Investing in Space

Morgan Stanley joins venture firms betting space start-up Vector can launch a lot of small rockets

Key Points
  • Small rocket builder Vector says it has raised $70 million in a new round of financing.
  • Kodem Growth Partners led fundraising in conjunction with Morgan Stanley Alternative Investment Partners.
  • With several orbital launches planned for next year, Vector is beginning to ramp production to deliver low-cost, on-demand launches for small satellites.
Vector CEO: We want to mass produce rockets
Vector CEO: We want to mass produce rockets

Rocket builder Vector said Friday it has raised $70 million in a round of financing, with a Morgan Stanley alternative investment fund joining Silicon Valley backers.

Vector is developing small rockets priced at less than $3 million a launch. They are designed to be capable of putting up satellites and spacecraft about the size of a microwave, which are a premium part of the rocket market. Small rockets can save customers months of time getting to orbit but come at a higher cost compared with flying as a "rideshare" on a larger rocket like the SpaceX Falcon 9 rocket.

CEO Jim Cantrell told CNBC that Vector is trying to do "essentially what Henry Ford did with the automobile assembly line," but with rockets. Vector's end goal is to be launching more than 100 times each year, with this latest round of funding intending to get its two rocket types, the Vector-R and the Vector-H, flying to orbit.

"We're looking to fly up to a dozen next year," Cantrell said. "We've got to get the Vector-R launched first but we're also hoping to have the inaugural Vector-H launch next year."

New York-based Kodem Growth Partners led the $70 million round in conjunction with the strategic opportunities business within Morgan Stanley Alternative Investment Partners. Previous investors Sequoia Capital, Lightspeed Venture Partners and Shasta Ventures also joined this round.

"What drew us to Vector was the vision Jim Cantrell and John Garvey painted for us about how space communications and the satellite industry were fundamentally changing," Lightspeed partner Alex Taussig told CNBC. "They convinced us that there was this bottleneck, and if you solve the bottleneck then you will multiply the addressable market significantly."

The strategic opportunities business is a smaller fund within Morgan Stanley, which has about $475 billion total assets under management, and is only accessible to a limited number of the investment bank's clients.

"Silicon Valley is where we got our start, but we have found that there was a huge interest in the New York money community," Cantrell said.'

Space Angels CEO Chad Anderson tweeted congratulations to Vector, saying the company has "by far the most efficient use of capital in the launch business."

@spacecapital: Congrats to the entire Vector team! @SpaceAngels is proud to have led Vector's Seed round - by far the most efficient use of capital in the launch business, with just 2.5 years from founding to orbit.

Kodem operating partner Phil Friedman also joined Vector's board of directors, intending to help prepare the company for an initial public offering. Cantrell described Friedman as "an insider in the aerospace industry," noting that Friedman has been in buy-side and sell-side roles on Wall Street for over 35 years.

"We were very impressed with management's forwarding looking view regarding how to ramp production once the development phase had ended," Friedman said in an email.

While Friedman said Kodem's investment does not have a "preconceived philosophy regarding exit," Cantrell estimated an IPO for Vector is about three years away.

"We think the new space community needs more IPOs and intend to be the ones leading that," Cantrell said. He added that he's seen anecdotal interest from the public, with retail investors asking to buy shares in Vector. Cantrell said he's hopeful an IPO is in only a few years, and he's "trying to give the public and our investors a feel for what it's like to develop a rocket company."

The next step: Putting customers in orbit

Vector flight tested the Vector-R rocket in a short August 2017 launch to 10,000 feet. Since its founding in 2016, Vector raised about $100 million, with this latest round intending "to get the Vector-R operational," Cantrell said.

The company is testing a "Block 0" version of the Vector-R to complete more testing of its "ground architecture and the launch infrastructure," Cantrell said, although he clarified that the Block 0 rocket itself "isn't quite as big and won't go very high."

@Vectorspacesys: Remote con-ops including vehicle checkout with Launch Control Center (LCC) in desert outside of Mojave and with our Mission Operations Center (MOC) over 120 miles away in Huntington Beach, CA.

"But we're taking the training wheels off the rocket for testing," Cantrell said of Block 0. "Even if it's a small altitude, it has full functionality."

That testing is leading to the company's first launch of its full "Block 1" version of the Vector-R. Cantrell said the launch, expected in the next few months from Alaska's Kodiak Island spaceport, "is a developmental flight and won't place payload in orbit."

"We expect flights two, three and four will [reach orbit] with paying customers," Cantrell said. "We still move the needle forward on the development of the rocket by doing this launch."

A look inside Vector's mobile operations.

Following in the footsteps of SpaceX, rocket companies like Vector are looking to further lower the time and cost of getting to space. Reaching orbit often, what those in the industry call "increasing launch cadence," is the means to unlocking much more growth. Morgan Stanley predicts the space industry may grow much more quickly than investors expect, much like the autonomous vehicle market earlier this decade.

"If you increase the supply [of rocket launches], people have always thought that the demand would follow," ARK Invest analyst Sam Korus told CNBC. "Orbital launches have been special in their rarity and now all of a sudden we're going to have a handful of companies trying to make this a routine practice."

"These are obviously smaller and more nimble organizations than government launch programs," Korus added, "but it is a difficult task and there's nothing guaranteeing success."

Much of Vector's testing is focused on demonstrating that the company can launch from most anywhere in the world with its mobile launch system and remote operations. Demonstrating that flexibility is "key to being able to fly lots of rockets," Cantrell said.

Kodem "liked the mobile nature of [Vector's] launch capability as far superior to those that require significant capital to build multiple launch pads," Friedman said.

Scaling a rocket company

Vector can produce about 25 rockets a year, Cantrell said, but that's with "an interim factory." Vector plans to break ground on a much larger factory in Tucson, Arizona, in spring of next year. Cantrell said Vector will be seeking separate debt financing for the Tucson factory, with the company "putting that financing together over the next few months."

A Vector-R rocket on the company's mobile launch platform during testing.

"We're seeing the demand in the years out being much more than our interim factory can produce," Cantrell said. "It's critical we can start production now so we're ready, in terms of how fast we can ramp up flight rates."

In the meantime, Vector will produce "all of the 2019 Vector-Rs and the first Vector-H" at the interim factory, Cantrell said. Vector's ability to scale is one of the key draws for Kodem.

"Many other companies we have looked at just don't think far enough in advance regarding how to scale," Friedman said.

He specifically pointed to the low number of parts making up the Vector-R, which he says is one-tenth "or so of its closest competitor" and critical to mass producing the rockets.

Cantrell said Vector has added five customers to its manifest to seven previously announced.

"We're selling launches for both 2019 and 2020," Cantrell added. "Most of those new customers signed for Vector-H."

Correction: This story was revised to correct the Morgan Stanley division participating in the funding.