than a sort of either/or binary decision that’s solving these problems, so from that perspective it’s vital that we consider drones part of our remit.
That’s our fundamental focus. Beneath that we then look to invest in all of the technology building blocks that enable these platforms, so that’s the kind of things like building sensors that I’ve alluded to. We haven’t invested in rocket ships; we’ve looked at a lot of them. We also look at things that are helping with downlinking the data, storing it and analysing as being key areas, and actually across pretty much every vertical and sector that you can think of, albeit we try to identify businesses that recognise you need to focus on one area as you prove out your business.
What do we look for? A few things. We do invest in satellites, but we’re primarily interested in the data that those satellites are generating. Hardware the tool and data the business is absolutely a key theme for us. We try to look for businesses that are capturing unique and proprietary data sets, and we like businesses that have got some defensible IP, and at the point that we’re investing have achieved some technical validation. That could become a little bit challenging, if you’re looking to back a business that’s putting things into orbit and hasn’t yet done it. We also like businesses that are vertically integrated, that recognise that in this new world where it costs several orders of magnitude less to build out a space constellation, you shouldn’t just be looking to build a space constellation, that’s a very difficult challenge in its own right, but that you’ve also got to build a data analytics business alongside it in order to really capture the value. And naturally, we look for great teams and large markets — that’s kind of given, as a venture fund.
What have we seen in the 18 months since we’ve been operational? Just an amazing amount of investment opportunities. About a hundred a month on average, the better part of 2,000 companies now, of which we’ve only invested in six; I’m afraid that kind of success rate is fairly typical for venture funds. What that has given us is a really privileged panoptic view of all of the innovation that’s happening in this sector. We’ve looked at more than a dozen different rocket launchers, we’ve looked at now about 50 would-be constellations, a lot of drone companies, a lot of AI companies that are looking to use all of this data in interesting ways. It’s really taken us aback about just how broad the innovation is within the sector, but also the fact it’s happening on a truly global basis, with actually the UK, relatively speaking, at the epicentre of that innovation, which I guess is a pretty unusual dynamic in the context of the global tech industry.
What are some of the observations from all of these companies that we’ve seen? I’ve touched on some of these already: we just see innovation everywhere, we’re seeing growing amounts of investor appetite. If you can name a high-profile US venture fund, they’ve all invested in at least one space business, and most of them have only done that within the last 12 months. We think that we’re just at the start of a multi-decade trend and that this is still a very embryonic ecosystem, and that as we start this journey we’re incredibly excited about where it might ultimately lead and how it will impact the world, particularly, as I’ve described, we see space tech as holding the promise for potentially helping to solve some of the world’s most pressing problems, and that ultimately very few parts of our lives will remain untouched by space’s PC moment.
Just to wrap up,, I thought I’d give you a couple of examples of some of the businesses that we’ve been investing in, to help you understand some of the amazing developments. I’ve alluded to Spire already. They build all of their satellites in Glasgow, which as a consequence means that, believe it or not, there are more satellites built in Glasgow than anywhere else in the world. As of today, Spire now has more than 50 satellites in orbit. To put that in context, there are only five countries in the history of the space age that have put up more satellites, and Spire started putting up satellites less than four years ago.
What are they doing with these satellites? Well, their satellites are essentially listening to the Earth and collecting RF signals. You can use their satellites to track every ship that’s moving around the oceans, you can use it to track every aircraft as it’s flying through the skies, and, amazingly, you can actually use it to capture amazing new data sets about the Earth’s atmosphere, that ultimately gives Spire the opportunity to build the world’s most comprehensive and hyper local weather forecast.
Iceye I think is a great example of what the implications are of the changes of cost of access to space. Two 22-year-olds dropped out of university, with no prior experience in space, went to Silicon Valley, pitched to a bunch of investors, saying that they were going to do what everyone else thought was impossible, raised some money, and a few years later had actually shown that they could do what’s impossible. That kind of story happens all the time in Silicon Valley; it doesn’t happen very often in Europe, and it absolutely has happened with Iceye. What these guys have done is to build a satellite that uses radar to see through clouds that previously cost $100 million. They’ve now built one and launched one and shown it can work for a hundredth of that cost, now meaning that it’s not just the US government and the UK government that can afford this data; it’s developing countries for disaster management, it’s private companies looking to use it for a whole range of applications.
Altitude Angel, a Reading-based business. This is building essentially the global brain or data exchange that is going to allow millions of drones to fly autonomously through our skies. For that vision to come a reality, for us to be able to look outside this window and see lots of Amazon drones buzzing around, they’ve got to know where all the other drones are, and, just as importantly, they’ve got to know where all of the manned aviation is. That’s what Altitude Angel is building, one of these key building blocks for the future of autonomous drone flight, and again that relies very heavily on the kind of space data that I’ve been talking about.
TransRobotics, which is one of our more recent investments. They’ve taken the Wi-Fi chip that’s in your mobile phone and turned that into a super low cost, super powerful, super light radar. What does that mean? Well, it means that it can solve the problem of machines being able to see where they’re going, being able to actually accurately map its surroundings and identify where everything is. That’s very relevant for drones, it’s very relevant for autonomous cars, but it’s also amazingly equally relevant for Pokémon Go, being able to use this to improve your augmented reality experience, as well as a whole host of other things. So a great example there of taking commercial, off-the-shelf technology and repurposing it for some amazing space-related applications.
Last but not least, this is a business that’s still in stealth so I can’t talk about it too much, but a UK-based company that is doing something really exciting and highly relevant to blockchain. They have, I’m going to have to try and use my words carefully here, a new form of technology that uses laser communications through a constellation of satellites, to deliver quantum-safe communication, which in the context of the future of the blockchain, maybe not in the next five years but certainly in the next 10 years, actually poses some profound problems that could potentially fundamentally undermine the entire basis of having a trustless network. That’s a business that we’ve invested in specifically because it has some relevance to this community.
And then just to round up, in terms of where we see opportunities of segueing space and crypto. I think the way that we look at this is really through the paradigm of what can you only do from space, which I’ve already talked about, and what are distributed ledgers uniquely useful for? Some of the examples we’ve seen that I think kind of play to this is a whole bunch of people who are looking at actually putting blockchain servers in space for some fairly obvious reasons. There’s people that are fusing the kind of data that you can capture about the Earth, in terms of looking at what’s happened with for example if there’s been a flood, and using that to create automated smart contracts for paying out insurance settlements. I think that’s a great example of the direction the industry is going to go.
By extension, Internet of Things, sensor networks that need satellite communications to communicate, but will ultimately probably involve some form of blockchain technology. I’ve talked about the company I’ve just invested in that’s using secure satcom as a way of securing the future of the blockchain. And then I guess the somewhat dreaded ICO words, which I guess we can probably spend a few minutes talking about. There’s a lot of different initiatives that are underway, some more speculative than others, frankly,, around funding some of the things that I’m talking about, be that space exploration, more altruistic aims of removing space debris, or trying to crowdsource the development of interesting space technology. Those are all things that we have seen and looked at, albeit some of them with some degrees of scepticism.
