Space - the final frontier for investors

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Space - the final frontier for investors

While most investors will have to be content with satellites for now, for the very wealthy there are more adventurous opportunities. From the moon landing in 1969 to Tim Peake's time on the International Space Station last year, the paradigm for space travel has remained one of sending humans and materials into space before returning them to earth - but that looks set to change as innovators dream of space colonies.

How much would you pay to have shooting stars fly across the sky on your wedding day? A fledgling "space entertainment" company is planning to offer meteors on demand from 2018 - just one example of "new space" enterprises that are attracting investor interest.

 

Japanese start-up ALE, which has raised £6m from angel investors, plans to launch small satellites packed with pellets into space before firing them into the earth's atmosphere to create on-demand meteor showers.

 

Newlyweds will literally need money to burn, however.

 

Although small, this company and others like it are testament to the changing space industry. The investment universe can be divided into what pundits call "old space" - an industry dominated by governments and backed with public cash - and "new space", with a glittering array of zany tech start-ups.

 

"New space is entrepreneurial, it's about reducing costs and trying to do things in a more enterprising fashion - it requires innovative thinking," says the aptly named Richard Rocket, founder of US-based space data provider NewSpace Global.

 

While commercialising space flight has long been a vanity project of the über-rich, the majority of innovative space companies are actually working on building and launching satellites, Mr Rocket says.

 

Stuart Martin, chief executive officer of a UK business incubator aimed at helping space tech start-ups grow, says that whereas satellites used to be "the size of a bus and worth hundreds of millions", now they can be cheap, small and "disposable".

 

"You have a full range of different types of companies building satellites the size of a toaster, and they want to launch them quickly," says Mr Martin.

 

According to Micah Walter-Range, director of research and analysis at US data provider Space Foundation, there are currently about 1,500 active satellites in space, with this number set to grow rapidly.

 

The growth of this industry has not escaped the attention of fund managers - but the nature of most new space companies is that they are small, early-stage and risky. They are usually backed by venture capital funds, and remain out of reach for all but the wealthiest private investors.

 

However, for those willing to be creative, there are other ways to join the space race. Here, FT Money presents the key trends to watch in this rapidly evolving market.

 

The new abundance of satellites in space creates more of one of the global economy's most precious commodities: data.

 

Business analysts have long talked about "big data" when describing the petabytes of information over-zealous marketers can harvest from social media sites when hunting for potential new customers. Now they're talking about "extreme data".

 

These huge new data sets are only useful if they can be analysed and made sense of, so part of the space industry lies in writing number-crunching algorithms or developing artificial intelligence to do the job.

 

These companies call themselves "downstream applications", and effectively exist to take the information from satellites and do something useful with it. They are often - but not always - completely different companies to those building and launching the satellites.

 

Catapult Satellite Applications, an incubator for UK tech start-ups, says it sees companies putting satellite data to work in areas from telecoms to agriculture and retail.

 

According to Stuart Martin, its chief executive officer, established businesses are looking for new space companies to help them with everyday problems. Big supermarkets like Sainsbury's, for example, are working with space tech businesses to help them track their produce as organic, as responsibly sourced food becomes more of a consumer concern.

 

"One of the big things we've been doing is getting better knowledge of what happens in the oceans with the fishing industries," says Mr Martin, who says satellites can help monitor fishing vessels to make sure they are in areas that match their licences and aren't carrying out illegal fishing. Supermarkets are also interested in using satellites to check up on farmers charging a premium for organic food, replacing on-the-ground inspectors with satellite based surveillance.

 

"The big thing that's happening right now is in the data analytics," says Mr Martin, who says the industry is "moving away from the excitement and the cool stuff to the hard-headed business logic about what we're doing with all these satellites."

 

Space, he says, "isn't a vanity investment for millionaires any more."

 

The growing number of satellites crowding the heavens gives rise to another potential investment theme of the future - cleaning up space junk.

 

Scientists are increasingly concerned by Kessler Syndrome, a theoretical situation described by Nasa scientist Donald Kessler in the 1970s. Kessler feared that there could come a point where the density of satellites orbiting the earth would mean that two satellites colliding could trigger a domino effect of other collisions. Two satellites would collide and break apart, causing debris to hit other satellites which break apart -- and so on, almost infinitely.

 

Although there is no current investment route, Micah Walter-Rouge, director of research and analysis at US data provider Space Foundation, says serious commercial providers are taking steps to dispose of satellites that are no longer in use.

 

Satellites, he adds, travel faster than the speed of a bullet. "If you have a collision between two things that are not supposed to have a rendezvous then it's the worst car crash you can imagine," he says.

 

Moreover, the high speeds involved can increase the chances of satellite collision. "If your calculations are off slightly you'll be somewhere very different," he says.

 

Seraphim Capital, the venture capital group, launched the world's first dedicated "space fund" last year. The fund, which aims to raise £80m, has so far been backed by wealthy individuals, as well as aerospace company Airbus and the UK government, which - keen to support the home space industry - committed £30m through the British Business Bank.

 

Mark Boggett, managing director of the fund, says that while Seraphim is investing in anything space-related, its main focus is on companies using data drawn from satellites while developing computer programmes to "make it useful". Companies catching Seraphim's eye range from those working in industries from logistics to agriculture to maritime to retail. They sometimes don't think of themselves as "space tech" companies at all, says Mr Boggett.

 

Some of the start-ups are interested in the "internet of things", where physical objects communicate with each other, while others are working on "smart cities". The thing these companies all have in common, however, is a reliance on the increasing network of satellites spanning the globe.

 

"When people think of a space technology fund they think of asteroid mining and rockets," says Mr Boggett, who argues that a company such as Uber, the car-sharing app, is "space delivered". "Turn off the satellites and it doesn't exist," he says. "It has dominated the taxi industry by leveraging space data."

 

Broaden out the definition of space technology to this extent, and suddenly it becomes clear that retail investors need only pick relevant technology companies to gain exposure to the burgeoning space industry.

 

While Seraphim's minimum investment size is £100,000 and its fees undisclosed, other funds - ones more accessible to retail investors - are warming to this theme. Moray Wright, partner at Parkwalk Advisors, says he is investing in start-ups that are crunching "extreme data" taken from satellites for telecoms companies, while others are trying to build programmes to track packages. "Amazon loses [a small percentage] of its sales through packages being misdelivered," says Mr Wright.

 

One fund manager gives the example of a telecommunications giant currently giving start-up satellite companies a test: it wants to know where every single mobile phone using its network in a particular city is located at a particular time. Why? Because it's part of its "geo-targeting" drive. If a customer walks past a Starbucks but doesn't enter they could, in the future, have a Starbucks advert offering discounted coffee sent to their mobile phone.

 

Another fund manager - Downing Partners - has taken a slightly different approach, and bought an "earth station" based in Cornwall. "Downing tries to invest in boring businesses, so we've done lots of infrastructure and property," says Jonathan Ross, a partner.

 

Goonhilly, a satellite station formerly owned by BT in the days when international telephone calls were transmitted by gigantic ground-based dishes rather than fibreoptic cable, is one of Downing's more "technical" investments, he says.

 

"The site fell into disuse and BT decided to get rid of it." Nowadays, Goonhilly's enormous dish is contracted by a number of companies to download data from satellites flying overhead. "Planet Labs is one of our customers," says Mr Ross. "There are lots of these earth stations but they're often at capacity - and every satellite needs a dish pointing at it."

 

The team running Goonhilly, which is balanced on Cornwall's southernmost tip for a better view of the equatorial strip of sky occupied by most satellites, initially rented the site from BT.

 

"We backed them to fund the purchase and then put more in to refurbish it - we now hold an equity stake in that business," says Mr Ross. The station is currently working with the UK Space Agency to bid for contracts from Nasa - the team hopes to be given the nod to monitor the mission to Mars on behalf of Europe.

 

Seraphim is about to have competition with the launch of a second specialist space fund - this time from the fund manager formerly known as RW Blears Capital and backed by City grandee Roger Blears. In a sign of its commitment to its new fund, RWBC has changed its name to Space Net Ventures, and is launching two tax-efficient space-themed funds - an enterprise investment scheme (EIS) and seed enterprise investment scheme (SEIS) for smaller companies.

 

Claire Pidancet, partner, says the fund has similarities with Seraphim - it is also more interested in the start-ups inventing uses for satellite data rather than start-ups building satellites - but insists it will be a "smaller" and "more humble" fund.

 

"The satellite application companies are less capital intensive," she says. "It's about making sense of all this new data and its impact on industry now, it's going through every sector of the economy."

 

Ms Pidancet describes the fund, which has a minimum investment sum of £10,000, as a "traditional tech fund with a clear strategy". The fund, however, wwill not be for everyone. "It is tech, it's high-growth and it's high-risk," she says. "But if you want to invest in tech it's at the heart of what will be disruptive."

 

While most investors will have to be content with satellites for now, for the very wealthy there are more adventurous opportunities.

 

From the moon landing in 1969 to Tim Peake's time on the International Space Station last year, the paradigm for space travel has remained one of sending humans and materials into space before returning them to earth - but that looks set to change as innovators dream of space colonies.

 

"One of the great challenges is negotiating the earth's deep gravity well," says Chris Lewicki, chief executive of Planetary Resources, a company based in the Seattle area with European operations in Luxembourg. "It requires tremendous, brute force energy to get up into space, yet once beyond the earth's gravity, travel is near-effortless. So if fuel can be sourced from water in space, for example, then vast new horizons open up."

 

Planetary Resources has already deployed its Arkyd series of satellites from the International Space Station with sensors capturing new types of data about Earth; next they will be pointed towards asteroids. The company has also developed 3D printing techniques that have fashioned intricate structures from asteroid material dug up in Brazil, foreshadowing the ability to create tools, construction equipment and self-replicating activities in space.

 

Planetary Resources is also interested in the nascent asteroid mining industry, for which Luxembourg is trying to establish itself as a centre. Next month, legislation enjoying cross-party support is set to go before parliament. If the bill passes as expected, the Grand Duchy will join the US in being able to claim a legal framework guaranteeing mineral ownership rights in space.

 

Another company active in Luxembourg is California-based Deep Space Industries, which is developing a test spacecraft, Prospector X. The investor base of these businesses can read like a 'who's who' of visionary leaders. While Deep Space Industries doesn't disclose its investors, Planetary Resources' shareholders include Sir Richard Branson, early Microsoft executive Charles Simonyi, plus Larry Page and Eric Schmidt of Google owner Alphabet.

 

Sir Richard Branson, Amazon founder Jeff Bezos and Tesla developer Elon Musk have their own space ventures in Virgin Galactic, Blue Origin and SpaceX respectively. These ventures are best known for offering space tourism, but they have clear ambitions beyond this - particularly in the cases of the latter two, whose owners are known to be keen advocates of the quest to colonise space. "The long game is to launch humanity off the face of the earth and into an interplanetary species," comments Mr Lewicki.

 

Investment in these closely held companies is typically limited to well-connected angel investors, mimicking the early-stage funding model that has been so successful in Silicon Valley. Money is typically only sought from other investors when they bring clear strategic benefits, or from state actors - or both, in the case of Luxembourg. Through its Société Nationale de Crédit et d'Investissement fund, it is taking a stake in Planetary Resources plus a seat on its board.

 

It may be some time before ordinary investors can book mini-breaks to Mars. But for those willing to forget space colonies for now and focus on the bigger picture, the opportunities are out there.

 

As a child, Jeff Bezos spent his summers on a Texan ranch dreaming of space flight. A 165,000-acre site in west Texas now hosts the spaceport for Blue Origin, the Amazon founder's secretive personal space company founded back in 2000. The New Shepard fully reusable rocket and separating crew capsule scored a perfect touch down in the Texas desert last summer.

 

Sir Richard Branson has had his eye on the skies for decades, starting Virgin Atlantic in 1984 and coveting Concorde before it was decommissioned in 2003. He announced Virgin Galactic the following year. Despite the crash of the VSS Enterprise spacecraft over the Californian desert in 2014, in which a co-pilot died, work towards commercial space travel continues.

 

Elon Musk made his billions in businesses including PayPal and Tesla electric cars, whose latest Model 3 claims 215 miles of range per charge. That same innovative approach has been applied to the SpaceX reusable rocket, which hopes to get humans on to Mars. It suffered a recent misfire when a rocket caught fire last year during fuelling, but space flights have resumed.