UK Growth Capital and Future Plans

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This week, the boss of an investment firm that only buys space companies and why he thinks naturally enough But the next big thing in business is in orbit above our heads. the military wants this data or communication capability because it's best in class, and that gives them an advantage on the battlefield The same capabilities is equally applicable to climate change to smart cities, to food security, every industry can use this new dataset that's available Welcome to the businessus. I' Domic O'Connell, Times columomist and businessus correspondent on Times Radio In a matter of months, maybe even this month Elon Musk is expected to put his satellite and rocket production company, SpaceX onto the stock market could be worth as much as two trillion U dollars. It's a move that would make the richest man on Earth even richer, but it's also a game changer for space in general. SpaceX technology promises to make access to space much, much cheaper. Our guest today, Mark Boggartt, thinks this could mean a wall of money chasing space related investments That's hardly surprising. Markcus Chief executive of Serapifompace the manager of the Serifum Space Investment Trust. The fund raised nearly one hundred forty million pounds by selling new shares, of which forty five million do came from retail investors, making it the largest UK retail capital raise in more than five years Mark, thanks for joining us on the business. Thanks for having been the show Dominic Mark, that retail point is interesting, isn't it? Becauseuse a lot of people are interested in space excited by the space economy as we call it. But there aren't many companies listed on the stock market that have space written on the side of them, do they? So it's quite difficult to find things to invest in Yes, it absolutely is. There's also two types of space. Old space and there's new space. and new space is where you would like to be investing. Old space is the traditional space companies There are also operators of traditional communications like VIASA and IRat SES New space is exemplified by Space X These are companies that are privately financed, they're private companies. and what they're doing is they are using new technologies from adjacent sectors to bring down their costs So there's lots of these new companies out there, not many of them are on the stock market, so it's quite hard to find them. But that's where your business comes in because it's an investment trust Just explain what an investment trust is. So an investment trust is a publicly listed, so we're listed on the London stock market on the main market, and it's an evergreen vehicle So that means that when we did the original IPO, the investors gave us the money and they'll never get it back from us If investors want to get their money back, they sell their shares in the secondary market So we have a permanent source of capital And why we chose an investment trust structure was because the companies that we're investing into have very long term time horizons So we want to hold these stocks for ten, twenty, even thirty years, and the investment trust is a structure that allows us to be able to do that. So the idea is that you go out and find these companies, which aren't obvious to retail embuses for members of the public, or indeed other institutional embuses, the big finance players, you go out and squirrel them out I buy shares and Sifum, and you go off and spend that money buying shares in all these different space companies. Yeah, that's exactly what happens. And then just to sort of refer back to SpaceX, they only represent about fifteen percent of the overall market launching communications, whereas We're representing the other eighty five percent of the market And we're looking for the best private companies, those that are the emerging leaders, the SaceXes in other subcategories of the space market. How did you start this? Were you interested in space to begin with and then that led you on to doing Serapfil I came another route. I'm a career technology investor I'm interested in making a financial return from frontier technologies So I spent the earlier part of my venture capital career investing in a very broad range of areas from AI to the Internet of thingsings to a large telecommunication, three D printing, new materials And then in twenty fourteen, I became very interested in the space market, largely on the back of the direction that SpaceX was going in There was also a really interesting company called Skybox that made these tiny satellites that are the size of a shoebox. And everything that was in that shoebx were technologies that I knew and understood and that I'd previously invested in So that was what really sort of was the sort of catalyst for wanting to create a fund exclusively focused on space. Was there not anything like it in the US? There wasn't. There were other funds in the US that were investing into space but doing it from generalist frontier sort technology funds, not as a specialist fund I became convinced through the in depth research that I did on the global space market that this is going to be a multi decade multi trillion dollar market opportunity and that it warranted having a specialist fund focused on know, if you look at it from an ordinary venture capital point of view, the argument against doing that would be is that you're concentrating your risk. Yes. The generalist venture capitalists would say, well, we don't want to just do space. We need to do space and defense and utilities. Exactlyah exactly. But the reason for the concentration is that it leads to specialization. this is a specialist market And we've grown to become the most active investor globally in this market now. We've got one hundred and fifty space companies overall, which is orders of magnitude beyond anyone else So what that result said is a massive global deal flow from space entrepreneurs around the world who are raising money for their space endeavours So today, we receive between one hundred and fifty and two hundred space deals per month We've qualified that that's more than seventy five percent of the global market. Where do these deals come to you from Do you have people on the ground looking at the top universities going to the right places in San Francisco or Orland or wherever it is the reality is that more and half of the deal flow comes from other investors. otherther venture funds, other private equity funds, other sovereign wealth funds. What normally happens is that they've come across a space entrepreneur that they really like. They've done some work, they've evaluated the opportunity. It sounds great And then they wake up and say, but we don't really know anything about space. whoo does They spend five minutes on Google and find us And then reach out and say,, have you seen this company before? Is it any good We like it for these reasons. Is that correct? What diligence should we do? How much money should we pay? Oh, and would you like to co invest with us Now, nine times out of ten are actually more like ninety nine times out of one hundred, we write back and say, it's a terrible business. run in the opposite direction without looking back And over the last ten years, all of those emails that we've sent out saying exactly that has led to a great relationship and the building of a huge ecosystem. of investors. So when they sendnder is a good one, we say it's brilliant, we'll invest with you. This is the price we should pay. Here's the people we're going to bring in to help us do the due diligence. and we provide confidence and conviction to these non specialist space investors. Tell us about some of the companies you are investing in. What are some of your biggest holdings and what do they do?ure Just before I answer that, let me just make something clear because people see I'm a space investor and they conjure up what that means We don't invest in launch. So you don't own any shares in space for example. And we don't invest in any rocket companies. Why not? Because SpaceX is so good, it's so far ahead. It's raised so much money. We're like, why would we compete against that? So we don't But we don't invest in space travel, we don't invest in anything to do with the Mon, or anything to do with Mars. Space tourism? Nothing. It's that really exciting, interesting, but just too far away to make a profit. So where do we focus? Wellill we focus first of all on these companies that are putting large constellations into space A constellation is a company that pls up many different satellites so that they can provide a service around communication or gathering data and providing insights around that data using a range of different sensors. That's also a big change, isn't it? Because satellites used to be the size of a mayaybe a forord transit. And now you can have three or four hundred of them, all of which are the size of a shoeox or maybe a bit bigger than a shoe box. Yeah. So it's sort of a fridge, microwave shoebox so the sort of three sizes that are really the sort of core of new space. They're super cheap because they use components from adjacent industries. so everything that's in your laptop or your mobile phone have found their way into these satellites and they work within the space environment But because of the low cost that's now being enabled by SpaceX No it's down at one thousand dollars a kilo. There's a launch every twenty seven hours last year. You can put up very large constellations So the largest constellation today is SpaceX's starlink which is over ten thousand satellites Other large constellations are measured in hundreds of satellites But businesses that have got you know, anything north of twenty can provide a global service from the data that they can provide. So give us an example of one of these services because everyone thinks about Starlink, it's communication. It's broadbadand. But there's lots of other stuff you. This is it. This is why it's so exciting. It's a Pandora's box as soon as you start to open up, it's amazing what you find. So let's start off with ISI. This is our largest holding within our portfolio. So this is a Finished company And what they have developed are miniature satellites with a radar on the bottom of each of these satellites And what this radar enables them to be able to do is to look down from space D or night, in any weather condition, and see something that's the size of a dinner plate on the ground They've got seventy satellites in space, and they're able to see every square meter of Earth So they then have an AI algorithm that determines how that square meter of earth has changed during the last hour The last two hours, ten hours, day week, month year This is a business that is really being driven by defense at the moment But it's applicable to every commercial market you can think of Think about insurance with all of the challenges that they're facing around climate events. So during a flood, They're able to identify the perimeter of the flood, the depth of the floodw, the speed of the flood waterater And then any assets, cars, houses, industrial properties that were subject to that flood so that it can then be used as a source of truth. So when that there's a claim You know, this property was subject to a week of water at three meters. It was a fact Who is buying the data? Who's their biggest customer? The biggest customer at the moment is defense. Yes. We've got twenty five companies. O our top ten companies grew last year. their revenues are eighty percent All of it is down to def fence An technology advantage on the battlefield is an advantage. and this is what militaries are looking for But we're also going through a very significant shift in Europe. So what happened last year in the Ukraine was our American NATO partners switched off all of their defense support for Ukraine. for a period of ten days. It's worth saying there By and large, NATO has relied on the USDOD, Department of Defense to provide all the kind of stuff we're talking about. They've absolutely relied on it. The US funds two thirds of NATO One of the areas that they've exclusively financed has been everything that's been going on in space. When all of that capability was switched off for a ten day period The Europeans immediately recognize woke upp what they need to do. where they need to spend money. As everyone knows, that rapidly led to a trillion euro budget that was created over the space of a weekend by all of the European leaders And what's happening now is that money is now coming into the market a pace. So this is the reason why we've got our top ten companies growing at eighty percent. It's interesting you say that because on this podcast, we've had more traditional defense companies saying, Wellisten Europe's talking a good game on spending, but we're not seeing anyough money So the money is perhaps not going to the traditional stuff, it's going to space capabilities. It's going to the companies that have a technology edge But space is one of the areas where they've got pretty much zero capability in Europe. and a massive need to build that capability So what's been happening with companies like ISide that I just described is that European NMLDs have been beating a path to their door Signing contracts measured in hundreds of millions up to billions of dollars, where those contracts are taking less than six months to sign And they're completely driving a coach and horses through their traditional procurement processes so that they can get access to this capability It all makes sense what they're doing, but they're in a really big hurry to do it. And our portfolio across the board is benefiting from it. Let's talk about some of the other stuff that's in there. There's one company that I followed a bit which I like, which is not so much about providing new information to people on the ground but more about servicing the space economy itself called D orbit., whichich in essence, I mean taking bit of a short cut here is providing the tugs, the shipping tugs of the future and they're going to be in orbit. Yes It's called a space taxi, space taxi. So yeah, so it's quite fun. these are the global market leader in this field. They're a rocket that goes inside a rocket. So they effectively hitch your ride on a SpaceX fulc and nine And think about that as bus. They drop off their passengers wherever the bus terminus is, not necessarily where the passengers want to go So they typically have about twelve satellites for their paying customers. When the bus drops them off They then start their engine. And then they travel aroundound orbit and they deliver their customers exactly where they want to go to so that they can exactly pinpoint where these satellites need to be delivered for the constellations that they're supporting That's fun, but the fun part of this business and actually the reason that we invested into it is that once they've dropped off all of their passengers They then become a sort of AA van or an RAC van for higher When a satellite in a constellation is broken, they'll be called upon to go and remove that satellite It's amazing story isn't it Its really sort of science fiction stuff. It really is It's happening now. Yeah. You're talking a little about nuclear batteries? Yes So one of our companies is called DemzenoPower. And what they've done is they've taken the type of a nuclear approach that was taken in sort of Apollo brought it up to date. What they have developed is a nuclear power battery that's the size of a microwave. It provides a ten year power supply. It uses an abundant type of nuclear fuel, which is very low cost and highly available They've currently got customers in three areas at one to power a satellite want to power a defense ground based system and one to power an autonomous submarine. The first customer deliveries are this year So this is here and happening right now and it's modular. So you need more power, you have more of the batteries Where do these companies go so you will invest in them for a while And then what they go into one of the public markets maybe Or does someone come and buy them, maybe? So it so all of the above. Just to sort of take a step back and just give a little bit more information about my broader organization Whilst we have our investment trust, that invests in the growth stage companies So these are maturing companies We also how many would fit into them ve We've got twenty five companies currently in the trust and as you mentioned earlier, we raised one hundred forty million do to add another handful of companies to that vehicle But those companies got millions of in revenues, the technology is fully developed and the risks are behind it. Those businesses are then on a pathway to IPO And we've had six IPOs. We had an IPO of one of our portfolio companies, Hawkeye three hundred sixty on the New York Stock Exchange at two point seven billion dollars. That's our growth fund. We have a private space venture fund that invests in what we call Sed and sereries A. So these are early st. I can't buy shares in that. You can't buy shares. You have a whole bunch of privateissors who just have led. That's right. That's right. And then we also operate something, which is called an accelerator We operate the world's largest space accelerator, which we've been Doing for nearly ten years now And we take ten companies at a time onto a three month program. And these companies are spinouts from universities around the world. They are Teams out, SpaceX and and other companies like Airbus. or they the man on the street with a brilliant space idea So we carefully filter these opportunities And then join that program, one of the things that we help them do is access capital. So we introduce them to our VC friendsmen around the world who syndicate and invest. We've had fifteen of those cohorts so far Those companies have gone on and raised one point three billion dollars. our private venture fund Cherry picks the best companies that go through that accelerator and our public investment Trust, chherry picks the best companies that have been thriving within our v. you're trying to build up a pipeline That's exactly what it is. Yeah. We spoke earlier about being an investment trust. Yes. There's been a lot of Agibarji on the London stock market in the last sort a year or so, about investment trusts. One of the features of the London stock market, there are lots of them is that in the past in some cases right now The share price is less than the sum of the values of the company they invest in, which is a hard thing for people to get their head around And it allows activists to come in and say you should sell all your companies. this is a waste of time Your shares traded at a discount to the value of your assets for quite a long time.idn't they? Yeah Why did they? Can you explain why? Yeah? Well, I mean, we weren't signaled out. This was something that happened across the entire market. There were several things that were going on. becausecause of macroeconomic backdrop, inflation, interest rates, etcetera, we moved away from a sort of risk on to risk off So investors were just selling risky assets regardless of what price that could be achieved. And that led to these discounts And then these discounts have remained ever since. So this sort started happening in twenty twenty three and are still persistent today. We're one of very few investment trusts that are trading at a premium. Probably only of like one or two of There's very, very few. Investors remain sort of skeptical around sort of the valuation techniques and the realism of those valuations It's just very much out of favour So discounts have ranged between sort of forty percent and ten percent. What belelow the actual value of the asset? What was the biggest discount you have se? sevententy percent. seventy percent. Yeah, so the day that we sort hit seventy percent, I got out of bed And I said, I just can't do this. And that was the day that we started our share buyback program which was basically designed to say to the market, this is crazy. we're going to buy our own shares because they're such good value. But to explain, I mean, for an investment, trust be buying its own shares is kind of an adiss of failure isn't? he shouldn't be doing You know, I really didn't like doing it. And we only bought a few million pounds worth of shares. You know, it was just out of desperation to say to the market, enough is enough. So what's changed? Becauseuse now you tradeed a premium. quite a big premium Yeah whichich is unusual for a London investment trust.. And it's happened quite recently? Yeah, it's really sort of changed since the end of last year. First of all, there is a sort of a growing appreciation of the importance of space within defense So what we've been able to consistently demonstrate is significant contract wins. and massive increases in the value of underlying portfolio companies as a consequence. So the evidence is there the giant budgets that are available around the world for Defense are flowing into space companies, and that is really obvious for investors to see. So they've sort of responded sort of saying, Well, it just doesn't make sense for this to sit a discount when we can see that there is massive growth in the value of these assets So investors around the world who've never invested in defense before now recognize that defense is a long term asset that they need to have an exposure to. So the CIO of every fund, every family office Every sovereign wealth fund is now rapidly going up the learning curve for investing into defense. And as part of that sort of process, they identify space And one of the great attractions about space is that it's dual use. Out of all of our companies in our portfolio Only one of the companies is a defense company the rest of the defense companies by accident. eightighty percent of revenues in eighty percent of our portfolio companies are defense. becausecause the military wants this data or communication capability. because it's best in class and that gives them an advantage on the battlefield. The same capabilities is equally applicable to climate change to smart cities, to food security. those are some of the sort big themes And then below that, you've got every industry that can use this from You know, oil and gas and mining, which has sort of been using space for quite a number of years right the way through to logistics and retail and a real estate who are just discovering this new datas set that's available But AI is playing a key role One, AI is making the data that we're collecting more valuable than insights more relevant to the underlying customers but also the customers and how they operate their own internal IT systems AI is becoming more and more central So previously in ordder for a company to adopt some space related data set, would cost them a year of effort and perhaps a million in an IT project Now they can almost do that overnight. Whilst defefense is this massive driver right now will be for a decade, accounting for eighty percent of revenues. Within five years, it'll be twenty percent of revenues. The other eighty percent will be coming from insurance and real estate and oil and gas and maritime and all of these other sectors. Mark, stay there. We'll just take a break now, but I've got a couple more questions. We'll come back to you in twenty six Oh This episode of the businessiness is sponsored by PWC. Every leader is looking for that next opportunity for growth. It requires bold action, but the path forward isn't always clear This is where PWC comes in, from transforming your operations and supercharging your workforce. to building resilience and more Working with you side by side to bring the deep tech and AI expertise, strategic insight and industry knowledge empower you to reinvent Create new value and lead from the front PWC accelerates what's possible so you can turn vision into value. Discover more at pwc. coot uk. Oh I've been talking to Mark Bogert, Chief execut of Serapifam Space, which manages the Serifum Space Investment Trust We should relate all respect to the UK. The UK traditionally has been actually pretty good at space. Yeah. Surrey satellites has done well Astrium as was now now part of Airbus, very good at making satellites. Yeah Has any of this happened because of UK government space policy I mean, am I being a bit jauundice and saying that actually Al almost none of this has got anything to do with the government You know, just to sort of put it into perspective, for the last five years, The UK has come sort of third ranked behind the US and China in terms of the number of space startups, and the amount of money that's gone into these new space companies We actually just got pushed into fourth place by Germany last year So the UK is doing this very well Most of this is really privately financed And it's really representative of our thriving venture capital ecosystem. which is, you know, the biggest out of Europe. that has sort of enabled this to happen One of the things that right now that the government needs to step in and help is that and this just isn't just relevant to space, it's relevant to all sectors is that we have a very limited amount of growth scale capital And this problem is across Europe as well as the UK. And this whats needs to be fixed because what's happening at the moment is The UK of taking the risk, creating the companies addressing these sort of new technologies and making these breakthroughs. And as these companies get to the stage where they need to raise one hundred million, two hundred million and more We've just run out of steam. We've run out of road in the UK and they need to look abroad and inevitably they're going to America. What would the institution in the UK look like that could fill that gap? Should it be a a Barclays or a legal in general or a pension fund type thing. What would that organisation look like? So the government has first of all, and they've been successful in doing this, tried to convince pension funds that they should be investing into growth stage companies in the UK So this is called the Mansion House ofords, the Sterling twenty. It's a fantastic idea. And you this has galvanized the industry and this is happening at a very slow pace this is part of the reason why we established our investment trust to focus on growth stage space companies Because well, there still isn't any other listed investment vehicle anywhere in the world that's seeking to do the same thing This is the reason why we were successful in You know, being the only company in three years on the investment trust market to raise money. fromrom a retail perspective, we took more retail investment than any other fund in the last five years So the market recognizes there's a problem that needs to be addressed which is this lack of growth capital, but there's a giant opportunity to step in and do that So the UK government is behind this. They have deevelop their new National strategic review which has these eight pillars They've then galvanized the investing institutions, so the British Business Bank and the National Wealth Fund Both now their mandates are tied to those eight pillars Sace actually unfortunately isn't a pillar But it's recognized as a frontier technology that's central to two of the pillars, deffense and to advanced manufacturing Those organizations have both been given billions of more capital in order to putop money into all of these growth areas, including space Because these are the sort of growth areas of our future. And if we can get, one or more of these right This is going to provide the growth that our country so desperately needs. You talked about that equity drain to the US where UK companies have find themselves drawn to the liquidity of US. markets. Is that a next move for you? Would you consider listing in the US So we're a global investor. So yeah, we would consider doing that in the US The US doesn't have any vehicles like investment trusts The UK's been doing this for a hundred years and does it really well. The only sort of limitation with the investment trust structure is it's largely only really UK investors. they invest into it So as the largest and most active investor in the space market, We are not really accessing the capital that's available in the US. And we really need to do it. What would the US vehicle look like then? It's likely to be a private rather than a public vehicle. What about your future plans? So you've got this new money? What are you going to do with it Well, we talked about the fact that there has been discounts across the investment trust market for the last three years which has meant that none of those funds can raise any money. which has meant that we've not been able to raise any money So we've had to be very judicious with the money that we've had So we've not made many new investments. We've really been looking