Seraphim Space Investment Trust Plc (SSIT) Earnings Call Transcript & Summary

Hi, everyone, and welcome back to another Seraphim Space live webinar on the Seraphim Space Index Q2 '24. I'd like to welcome to the conversation Seraphim investor, Lucas Bishop, who's one of the key members of the team who put this together. It's a fantastic piece of research that is much relied upon by anyone looking to invest and better understand the ecosystem. Hi, Lucas.

Hi. How's it going?

Thanks for joining me today. And I'm going to run through, as normal, in a Q&A start, asking Lucas some key questions on his findings in the report, and we also love taking questions from the audience as usual. So please post them in the chat, and we'll get through them either if they're relevant as we go along or at the end of the webinar. But if we don't have time to get to any of them today, Lucas and the rest of the team are happy to pop into our Seraphim page and answer any questions you may have. So let's go from here. The index came out last week. We released it as a PDF and also we've now got an interactive dashboard, which is awesome that people can use to look up any of the data post this webinar as well, which is great.

So Lucas, first question for you. How has the space sector demonstrated growth and resilience in this last quarter of '24 in your opinion?

Yes. So space tech investment for the last quarter has been looking roughly good, clocking in at about $2.4 billion. This has been the fourth quarter of continued upward positive trajectory in terms of the total amount of investment raised. So over the past 12 months, raising about $8.5 billion in total. For this quarter, it's driven primarily, in large part, by quite decent size around and kind of early growth stage businesses and kind of Series A, Series B, Series C. And just through -- just looking at the quality of these businesses, generally, pretty strong. So it's been a good quarter in terms of investment continued upward trajectory.

Great to hear. And what about just compared to general VC investment that's also...

Yes. So in our report, we've benchmarked general VC and space investment. I think we benchmark it again. So we indexed that against 100 in early 2018. And what we've seen is -- so space tech obviously -- space tech and generally VC went through a bit of a boom and bust cycle in 2021 and following. Space tech seems to have outperformed, I mean, because it's a growing sector, particularly in terms of the number of deals raised. I think where we are at today, almost every quarter is fast as the last one in terms of total number of deals. And this quarter was, I think, another record breaker in terms of around 170 space VC deals completed in the quarter. In terms of investment, after the kind of the pullback from 2021, it's a little bit down from the peak, but still kind of quite far in excess of where general VC was relatively. So yes, performing quite well.

Awesome. Great news for all tech investors. You can touch on it briefly, but what other factors you think that has contributed to this increase? Anything in particular or...

Yes. So well -- so in the current year-to-date, there's been one quite interesting factor, which was that China has been raising a lot of extremely large rounds. Q1 was kind of punctuated by that near $1 billion investment into Shanghai Spacecom, which is a Chinese LEO constellation. This quarter, the 2 largest deals are both also Chinese businesses, so Mino Space, a business which manufactures satellites, and Space Pioneer, a business that launches -- the launch of rockets. But yes, with the combination of these 3 businesses in the first half of 2024, they really significantly add to the total investment. And as a result, it's meant that China is being kind of the #1 geography for investment for the year-to-date, which is quite a reversal from the historic trends, where in U.S. with kind of lead by quite a landslide. So quite an interesting development and kind of shift in the profile of the investment into space.

Was this a surprise? You do see China staying in the top spot. Now what's the rationality they're trying to compete with kind of the U.S. counterpart perhaps or...

It was definitely surprising, but it definitely has its rationale. I think -- so China is obviously trying to build out their capabilities in space. On the government side, they're doing some very interesting space science missions like we saw with the lunar return vehicle. Also, on the government side, they're operating their own space station and have astronauts in orbit as well doing R&D and space science. On the commercial side, it seems like there's quite a drive to replicate or build up some of the capabilities that the West already has. So the 3 businesses that I just mentioned all have many kind of analogous capabilities to what SpaceX has already done for the U.S. in terms of launch, satellite manufacturing and as well LEO satcoms. So I think in the commercial sphere, people would probably agree that China is lagging the U.S. And as a result, they're investing very heavily, heavily to catch up on that front.

Do you think it would be possible that they could compete with SpaceX, for example, Starlink? Or is that not -- if in fact, in a very long term?

Yes. And potentially in some geographies, I think in the West, people are going to gravitate towards the western providers, and in China, they're gravitating towards their own. And then maybe in geographies that are maybe slightly less affiliated one way or the other, they might have the option to select from both.

Yes. Interesting. How does this investment revival compare to the highs that we saw back in 2021?

Yes. So the highs in 2021 were driven primarily by some of the more mature new space businesses. So $1.7 billion round into SpaceX, $1.4 billion into Sierra and then multi-hundred millions into Relativity and OneWeb to name just a few. So what we're seeing now, in fact, and we see this in the numbers, is that as of the last quarter, actually relatively little of the investment went into these -- into the kind of late, late growth rounds. The majority of investment volume is kind of in that A to C range, at least as of the last quarter, with this kind of next wave of emerging space tech startups. So I think where investors through 2021 were backing some of the kind of already standout clear winners, we're seeing kind of another wave of up startups slightly earlier in their journey but being well funded in much larger numbers, where, I guess, investors still see a lot of promise for building the next generation of space unicorn. So it looks very promising.

So you think that gives -- what does that do for investor confidence, the fact that they're focusing on these super early companies?

I just think it signals that there is quite a lot of investor confidence in the long-term opportunity within space. I think we've seen a lot of investment into kind of the picks and [ chose ] opportunity. So in our taxonomy, we have a segment called build, which is generally businesses that are either manufacturing satellites or subcomponents or propulsion systems, generally, like the other hardware that ultimately powers the rest of the space economy downstream. And that is the segment that's seen kind of the highest volume of deals, around kind of 50-odd in the quarter. So yes, quite a lot in the picks and [ chose ] of the space economy. I think that indicates that people believe that the space industry is big enough to support many, many different businesses building products and hardware that serves the space industry itself. But no -- yes, probably, I think [indiscernible] get interest.

Yes. Definitely. It's great to see. As I said earlier, please anyone's got a question for Lucas, please put them in the chat, and we can get them as we go along or at the end. You mentioned in the PDF that's direct-to-cell technology. I know it's been in all the papers recently, has made huge strides. Can you explain to people what that really means for every day people like us, mobile phone users?

Yes. Yes. So I think direct-to-sale has been making massive strides just in terms of some of the news items that we've seen over the last quarter. And Starlink has been upping their pace of satellite rollouts. So there's now over 100 direct-to-cell Starlink satellites that have launched to date, and they're planning to enter service toward the end of this year. AST saw a pretty meaningful share price inflection on the back of new partnerships with the Verizon. And also, Apple announced, in their iOS 18 update, the expansion of messaging capabilities beyond just SMS to some more general messaging. So this is all very exciting, and it puts satellite connectivity in the hands of everyday people like you and I at very low cost. Typically and historically, satellite connectivity had really been the remainder of extremely high-value use cases where you need a dedicated and typically quite expensive power hungry terminal. But these days, as kind of direct-to-cell technology advances, we're ultimately going to be able to access satellite connectivity from extremely low cost and very convenient, convenient devices and potentially never be unconnected, whether we're in the air or on a remote island or out at sea. So yes, I think it's very interesting. I mean, it makes that console so massively accessible and expands the market that's addressable by satcoms enormously. So I think we're definitely very excited by what's happening in direct-to-cell. There's a huge opportunity for massive value creation.

Yes. And just all those -- I mean, I forgot what the percentage was, but already I think how much of the world is so underserved by satellite technology at the moment. It'll just eradicate all of that, and there'll be no blackout zones. And yes, super exciting for people all over the world.

I think it was about 10% of the surfaces covered by terrestrial connectivity. Also -- can address the other 90%.

Yes. Cool. It'd be fine I think. I mean, huge -- huge market there. It's always super exciting to see that -- the new Starship launches as they happen, and obviously, millions people around the world tuning in to hear those. What does -- but we get some sort of, sometimes, negative commentary. People not understanding that these things need to be tested effectively. What does the success of Starship mean for the industry? And what are we learning from these constant launches?

Yes. So SpaceX has obviously already once revolutionized that -- the space industry by making a launch far more frequent, far more affordable, and it's really been catalytic in basically enabling the majority of our portfolio companies in rolling out their constellations at an affordable price. Obviously, Starship can then take this forward and multiply that by orders of magnitude with 100-plus tonnes to orbit. So with even lower costs and with even biomass available to take to orbit, it starts to open up new future opportunities. I mean, a, it improves the economics for our existing portfolio, but it could start to open up more possibilities in space manufacturing, in point-to-point transportation, in potentially building large structures in space for space stations and other use cases. And obviously, the Artemis program relies on Starship to start the -- well, it kicks up -- at least the initial part of it which is going to be mostly government missions, but potentially a lunar economy in the long run. So yes, it has a huge impact. Obviously, I assume those people would probably tune into the fourth test mission of SpaceX, which was incredibly exciting to watch for the dramatic melting of the -- of one of the things. But yes, I think everyone at SpaceX would've been extremely happy with the result of reentering and performing kind of demonstration landings at both the upper and first stage. So I think it's very, very exciting for all of us.

Yes. Awesome stuff. You mentioned China earlier. But were there any other surprises when you looked at the top deals?