As billionaires Jeff Bezos and Richard Branson blasted off into space last year, investor interest in space technology was piqued, but for the serious venture capitalist, it’s important to stay grounded when reaching for the stars, family office investors said.
Hong Kong-based family office Tsangs Group invested an undisclosed amount into Ad Astra Rocket Company, the group announced last week. While space tech is an exciting area, the team made sure to do its due diligence before deciding on the right project to be involved in.
“We were introduced by some friends in the space to this specific company, and we've actually looked at a number of different space companies over the last two to four years. But this is the one that we thought was the right one in terms of what they were doing,” Patrick Tsang, chair of the group, said.
“If you look at venture capital, maybe only a handful of companies actually end up going on to become not necessarily even Facebook, but even cashflow positive. In this case, we believe that this company has potential but also has a realistic chance of becoming profitable,” Tsang said.
The team met with the firm's founder on Zoom, before heading over to Texas and Costa Rica to visit its facilities and headquarters early last year.
Tsang was drawn by the firm’s technology, which involves developing the Variable Specific Impulse Magnetoplasma Rocket (VASIMR) space engine, a high-powered electric rocket engine that has the potential to enable interplanetary travel to Mars in only 95 days. With current technology, a trip from Earth to Mars would take around seven months.
Ad Astra’s founder Franklin Chang Diaz, a former Nasa astronaut and plasma physicist, had the idea to develop the firm in 1979 but only did so officially in 2005 with the backing of Nasa.
In a post-Cold War era, Nasa decided to decentralise the development of space technology, Kelvin Liu, Tsangs Group managing director and head of technology and blockchain, explained. “Nasa gave deep funding to four or five companies to see who would succeed; those that did would get a 20 or 30-year contract,” Liu said.
“Back again to Franklin’s project, very similarly, Nasa gave funding to three companies, most failed but his survived. So, we do think it is a very good business model, also in terms of balancing the utilisation of government funding versus capital markets,” he said.
While they declined to provide how much was invested or if the investment was part of a funding round with other investors, Tsang said that the company has been raising money on and off over the years, mostly from seed investors.
He added that Tsangs Group’s investment is a significant amount and that because of the nature of the sector, they are taking a longer view than they normally would for a typical tech deal – although it would not be as long as a seven- to 10-year horizon.
“We see this as a way to accelerate the growth and also the way to commercialisation. The exit strategy for us is usually by way of IPO or a merger into another company but what we’re trying to do is use our capital to help the company complete its operational objectives,” he said.
The family office had previously said that sustainable clean tech is a focus in 2022. Tsang added that they have an interest in frontier projects ranging from biotech to environmental, social and governance (ESG).
There is plenty of opportunity in space tech, but it is more constrained than people imagine, James Wang, chief portfolio strategist of single-family office Ferretto capital said.
“Right now, satellites for mapping, asset tracking, and even insurance — we have a company that uses SAR (synthetic aperture radar) satellite imaging for crop insurance — are both valuable and viable. [But] there are more ‘out there’ ideas like colonisation and asteroid mining that, while theoretically interesting, are not viable either from a timeframe or an economic perspective,” Wang said.
When selecting space tech firms to invest in, his family office looks at the “actual market and economic model of the company”.
“It’s easy in ‘exciting’ areas like space tech, blockchain, AI (artificial intelligence), and the like to invest in dreams and the promise of future potential. To be successful, startups tend to need to be able to show results in a few years, and thus be able to secure more funding,” he said.
Investors should also look at the immediate-term economic model. “Even if the ambition of the startup is much larger in the future as they develop, get more scale, and the like, you still need to have the startup survive until then. You need an initial go-to-market that is attractive in-and-of itself,” he said.
“If the future outcome occurs, great, but you’re vulnerable to simply having the company dying before showing any results if you’re going for something really out there in timeline and purely a bet on future potential.”