Before becoming Principal of Seraphim Space Manager LLP you were Senior Director at Astra and COO at Apollo Fusion and are currently Board Observer at D-Orbit. What have been your biggest learnings and pivotal insights gained on your journey thus far from these roles?
Team is everything. Many startups have great ideas and tech but it’s all about the execution, i.e. turning it into a product that people want to buy and doing that over and over again. That all comes down to the team. I was very fortunate at Apollo Fusion to work with a team of exceptional people that took very good tech and built a great company with a small team. For me, when I look at startups, the team is the real differentiator between startups.
Focus, or lack of it, kills startups and most larger teams too. Startups are necessarily resource constrained. There is never enough money or a large enough team to do everything. That forces startups to focus single-mindedly on one goal and do it exceptionally well. This focus is what allows them to beat much larger competitors that are doing lots of things at once. I think lack of focus is the biggest challenge I see in startups across the board and tends to increase as companies take on more funding. They become slightly less resource constrained and suddenly try to do everything at once.
Don’t be afraid to pivot! Apollo pivoted from a nuclear startup to a space startup in the course of a weekend! If you’re going to focus on just one thing, it better be the right thing. I truly believe in startups that there is no such thing as a sunk cost. If you have new information that shows you need to change course, don’t worry about the work already completed on something else. Just make the decision and move on. The caveat here is that if it turns out you’re always chopping and changing close to completion – that may mean that you’re failing to get something over the line rather than being nimble. So it’s a balance.
Are the portfolio companies in the Seraphim Fund going to take many years to realise potential? Will there come a stage for liquidity conscious funds where a limited track record of successful exits has a direct correlation upon investors interest?
I think it’s a fair point that space companies, like other deep tech companies, can take slightly longer to reach scale and a potential very large exit. One of the great things about Seraphim Space Investment Trust is that it is an evergreen fund, which means that our shareholders can achieve liquidity by selling their shares, which should increase in line with increasing fair value of the portfolio. Obviously SSIT’s share price is trading at a significant discount to fair value as are many investment trusts, which has been attributed to a challenging market environment for private equity. This differs from a typical venture fund where liquidity for investors can only be achieved through an exit. For space companies, that sole focus on liquidity can force early exits of startups that still have a lot more room to grow with greater returns possible. Now, having said all that across our portfolio we have many later stage portfolio companies that are tracking towards significant exits, particularly IPOs. Indeed, in some cases, the biggest barrier to an exit has been the fact public markets have been effectively closed for at least 18 months. So we think within the context of the market, we have a good balance of giving companies the room and time to grow achieving great long-term returns for investors.
Does the $29m financing Round for LeoLabs ,backed by new investors such as GP Bulhound, 1941 and Dolby Family Ventures,indicate that Spacetech is bucking the trend in the wider VC market?
Space is absolutely bucking the downturn in general VC. Indeed, our most recent space index Index-Q423-Final.pdf (seraphim.vc) shows that while general VC was down 35% YoY in 2023, space was flat. The greatest challenge has been at the growth stage but we still saw many larger rounds, including: SpaceX’s $750m, Axiom’s $350m, Firefly’s $300m, and Sierra Space’s $290m. Among our own portfolio, D-Orbit raised a $110m Series and Astroscale raised $76m. So even in the most challenging area there are still very large rounds happening. At the earlier stage, seed stage deals continue to grow, indicative of more and more high quality startups being founded and funded.
What do the Government particularly need to address in Spacetech and is the recent £65m in funding through the National Space Innovation program going to boost innovation?
From my perspective, there needs to be a radical shift away from grants and competitions to awarding contracts to companies to foster a dynamic space economy in the UK. Governments, whether for civil or defense purposes, are by far the most sophisticated users of space. Therefore, if customers are not acting as customers of first resort for startups, space startups are essentially starved as customers. This is an area where the US (but the rest of Europe is catching up here) is clearly miles ahead with the government acting as a first or anchor customer for startups at all stages of their journey. These contracts can then be leveraged to go win private investment from investors, on the basis of real contracts and revenue. There seems to be an enormous misconception among government organisations in the UK that grants are equivalent or even better than contracts because “they are not dilutive funding”. However, what contracts indicate are that a company has found product-market fit, i.e. there are customers willing to buy their product. In addition, contracts get booked as revenue, which increases valuation and reduces dilution for founders. Grants have no impact on valuation. Finally, contracts bring rigour to a company – can they build and deliver products and services. Whereas grants allow companies to tinker around on development without having to ship product – and introduce lots of reporting! I think if the government resolved how it spends it funding first, that would be a huge improvement to the space ecosystem in the UK.
What’s our current focus on investing?
We think the largest and most promising markets right now are in “Space for Earth”, i.e. using space to improve businesses, lives, and decision making on Earth. Examples include, communications or internet from space, remote sensing or Earth Observation to monitor climate change or for global security purposes. Our portfolio is definitely weighted towards these areas. However, as the space sector itself grows, we’re increasingly interested in investments in infrastructure and services for the in-space economy, i.e. servicing other space companies.
