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

Welcome, everyone, and thanks for tuning in. Today, we're diving into the Q1 2025 Seraphim Space Index, unpacking the latest funding, market shifts and innovation trends shaping the future of space tech. It's been a dynamic start to the year with global investment reaching $8.1 billion, a strong rebound that brings us back to nearly 75% of the 2021-'22 peak. I'm joined today by Lucas Bishop, Investor at Seraphim, who is here to help us make sense of what's driving these numbers and what it all means. Lucas.

Leah, good to be here.

Thanks for joining me again. So we'll go straight into questions actually. But before we do, [Operator Instructions] and Lucas will be happy to pick them up at the end or if they're relevant, we'll pick them up as we go through.

Lucas, I just touched on it briefly in my intro. So exciting times for space tech investment. We reached $8.1 billion in the last 12 months, 12% year-on-year. What do you think is driving this resilience in the sector compared to broader VC trends?

Yes, yes. So I think space investment has rebounded pretty well. General VC is pretty much flat to where it was after the retraction in funding following that kind of 2021, early 2022 peak. So space tech is far outperforming there. In terms of the last few quarters, I'd say Q1 so far has been pretty much in line with 2024. The average funding each quarter across 2024 was $2.1 billion, and that's what we saw in Q1. So it's a very, very normal quarter, very in line with the last few quarters, generally. Why do I think space is outperforming general VC? I would say the main driver is that space is a growing market that's currently undergoing disruption. Every year that passes, space becomes more accessible. The cost of launch goes down, the cost of satellites and satellite componentry goes down. There are more businesses addressing various elements of the space value chain for companies to tap into. And that effect is only going to become more extreme when Starship comes online. I mean that's going to have a huge effect, enabling even more new business models by enabling more mass to orbit, larger structures. So that's going to continue to have, I think, a positive knock-on impact through the industry and as a driver of investment going forward, to be honest.

Great. Yes, that's really interesting. So you think it's also a case of proof of concept and people having that long-term conviction, maybe like outweighing like short-term micro concerns that happened in the past potentially?

Yes. Yes, for sure. I mean I think just another driver is probably just a validation that space can actually generate venture outcomes. I think most investors -- well, there weren't many VCs participating in space really any time before 2015, and that mindset has completely shifted with positive outcomes with companies like Rocket Lab, SpaceX and a few others at the moment. So yes, there's just a lot more buy-in on all sides, really. There's more founders that have existed in entrepreneurial environments coming out of SpaceX, coming out of Rocket Lab. Investors see that there is a pathway to a venture scale business in space. And there's a lot of other positive drivers in the space industry. So it's kind of a combination of all of those things, I think.

Yes. Great. So something I was going to touch on earlier, but it makes sense to mention now. So yes, Stoke Space being the largest round and they're kind of -- they're SpaceX founders and Blue Origin founders, so that's correct, like the SpaceX effect we're seeing that...

Yes, they -- exactly, well, they come out of -- Andy, the CEO comes out of Blue Origin there. But exactly, we're seeing founder -- we're keeping a pretty close eye on people coming out of SpaceX, Varda, Blue Origin, any of these relatively high-profile space businesses because that's where a lot of the next generation of talent and next generation of founders for space businesses is going to come from. So yes, we've got a very close eye on that kind of profile.

Great to hear. Another thing that you reported, it was that Asia has actually surpassed North America in deal count. Is it for the first time ever?

It is for the first time ever, yes. So we kind of saw this [ striking ] with regards to space investment in Asia, I guess, through the first half of 2024, where for the first time, almost entirely driven by China, but investment in Asia had surpassed that of the U.S. And in fact, yes, it was -- China had surpassed the U.S. in terms of investment through the first half of 2024. And now we've seen it for the first time in terms of the actual volume of deals, unsurprisingly, if you look at the data, it's a lot around manufacturing, launch and SATCOMs. So again, continuing to build out these kind of capabilities that seem quite analogous to SpaceX and the kind of successes from the U.S. already in and around launch vehicles, reusable launch, LEO SATCOM constellations and then a lot of the things that come kind of around that antenna terminals and related technology. So yes, it just goes to -- it just continues to show that China is very serious about heavily investing in building their commercial space sector. And I mean, we have, I guess, limited amount of insight and visibility into that space specifically. But I do wonder if kind of a similar effect that we see in the U.S. with the growing number of founders in space companies is -- flywheel is potentially starting to spin out in China. But I think we have limited like visibility into that. So that's just, I guess, a working theory.

So do you think it's kind of a one-off quarter? Or do you think it's going to...

No, I wouldn't say so. I wouldn't say so. I mean, I think across all geographies, the number of space deals is probably going to be up, up, up and to the right generally over the long term. But I think Asia has been really accelerating, and I don't really see -- because they are still behind the U.S. in terms of some capabilities. I think in [ PMT, ] they're actually quite advanced, but in some of the commercial elements that we were speaking about. They're a little bit further behind. So I mean, that -- I think that was the driver for the very large investment, $1 billion investment into a SATCOM constellation early last year. So I think, yes, it's only going to continue to drive the volume of deals and investment in that sector. So I think more to come out of that for sure.

Great. Yes, it's a striking shift. And we've also seen a high proportion of capital concentrated in the B and C rounds this time. Can you expand a bit on this and what this is saying around investor appetite?

Yes, sure. So if you look back to that period that I mentioned around kind of -- well, in fact, really any time before 2021, the vast majority of capital was concentrated in really just a few businesses, was SpaceX, OneWeb and a couple of others, the overwhelming majority of investment was into a very, very small number of companies. And what we've seen over the course of the last few, call it, 3 or so years from '21 onwards is that there's been a reduction in the concentration of investments into these mega rounds. And we're seeing larger rounds happen in more volume in this kind of early growth stages kind of B, Cs, maybe some Ds and companies like, yes, Stoke are a perfect example, but Loft Orbital, Firefly, The Exploration Company, Impulse, this kind of next generation of space companies, many of which have founders that come from the first generation of space companies, Blue Origin and SpaceX, coming out. And I think these larger rounds are signals of investor confidence in a next generation of emerging winners. So yes, a positive indicator, I think.

Yes. So I think it's showing evidence of investors kind of doubling down on companies that -- where they're seeing traction already.

Yes. And I think for some -- I mean, it depends on the profile of investor, right? But I think maybe for some investors, the valuations of the first category of winners, the SpaceXs, maybe the Rocket Labs today, valuations are a little bit too far gone, and there's maybe a much more attractive returns profile for these new businesses solving new issues in space.

Yes, that makes sense. Thank you. And if anyone's got any questions on anything Lucas has touched on, please post in the chat or continue and we -- post them and [ we can answer ] them at the end. We have noticed public market volatility returning. And I know you always get -- we always get questions around IPOs coming back. How do you see the IPO window evolving this year?

Yes. So for sure, a very dynamic quarter in the public markets, it would be one way to put it. So yes, I mean, initially, space stocks surged, I think on the back of anticipation of quite a pro space -- well, pro-space policies from the new administration. I think most of those companies, the listed U.S. space stocks, Rocket Lab, among others, ultimately closed down, I think, mostly resulting from tariff volatility. But yes, I mean, we've seen a trickle of IPOs in space since the original SPAC -- always, I think, from a position of strength. I think some companies were kind of backed into that just as a result of needing the capital and struggling to find it in the private markets. But I think in a period of volatility, I think the relatively natural response is to kind of wait and see. So one of our companies, Voyager filed for IPO. Haven't announced an exact date, but I can only imagine that when there's a lot of movement in terms of tariffs, in terms of programs and a lot of movement in the stock market, generally, I mean, I can only see that pushing people's plans to the right, kind of awaiting a little bit more stability and certainty before going to IPO.

Yes, it makes sense. Exciting time for Voyager...

More broadly, I mean, I think there are some other space companies that are probably approaching the right kind of financial profile to be able to go public. But it still feels like it's a little bit of a challenging market environment. So I think things still have a bit of a way to go before I think IPOs would become more prolific than kind of odd ones here and there.

So you think more companies will be biding their time. But are there any like specific segments that you think are more likely to go down that route?

Yes, without wanting to say too much -- have to think about it. I mean I think there are potentially a few in EO that could potentially fit the bill. And I think there's a few businesses in satellite manufacturing that might be getting there in terms of financial profiles. But yes, no I wouldn't like to start guessing and calling out names.

Fair enough. And maybe some of the more kind of advanced segments potentially -- okay. Great. Thank you. So let's talk about the U.S. I mean, it's been in the news and a lot of around geopolitical developments. So what -- in your opinion, to what extent are the geopolitical developments such as a shift in the U.S. leadership and the U.S. -- I'm sorry, on Europe's defense ambitions redefining investment priorities in space, both across the pond and in U.K. and Europe.

Yes. Yes. Well, so the U.S. kind of reassessing its role in global security has found -- well, Europe has now found itself definitely needing to step up. So we've seen plans to mobilize. We've seen a high-level figure of EUR 800 billion to improve military capabilities. On the back of that, a lot of the traditional European defense and space stocks surged pretty significantly. So Leonardo was up 75% in the quarter, Thales up 80%, BAE up 50%. So yes, definitely, well, investors seeing that funding trickle down to, I guess, the obvious defense primes that would tap into some of those potential budgets. Along similar lines, the U.S. kind of indicated withdrawal of support from Ukraine, which led to a massive surge in Eutelsat stock. I saw -- I haven't looked into it enough, but I saw some commentators saying that Eutelsat was quite heavily shorted. So it was a bit of a short squeeze dynamic happening there. But effectively, Eutelsat surged like 6x on the back of declining U.S.-Ukraine relations. The reason for that -- the reason for Eutelsat seeing that growth is that OneWeb is really seen as the only viable alternative to Starlink. But since that peak, Eutelsat's share price has come down to approximately half of that peak. And also potentially, there's a bit of a hard fact or maybe a realization that while OneWeb today is probably the next best competitor to Starlink, it's just a fundamental reality that the constellation and capacity of OneWeb is far lower. I think the terminals are a little bit less -- a little bit larger, a little bit more power consuming. So yes, limitations there. And I think the EU broadly is finding themselves in a little bit of a tricky position there's been a lot of funding and investor interest in sovereign plays, which definitely need to be developed, the likes of Isar for launch and I guess, in OneWeb and Eutelsat for SATCOMs. But it is a little bit difficult to see a true challenger in terms of the scale of capability that SpaceX provides in launch and SATCOMs or the relativity in other players in the U.S. could also provide. The runner up that might be an interesting competitor is really from the Amazon side, it's from Blue Origin and Kuiper for launch and SATCOMs, respectively. So yes, a little bit of a challenging spot that I think the EU finds itself in.

Most definitely in...

Europe more broadly, I guess.

Yes. Most definitely. Today, actually, on that topic, that we've released a white paper written by our CIO, James Bruegger on that exact topic just around the unfortunate historic underfunding in defense budgets by Europe and what -- how space tech now can address these kind of missing elements that we've had for years -- from years of reliance on U.S. capability. So if anyone wants to read that, you can find that on our website and on our social media. It's a really interesting piece that will answer that in much more depth. But thank you, Lucas. Yes, exactly right. Another question I've got for you just around Isar Aerospace. Their recent orbital launch, which was widely in the news, what does that mean, again, for the future of Europe space industry? How exciting was that? And what's that saying?

Yes. So Isar, I forget the exact launch date, but they made a first orbital launch attempt. They didn't quite make it to orbit. The rocket did lose control in process. But I mean, that's very expected. And I think people -- commenters have already called that out that the odds of your first rocket launch being successful are, I think, effectively -- or very near nil. So yes, I think that was anticipated. I'm sure over the course of following launches, Isar will probably work out the bugs and get to orbit. I think it's an important capability for Europe to have at least a commercial launch provider because, I mean, at the moment, we have Ariane and they've struggled with costs, budget and massive time line overruns with Ariane 6. So it would be good to have an alternative provider for Europe. But yes, there's -- I guess, there's various takes on the investment case. And I haven't looked into it enough really in terms of how large is the domestic market. My take is generally that the majority of the commercial space is going to go to lowest cost of launch, which is typically larger rockets. But I don't know exactly what the government and defense demand will look like for someone like Isar, which I think they'll tap into quite heavily. But clearly, it resonates with several investors in Europe, and I think a few abroad. So very, very good to see movement in Europe at last.

Yes, exactly. And just aligning with the previous question about how bringing capability into Europe is really important. So I think that's exciting to see. Yes. And obviously, with what we know from Starship and how many times that's launched and tested, it needs to be done, so it can't be seen as a failure. Thanks, Lucas. We've had a question come in. I don't know if you want to have a look or wait till the end.

Yes, I can take it. Leah, do you want to read it out?

Yes. So for those of us -- I guess, you're an investor, so thank you for the question. For those of us backing early-stage space ventures, are there signs that the downstream integration space is becoming more attractive for cross-sector LPs?

I think so. I think space businesses as we would define them are kind of probably sneaking their way into a lot of more generalists in investor types. So a lot of the business -- a large part of our thesis is around the use of earth observation data and the impact that will have across a bunch of sectors, finance, climate, carbon credits, a bunch of others. So we've got a number of businesses, which if you just gave kind of the headline rundown, they don't really sound too much like space businesses. We've got a wildfire insurance business. We've got a parametric insurance business. We've got a business that does carbon credits. But across all of those companies are very clever AI models that use satellite data as a core input to better price their risk, to better price and more accurately price their carbon credits, which are kind of notoriously questionable. So yes, I think over time, people -- the fact that it's a space business will kind of be a little bit secondary. The fact that they happen to use satellite data will just be a fact pattern that exists in an increasing number of businesses. And those businesses -- I mean, they look a lot more like general potentially B2B SaaS or insurtech companies. So yes, I think there's going to be a lot of play with more generalist investors with that kind of profile of business that is relatively capital light.

Great. Thanks, Lucas. And what do you think -- what's your opinion on investment trends? Do you think that we discussed already, do you think -- what's going to continue across the rest of the year? What's going to change? What are you excited about? What's going to happen?

So in terms of -- so Q1 was very much in line with kind of the mean of 2024. I don't think Q1 really saw directly any of the impacts of tariffs and the current volatility in the market. I don't think it showed up in the data because a lot of the deals that would have happened in Q1 were deals that were very much in process through maybe November, December, et cetera, of the year prior. Maybe this is just a Lucas prediction, but I feel like potentially some of the processes that were -- that are happening around now potentially could -- those could be impacted and then that might have a knock-on effect in the data for Q2. So I think if I was going to predict a decline in any quarter, I would say Q2, but we'll kind of see a quarter is a relatively small sample size of data and all it takes is $1 billion Chinese deal to massively skew the numbers. So that's my prediction. We'll come back in a quarter. We'll see if I'm right, but I'll say slight decline into 2022 (sic) [ Q2 ]. But I think the long-term prospects are still very positive. I think trends around defense and reshoring are going to be playing a very big part. I feel like I see a lot more pitch decks these days with businesses kind of tailoring their go-to-market and their general story more along those lines. We've seen -- I mean, we don't include them in our data, but we saw this quarter a number of fairly large, very defense-oriented rounds like Saronic, which was a $600 million Series C for unmanned or kind of autonomous ships. And Epirus, a $250 million deal for counter-drone tech. Founders Fund are reportedly in talks with Anduril now for a follow-on round into that business for potentially $2.5 billion. So I think in defense, there's going to be an awful lot of investment. And inevitably, I think there's going to be some spillover of that funding that comes into space given the very significant crossover potentially companies like True Anomaly, which is focused on defense in the space domain, but also things related to secure comms, SATCOMs or earth observation intelligence. So I think we will see some big rounds there driving investment in defense and very closely related areas, too.

Yes, totally agree. I think watch this space, I think definitely the geopolitical climate and these proposed budgets is going to definitely make a difference. So we look forward to seeing your report next time. And the report -- an image of the report, just in case anyone has not seen it, you can find that on our website, but this is just a bit of a click-through of it there for you. I had a few more questions come in. Really exciting area that I know we've looked at is biotech in space. A question from Alexandra here, Lucas. Are space biotech companies leveraging microgravity environment of manufacturing a growth area?

It's definitely an area that we've been looking at with quite a lot of interest. It's still super early stage. So I mean, there's only really one quite progressed business in this space, and that would be Varda, but they have quite a solid business case just on the basis of hypersonic testing alone before they expand into pharmaceuticals. Yes, I mean, it's definitely an area that we're looking at with an awful lot of interest. And I think we're keen to place some strategic bets there. But it's very early, I would say. So the companies that we think are kind of venture profile are all in the kind of pre-seed, seed stage at the moment. I don't think we've seen too many indications of businesses with really strong contracts or ties to pharmaceutical businesses on the basis of the technology that they've developed just yet. So yes, I think it's a good growth area, but we're definitely kind of looking for some more proof points in the businesses before we ultimately back one.

Makes sense. There's -- a few more have come in. James [ Lesser, ] I know you. Thanks for commenting. Have you seen evidence of some of the chatter at Space Symposium that U.S. space companies want to set up in Europe to access the markets directly. Heard anything around that?

I feel like I've heard some talks. I wasn't at Space Symposium, unfortunately, Rob was, so maybe I'll have to tap into him. I can't remember names. I feel like I've seen some headlines and some articles to that effect. Logically, will U.S.-based companies want to set up in Europe? I mean, if I was advising some of our earlier stage or some of our portfolio companies that were already in the U.S., I think generally, the U.S. opportunities are really quite large, and focus is really important. But with more established businesses looking to expand market share then maybe it has merit. I feel like I've seen some headlines of companies already, but to be honest, I don't have the most insight. So I appreciate if that answer isn't particularly helpful.

James, we can get Rob to give you the gossip from Space Symposium. One more. I don't know how you -- what you think about this one, Lucas, but I'll give it a go. Just on regulatory red tape and insurance costs. Can you comment on potential red tape and insurance costs?

Well, not massively. I'm not too close to the detail. I do know -- well, from experience through our portfolio companies, insurance for launching satellites is rather expensive, but it kind of needs to be because I think the insurance businesses that have been operating in space over the course of the last year or so, actually found them really quite -- found themselves quite underwater on a lot of the business that they had underwritten. So I think that kind of comes with the territory. I forget exactly the statistic, but it's something along the lines of 30% of satellites that reach orbit suffer some kind of failure and 10% are complete duds. Maybe that's changed a little bit more recently. But yes, the risks of operating in space are still high and the failure rates can be quite high as well. So that is challenging. But I would say, well, as a result, our new space companies finding it cost prohibitive. Space is certainly -- accessing space is certainly expensive. But likewise, it's never been cheaper. So yes, yes, it's still not cheap, but we certainly feel that. Our companies often need to raise quite a lot of money before they can even start generating revenue from customers. But it kind of comes with the territory, and I think it is as cheap as it's ever been.

Awesome. I think that could be it on the questions. If anyone else thinks of anything post live, please share them on our channel, and we will make a good effort to answer them all for you. But thank you, Lucas. Thanks for joining me today. And we didn't get any questions about Katy Perry space. So that -- but thank you, everyone, for listening. And cheers, Lucas, and we look forward to the next quarter. Bye.

Sounds good. Cheers, thank you. Bye.