Tech ecosystem isn’t just about “Uber for X” and e-commerce startups anymore: it’s about space as well.
VC investments in SpaceTech are skyrocketing: 2015 funding of space-related startups more than doubled the funding for all previous years combined and reached record-breaking $1.8 billion, according to CB Insights’ Frontier Tech report.
SpaceX and Planet Labs investor Steve Jurvetson summed up the reasoning behind this surge in an interview with Fortune last year: “
Compared to other industries, I have never seen such an enormous margin for improvement. There’s this canonical thing about a startup needing to pitch a 10X improvement to be a worthwhile investment. You rarely see an entrepreneur pitch a 100X improvement. But in space we’ve seen 1,000X, and really we’ve seen 10,000X.”
And worth to mention, that space startups are no longer just a bunch of aerospace engineers lacking business experience. They are ambitious companies with successful track records and world-changing plans such as providing global internet access and building reusable rockets.
Satellites + Subsystems + Miscellaneous
Companies developing and operating satellite constellations for different purposes (shooting the Earth from the orbit, gathering weather-related data, providing), as well as satellites’ subsystems developers are included. Also, I’ve included companies providing various microgravity research services.
Launch Vehicles + Space Tourism + Moon Exploration
Startups developing various launch vehicles (LV), space tourism and moon exploration spacecraft fall into this category.
Companies working on next-generation ground stations networks, using for receiving data from spacecraft (including satellites) and operating them.
Startups building products and/or services for various industries/verticals on top of the remote sensing data.
As it can be seen, startups ecosystem has already emerged to a pretty nascent one, with its champions, such as SpaceX, OneWeb, Skybox Imaging (the only SpaceTech exit up to date) and Planet Labs. However, I see only a few areas in the ecosystem, that may be interesting to a typical VC investor: able to show traction in short/mid-term and not very capital intensive.
And among these areas, Earth Observation is definitely the most promising one for most of the investors – and here is why:
Companies like SpaceX and Rocket Lab have significantly reduced the cost to access orbit.
Developments in electronics have enabled companies to build satellites — like Planet Labs’ cubesats, for example — that are 100x cheaper than their predecessors by using off-the-shelf components (similar to ones in our smartphones)
Thus, these super cheap and easy-to-launch satellites make it possible to gather huge amount of data on what’s happening on Earth almost in real-time and build various services on top of this data, which can be a very interesting investment opportunity.
Cubesats are really, really small birds!
Diving deeper into Earth Observation, there are some most promising areas in this sector of space economy as well, such as:
Satellite Imagery Analytics
Citing Sunil Nagaraj, VP at Bessemer Venture Partners, has said: “…a space startup can now build and launch a constellation of SmallSats for about the same amount of capital that a tech startup can build and launch a mobile app”. However, while it has much easier to get the data from the orbit, it is still unclear how that data will be used and how to make a transition from pixel to insights.
And some companies have already emerged in this area – Orbital Insight, Spaceknow and Descartes Labs to name a few. They’re applying machine learning algorithms to analyse satellite imagery and taking this analysis at scale, utilising cloud computing. Speaking of use cases, they are doing things like predicting retailer profits by counting the number of cars in store parking lots and monitoring construction and manufacturing rates in China.
Orbital Insight identifies airplanes at an airport
While there are quite a few companies claiming they’d launch Earth Observation microsatellite constellation, and the segment is becoming more crowded, most of these companies are gathering imagery in the visible spectrum (say, taking RGB photos of Earth), some have different sensors on their satellites that are capable of gathering pretty unique data from space that can provide some specific insights for a variety of verticals.
Hyperspectral (collecting data across a wide range of electromagnetic spectrum at a high spectral resolution) and radar (collecting data by recording radar waves reflected from a given surface) imagery are the biggest opportunities here.
And, zooming into Nordic, there is a very promising Finland-based company called ICEYE, which is developing 40+ microsatellites radar imagery constellation.
ICEYE was founded as a course project at Aalto University in 2012 by Rafal Modrzewski and Pekka Laurila. Already in the same year, the team received its first funding from the Aalto Center for Entrepreneurship, and in 2013–2014, the team developed a prototype of the technology in Aalto with funding acquired from the TUTLI programme by Tekes. The spin-off company started its operations in 2015 and raised $2.8 million Series A from US-based funds True Ventures and Founder.org, with participation from Finland-based Lifeline Ventures, along with $2,8M in R&D funding from SME Instrument, part of European Union’s (EU) Horizon 2020 innovation program.
Pekka Laurila, CFO (left), and Rafal Modrzewski, CEO (right), co-founders of Iceye
Speaking of the product, while there is a number of Earth Observation startups, what sometimes is overlooked, is that around 70% of the time traditional optical imaging isn’t helpful because it’s night time or there’s cloud cover blocking our view from space. Thus, as Jyri Engeström from True Ventures told me, the pragmatism of Iceye was appealing.
“Initially, Rafal, Pekka and their team developed a small, lightweight synthetic aperture radar (SAR), which could see in the dark and through the clouds and flew it on a small airplane,” Engeström said. “And as previous SAR instruments were big and expensive, theirs was compact enough it fit not only on a small plane, but even on a small satellite – and since the cost of satellites has recently come down by an order of magnitude, you can now launch dozens of them to create a global coverage constellation, very reliable and with short revisit time,” he said.
Discussing Iceye’s product, ice monitoring services for maritime is a major focus for the company (as it can also be derived from its name), but not an exclusive target. Citing Rafal Modrzewski: “
Tracking ice was the first market niche that we identified as extremely lacking in practical SAR information. It’s going to be a major one at first, but it’s not our primary anymore”.
Generally, company’s targeted industries are not really different from other Earth Observation companies: Agriculture, Energy and Oil & Gas, Civil Government and of course defence.
However, in addition to unique radar sensors, which give Iceye an edge among its competitors, the company is also moving towards more “full-stack” and IT-focused approach with APIs and WEB-interfaces, providing an instant access to satellite imagery. And this is corresponding really well with how top Silicon Valley investors see the development of Earth Observation segment. Shahin Farshchi, Partner at Lux Capital, an investor in some of the most well-known SpaceTech companies, such as Planet Labs and Orbital Insight, says: ”We’re seeing several interesting startups adapt SAR to small satellites to see in the dark and through clouds. Unfortunately I don’t expect customers to value pixels; however, I do expect them to pay dearly for signals as a basis for making key business decisions”.
Worth to mention, Iceye and startup companies in general, aren’t the single component in the Nordic SpaceTech ecosystem: there has historically been very strong industry players and academic institutions.
Aalto University, home of Iceye, is one of the leading space-related universities in the Nordic region. For example, Aalto-1 satellite is expected to be launched in 2017. Also, a number of other projects, such as Aalto-2 Atmospheric Satellite and Finland’s Centenary Satellite are also developed in the university. Technical University of Denmark (DTU) conducts a lot of research in astrophysics, geodesy and launched 2 satellites, built by students: DTUSat-1 (in 2003) and DTUSat-2 (in 2014).
Speaking of the industry, there are 2 worldwide-scale space companies in Nordic, Sweden Space Corporation (SSC) and Kongsberg Satellite Services (KSAT). SSC is a leading space services provider with 50+ years of experience, providing launch services and operating world’s largest civilian network of ground stations, with rep offices in 22 countries. KSAT is one of the leading worldwide satellite ground stations operator based in Tromsø, Norway, maintaining 3 ground stations, receiving data from most of commercial and government satellites.
Also, there are 2 launch facilities located in Nordic, ESRANGE in Northern Sweden and Andøya Rocket Range in Northern Norway.
Summing up, a really nascent SpaceTech ecosystem of industry, academia and startups has already developed in Nordic region. Taking into account significantly decreased barriers to get into space business, fueled up by massive VC investments, we can expect a lot of great space-related companies to emerge in Nordic.
And this represents a great investment opportunity that definitely shouldn’t be overlooked, thus, stay tuned to SpaceTech!
Valery Komissarov is a VC at Skolkovo Foundation, a government-backed firm based in Moscow, where he covers spacetech and drone companies. He previously worked at space startup Sputnix and was pursuing a master’s degree in Aerospace Engineering.
Original post appeared on Arcticstartup