Mark Boggett, managing director & CEO of Seraphim Capital. Credit: Seraphim Capital/Matt Chung

This article originally appeared in the Feb. 25, 2019 issue of SpaceNews magazine.

Since Seraphim Capital established a dedicated space fund in 2017, European entrepreneurs who previously made a beeline for U.S. venture capital have started seeking investment closer to home. The 70 million-pound ($90 million) fund — with corporate sponsors including Airbus, Inmarsat, SES, Surrey Satellites and Telespazio — is investing in Iceye’s planned synthetic aperture radar constellation and Spire Global’s weather and asset-tracking constellation.

Mark Boggett, managing director & CEO of Seraphim Capital. Credit: Seraphim Capital/Matt Chung
Mark Boggett, managing director & CEO of Seraphim Capital. Credit: Seraphim Capital/Matt Chung

For promising startups not yet mature enough for typical venture capital investment, Seraphim formed Space Camp in 2017, an accelerator to help startups position themselves for future investment and establish relationships with industry partners.

While a single fund or accelerator can’t transform the European investment climate, Seraphim is offering a useful template for supporting space industry startups, according to “The future of the European space sector: How to leverage Europe’s technological leadership and boost investments for space ventures,” a report released in January by the European Investment Bank.

Mark Boggett, managing director and chief executive for London-based Seraphim Capital, spoke in early February with SpaceNews correspondent Debra Werner in Mountain View, California, at the SmallSat Symposium.

At the SmallSat Symposium, Tess Hatch of Bessemer Venture Partners predicted space investment would decline sharply in the second half of 2019. What’s your view?

There’s definitely going to be a softening of appetite during 2019 for all but the leading players in this market. We think investors are going to become more discerning, which will lead to pressure on valuation. I don’t see impending doom in the second half of the year. I just think a lot of investors who have made a number of investments in this market and are now stepping back a little bit to see how those investments do before they commit the next series of capital investments. We see some really good performance from some of the leaders: the Planets, the Orbital Insights, the Spires. I believe that will drive more interest in this market.

What investments have you made other than Spire and Iceye?

We’ve invested in a quantum encryption satellite constellation, ArQit. We would like to continue investing in constellations. We have one in our pipeline at the moment and we would like somewhere in the region of eight in the portfolio. We are really interested in Internet of Things [IoT]. We have seen many opportunities in that market but haven’t yet found the one we are looking for.

Do space startups take longer to produce returns than terrestrial startups?

Space now takes a broadly equivalent time to other sectors because of the new technologies being applied: cloud, artificial intelligence, 3D printing. That’s why there is so much interest in space now by the venture community that didn’t exist before.

If you are going to put up a constellation of satellites, it is going to take a little bit longer. That’s one of the reasons why we as a venture fund tried to invest in our constellation opportunities at the beginning of our five-year period. Because ultimately, they are not in business to put satellites in space. They are in the business of selling data, analytics and insights but they need to build their platform before they can start to retrieve the monetary value of that activity.

European companies claimed a larger share of the global space investment in 2018, does Seraphim deserve some of the credit?

Yes, we do actually. The European Investment Bank has just released a detailed view on the European market. They have been very complimentary about our accelerator. That’s the kind of thing driving activity in Europe.

We are conducting a detailed look at 2018. There’s interesting information about the growth in the European Union versus growth in other markets. There is strong evidence of a significant pick up in Europe. If you take a step back, it’s no surprise. The European Space Agency has been investing in business incubation centers. There are 24 of them now. Half didn’t exist two years ago. Virtually every country in Europe now has one. There is a concerted effort to build an ecosystem. It is then easier for investors to identify companies to zero in on. The groundwork put in place in the last couple of years in Europe is going to stand it in very good stead for growth.

In the past, virtually all the companies of interest came out of the U.S. They account for 65 to 70 percent of the space technology companies. But the playing field is being leveled. One of the things that is going to impact it is new U.S. legislation on [the Committee on Foreign Investments in the United States]. It’s now not just about Chinese companies and Chinese investors, it’s about non-U.S. investors investing into U.S. companies. There’s a very detailed process companies must go through. That is another hurdle for investment. It will help with this rebalancing. Europe particularly is going to be a massive beneficiary of that because it is a barrier that’s been raised in the U.S.

Silicon Valley also has become extremely expensive.

Companies that are founded here or companies that have come here for funding are now looking at other territories to build out their data analytics capability or their software capability. The data analytic capability is the monetization of the space investment. That important part of the jigsaw puzzle is often being placed outside of the U.S. because of the cost associated with doing it in the U.S. market. There is an equivalent talent pool in Europe. Great universities and great education.

There just wasn’t the funding.

The funding still isn’t available in anywhere near the same amount but there are now more international investments from U.S. funds than there have been traditionally. Now, the infrastructure is being put into place with these incubators and accelerators and tech hubs around Europe, which simply didn’t exist two or three years ago. And it’s self-perpetuating. Once you get an accelerator or an incubator that has a reputation for bringing good quality companies through, you get good quality mentors who want to associate themselves with it. Then, the companies have a better chance to raise money because they’ve got good quality propositions. This means that the most qualified companies get access to needed resources: the people and the funding. That was missing in Europe.

What’s the longer-term outlook for space investment?

The leading companies that have attracted the most capital have done so because they are deserving. They have good strategies with talented teams that have the capability to execute and create new markets. It’s taking a little longer than investors would have envisaged. But you show me a new sector that doesn’t take longer. Look how long it has taken for things like IoT or software-defined networking to actually start to take hold. Space is no different. This is a long-term growth market. I don’t think the vagaries of the stock markets in any particular year are going to have any lasting impact.

Launch vehicle companies have attracted significant investment. What’s your view of that market?

From a venture funding perspective, launch has been the predominant investment area. Some of those investments are now starting to come through to the market. SpaceX is genuinely leading the market and has introduced reusability to drive down costs. And you’ve got new entrants with different strategies around dedicated small satellite launchers. Last year was a pivotal year for Rocket Lab. We’ve got a whole slew of equivalents coming to the market.

Some of the megaconstellations are still struggling to get their satellites into orbit in a timely manner because there still is a bottleneck around launch. I don’t think that bottleneck is going to be eliminated during 2019. But the signs are in place that it will become increasingly less of a bottleneck in 2020 and beyond. There’s a huge amount of capacity coming to the market at exactly the same time. It’s going be interesting to see how that plays out. It will be great for the growth of the New Space market because for a period we’re going to move from capacity constraint to perhaps even overcapacity, which will allow entrepreneurs looking to put up constellations with novel and interesting new technologies to get this access to space.

Any other interesting market opportunities?

There’s a range of companies coming to market in 2019 that have what we call space taxis, a rocket within a rocket to distribute cargo. Their promise to the market is you get the price competitiveness of the large launch but the dedicated orbital slot of the small launch.

There’s been so much investment in this area that there’s definitely going to be more capacity coming into the market. We are interested in the space taxi market because there’s so much capacity coming to market from the big players.

Another thing we drew from our 2017-2018 analysis was the investment in downlink, getting data from satellites down to the ground. That includes phased array antennas and in-orbit relay systems. It seems to be an underinvested area of the market. If you’re going from traditional satellite constellations of five or 10 to massive constellations pumping out massive amounts of data, the value of the data is in getting it and manipulating it in real time or close to real time. Investment in that area has fallen behind the pace of investment in the other areas. Is there a looming bottleneck of being able to get data securely down to ground and processed in a timeframe that will provide insights the market is looking for?

Debra Werner is a correspondent for SpaceNews based in San Francisco. Debra earned a bachelor’s degree in communications from the University of California, Berkeley, and a master’s degree in Journalism from Northwestern University. She...