Many companies in the space industry have seen operations grind to a crawl in the past two months because of the coronavirus crisis, a problem compounded by frozen venture capital that used to be readily available.
Worse, Rocket Lab CEO Peter Beck told CNBC that this is only the "early days" of the crisis for an industry that saw a boom time over the past decade. While he remains hopeful that some creative and well-funded companies may continue pushing forward, Beck warned that this "is going to be a really challenging time."
"This is a year-and-a-half slog, maybe even longer," Beck said.
Beck is one of the most experienced leaders among the latest generation of space ventures, having built Rocket Lab into a multifaceted company. Begun in 2006, the company is backed by a host a VC firms and, in recent years, has grown its valuation to more than $1.2 billion. It's based in Long Beach, California but was founded by Beck in New Zealand.
Rocket Lab has launched its Electron rocket to space 11 times from its New Zealand launchpad, since first reaching orbit in January 2018, and is closing in on the first mission from its second launchpad in Virginia later this year. Additionally, the company last year expanded into the spacecraft building business itself with its Photon satellite platform. Last week, it closed its acquisition of Canadian space systems company Sinclair Interplanetary, which builds satellite hardware.
To top it all off, Rocket Lab recently passed key milestones in developing a system to reuse its rockets — by snagging them out of the sky using parachutes and a helicopter.
Here's what Beck had to say about the current fundraising situation for space companies, as well as his view of any possible government stimulus actions and his takeaway from Virgin Galactic going public last year.
Simply put, Beck thinks the availability of venture capital is the complete opposite of what it was a few months ago. He said VCs are not looking to invest in any companies that are "pre-revenue" for at least a year. After talking to Rocket Lab's investors, the general consensus for Beck was that it will take VC firms "a very, very long time to return to the space industry." For context, the first quarter of 2020 alone saw $5.4 billion of equity investment in U.S. space companies.
"If you don't have revenue and you don't have at least 12 to 18 months of runway, it's a scary place to be," Beck said. "Things are going to fail ... and it's going to be tough."
Beck reflected on his first time raising capital in Silicon Valley. In essence, VC investment in space companies has gone through three phases: Little investment before 2009, an explosion of growth for nearly a decade, and then today's chilled environment.
"It was a totally different environment, none of them were into space at all," Beck said. "I was the crazy guy wanting to build a launch vehicle, trying to raise $5 million."
With investment in pre-IPO space companies cooled off, Beck believes those on the hunt for capital should consider banding together to survive.
"If you're one of these space companies that doesn't have a big runway and a product, perhaps it's time to think about consolidation," Beck said. "Who are the partners that I can leverage with my particular piece of technology and join forces, rather than go completely extinct?
"I'm hopeful that this is not a time of just waste laying," he added. "I'm hopeful that this is a time of consolidation, where these amazing teams and amazing technologies get absorbed under different umbrellas, rather than disband and the technologies go to the graveyard.
Both civil and military agencies are already stepping up funding for corporate space partners. NASA, the Defense Advanced Research Projects Agency and the Defense Innovation Unit are a few government agencies that are accelerating funding to space companies during the crisis. While Beck acknowledged that he doesn't "have the golden solution" for how government can further aid the space economy, he said the industry has "to start talking about it to try and figure a way through."
"As the government, you're in a really tricky spot, because which ones do you save and which ones do you not?" Beck asked. "I see so much stimulus talk and it really worries me."
He fears the disappearance of space capabilities provided by companies to the U.S., as well as funding being distributed ineffectively.
"Don't just do stuff for the sake of doing stuff and keeping an industry alive. Do things that do that but at the same time build capabilities that we've never had before," Beck said. "Ultimately, this is an opportunity for nation building."
Ellen Lord, the Pentagon's acquisitions leader, said last month that companies building small rockets — like Rocket Lab's Electron — are among the most impacted by the crisis. But Beck doesn't think the defense department should be prioritizing funds for small rocket builders, and not because it might bring new competition to his company.
"You could pour a whole lot of money into a number of other small launch companies and bring them to market. But my argument is that if there's nothing to be launched then everybody's standing around," Beck said. "If you start down at the bottom somewhere, like small launch, it's pointless if your satellite industrial base is dead."
Beck thinks any government stimulus for space should go "to the highest node," with funds prioritized for spacecraft. Rocket Lab, its competitors and its supply chain "will be healthy as long as there are spacecraft to build," he said. "Then everybody's happy." He believes prioritizing funds for spacecraft should be based upon the question: "What are things that have really good benefits for the country?"
"When I think of America as a nation, I look to the things that have really disproportionate economic outcomes. One of the good examples is the GPS constellation — the cost of the constellation has a massively disproportionate benefit both for wealth and the economy," Beck said.
While demand for space services may be resilient, as companies are largely business-to-business or business-to-government models, Beck believes the industry's supply chain "is very fragile." He noted Rocket Lab's acquisition of Sinclair Interplanetary, saying it gave "insight into a number of programs."
"The Sinclair acquisition for us was born out of the fact that the supply chain for those components is incredibly fragile. It helped secure a supply chain of critical parts," Beck said.
As an example of which technologies he thought the government should prioritize, Beck pointed to companies building synthetic aperture radar satellites. It's a technology that has seen some applications already, such as analyzing oil storage from space, even though a SAR company has yet to complete a constellation of the satellites.
"SAR has great military utility but no one has really brought commercial SAR to the market. There's a number of international efforts going on and I think that's an area that the U.S. should remain leaders," Beck said.
Beyond SAR, Beck said he will "always be encouraging investment into sciences."
"Here's an opportunity to build some spacecraft to explore other planets and other worlds in the universe. If it's done well, the outcome has the ability to be totally disproportionate to the investment," Beck said.
Beck also highlighted last year's public market debut by Virgin Galactic, which notably happened before this unprecedented pandemic began. The space tourism company's stock has been a favorite among speculative traders, especially in the final few months of the bull market earlier this year. But Beck said Virgin Galactic going public was "a really interesting thermometer" that showed how much investor interest exists for space assets.
"You gotta hand it to Richard Branson, that was a masterful piece of finance," Beck said.
But he noted that Virgin Galactic is operating without significant revenue, as the company has yet to begin flying paying passengers to space regularly.
"What it said to me was, what would happen if you brought a really high-quality asset to the market with strong revenues and growth? That would be super interesting," Beck said.
Rocket Lab has a clear plan ahead of it, Beck clarified, as he thinks now is "a bit of a tough time" to go public.
"I think there's a lot of value yet to be created at Rocket Lab and we're just getting started. If you're going to do an IPO, I think there's a right time for it and we're not there yet," Beck said.
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