Spire and BlackSky to go public via SPAC mergers
Will Porteous
This morning Spire announced its planned merger with NavSight Holdings (NSH). Spire is the second of our geospatial companies to commit to go public through a SPAC merger after the BlackSky-Osprey Technology (SFTW.UN) deal announced on February 18th, and the fourth RRE company to announce a SPAC deal in the last few months. While these transactions remain subject to the completion of filings, audits and satisfactory SEC review, this seems like a good time to check in on our original thesis for the geospatial information sector.
During 2013 and 2014 we saw a wave of new company formation in the satellite sector. As is core to our investment model at RRE, we engaged in a broad market and innovation research exercise, talking to scientists, entrepreneurs, CEOs bankers, consultants, and academics. We assembled a brain-trust to help us think through what was going to happen in the sector — many of those people remain close advisors to the firm and our companies today.
What emerged from that exercise was an investment thesis for building a next-generation space company predicated on a shift in cost structure. Such a company would not be hindered by the tremendous capital requirements, long development cycles, and manufacturing complexity that previously defined the category. Rather this new company would focus on rapid hardware iteration and leverage innovation in terrestrial computing infrastructure to deliver smaller, cheaper satellites built for a much shorter life on orbit than traditional satellites. This approach would also enable a shift in investment emphasis to the software and data layers that ultimately make a space-based asset valuable. We invested in Spire in May 2014 and a year later we invested in Spaceflight, the forerunner to BlackSky. At that time I wrote this post about our thesis and the factors we believed would reshape this global industry. Below is a short overview of what we believed then, and what we got right and wrong:
Access to launch is becoming flexible and affordable.
While this has largely been true, it is still mostly because of the emergence of the rideshare market (pioneered by Spaceflight and Nanoracks) rather than the proliferation of small launch vehicles. However, that change is clearly coming thanks to RocketLab and several emerging launch platforms like Astra, FireFly, and ABL. And while launch has indeed become flexible and affordable, it isn’t always predictable — all of the new geospatial companies have had their plans impacted by changes in the launch calendar at one time or another.
Flexible, affordable access to launch creates an opportunity to rethink the design of an effective space-based capability.
This is the core advantage of new geospatial companies like Spire and BlackSky. Not only can they take advantage of modern enterprise and cloud computing innovations, but they can move new capability into space — through newly launched satellites and software upgrades — at a pace that is dramatically faster than legacy geospatial companies. The result is that they are innovating and adding capability at a radically faster rate — a trend that shows no sign of letting up. This has dramatic implications in terms of the levels of computing power and memory as well as the breadth of data production capabilities on orbit.
These new design approaches can leverage Common-Off-The-Shelf components and define most of their value in software.
This is one of the things we got wrong. Only a limited amount of the enterprise computing hardware is relevant for small satellites and the component and manufacturing supply chain for the small satellite industry remains weak at best. Those companies that have achieved early traction have largely been vertically integrated. So hardware-level innovation remains a key source of advantage in this sector, even as value creation shifts more and more towards the software running on that hardware.
Ease-of-use will finally become a key consideration in the geospatial end-user experience.
This is part of why these new companies have had an insertion point in the market. The progress these companies have made with key Government and commercial customers is in part due to their emphasis on delivering answers and insights rather than raw information. This is a reflection of their investments in natural language processing, computer vision, artificial intelligence and machine learning assets to achieve a powerful data fusion.
Other investors will see what we see and want to invest.
We were initially surprised by how few investors were doing work in this sector given the extraordinary fundamentals that we saw. We are grateful to all of our co-investors and partners in Spire, BlackSky, and our other geospatial companies, Ursa, Accion Systems, and Lynk. Together we’ve worked through financings united by a shared understanding of the enormous potential of these companies.
All of these factors listed above have given rise to a generation of geospatial companies with radically different financial characteristics than their predecessors in terms of revenue growth, margins, profits and long-term capital needs. This we believe will be the ultimate impact of our original investment thesis: Small satellite architectures and powerful software have the potential to deliver operating leverage that creates tremendous financial advantages when compared to a traditional satellite business. This transformation is now fully underway in the geospatial sector.
As we reach this important milestone with two of our space companies, I want to thank Peter Platzer and the team at Spire as well as Brian O’Toole and the team at BlackSky and all of our leadership teams at Ursa, Accion and Lynk — it has been a privilege to be on this journey with you and we look forward to all that lies ahead. I also want to thank my RRE partners and colleagues for supporting our work in this area, particularly when we were one of the few firms committed to the sector. As a firm we know that being “open to new ideas” is a fundamental part of the job of a venture capitalist.
