Apex Space (winning ain't cheap)
If you subscribed based on last week’s SaaS-centric analysis, Sorry to disappoint. This week I thought we’d reach beyond the Earth’s gravity, and take a look at Apex Space.
The Product … and the innovation?
Apex is building a platform to accelerate the design and production of satellites. The company aims to circumvent a bottleneck in satellite production by manufacturing “buses” in a way that's more standardized (and cost efficient).
Assuming you’re not a rocket scientist, you’re probably wondering, “Why is a space company making school buses?”. Your confusion is warranted.
A satellite bus refers to the blocky middle portion that serves as the central hub for attaching sensors, solar arrays, and everything else. There, now you learned something.
Normally a satellite bus is built on spec, with a lead time of years. However, Apex has designed their processes with speed front of mind. With a more standardized frame, they hope to produce buses in months.
Their inaugural “Aries” frame is set to launch January 2024 aboard a SpaceX rocket. Sounds pretty good right?
The New Space Race (is breaking the bank)
Well. One of the reasons I wanted to discuss Apex is because space companies are both super exciting and extremely high risk. Recently, there has been a huge influx of enthusiasm (and capital) into space. There are now more than 5,000 space-focused companies in the US.
And I’m a space fan. Why wouldn’t you be! Anytime I find myself in a place of uncertainty, or difficulty, my go-to motivation is the famous docking scene from Interstellar.
“If Matthew McConaughey can dock a spaceship at 10 G’s a million miles from home, then I can write a blog post two weeks in a row.”
So what’s wrong with more space startups? Well, the only problem is that just like any other company, most space startups are doomed to fail.
And frontier companies don't just need coding headcount. They need capital to fund expensive hardware.
Now I’m gonna attempt to explain the weird impact this has on the always-tenuous relationship between reality, and venture capital valuation.
A Bubble in Space? (Valuation 101)
The “price-to-sales” ratio tells us how much a company is worth, relative to its revenue. There is an average P/S ratio of 2.1 among publicly traded aerospace companies. Relatively conservative. However, let’s consider SpaceX.
It’s a private company. So there’s only so much we can know about its business. However, one analyst estimated they’ll pull in $11.5B in 2023. This against a $750M fund raise which implied a $137B valuation. And a price-to-sales ratio of 11.9
Investors pay 2 dollars for every 1 revenue dollar of a publicly traded aerospace company. They pay almost 12 dollars for a revenue dollar at SpaceX.
And that’s ok. Investors in public and private markets are expected to value growing companies more. Because they value the prospect of future growth.
Ultimately that higher multiple early on is critical. It allows companies to raise the money they need to grow. But when does reality actually kick in?
The Apex of Optimism
We don’t know Apex’s exact valuation. They raised a $7.5M seed round last year, plus a $16M Series A in June 2023 led by Andreessen Horowitz and Shield Capital. Probably a bridge round in there too, because that article reports a total of $27M in fundraising.
Based on Apex’s single launch scheduled for the beginning of 2024, applying a SpaceX P/S multiple would imply a valuation of $38.7M for Apex Space. But no founder is giving up that much equity in a Series A.
So we’re likely looking at an even higher valuation. Probably between $50M and $80M at least. And remember. This is a new entrant in a crowded market. They haven’t even put anything in orbit yet!
To justify this, Apex plans to grow its launches aggressively. With 5 satellites projected for 2024, 20 in 2025, and 100 in 2026. They have a cool little tool that shows their base model sells for ~$3.25 million.
From this, if we assume 25% of the roughly 1,000 satellites launched annually could be made by Apex, we find a ~$812 million “Total Addressable Market” or TAM for Apex Space. Meanwhile, their growth projections imply ~$325M in revenue by 2026. That’s nearly half the total addressable market.
Very aggressive assumptions indeed.
I promise, I’m taking you on this rambling analysis for a reason.
What it takes to win
Apex is part of Andreesen’s “American Dynamism” fund. This is $500M of capital allocated for investments in companies driving American competitiveness. It includes some big hitters like Anduril, Flexport, and…SpaceX.
In their briefing on Apex, a16z explains they believe in the company because of their strong management team and a unique, standardized approach to bus manufacturing that promises to drive down costs, increase margins, and break through a bottleneck in the sector.
But is that simple business model innovation (without substantial market proof) enough to justify a huge valuation?
Apex’s growth plan requires that the company raise enough capital early on to build out a 50,000 ft2 facility in Los Angeles. That is the real challenge of building a frontier technology company.
You need to raise big money early on for capital investments, without giving up too much equity that founders lose their skin in the game.
The result is that both founders and investors have to assume huge revenue growth and market penetration, even if they’re operating in a sector that is historically slow-moving, full of competition, and rife with uncertainty.
I support any company or fundraising that pushes technological boundaries, and drives American competitiveness. But.
We should be skeptical of astronomical fundraising for companies that lack market proof, or even a real technological innovation.
Although, of those 5,000 space companies, someone will be the next SpaceX. And it might just be because of business innovations, rather than technical ones. Plus, If you had to pick a winning satellite company, you could do worse than one tapped by a16z. After all, Andreessen Horowitz has a ubiquitous abbreviation and several billion dollars. All I have is student loans, some undeserved opinions, and an instinct for curiosity
And, I guess, a growing slate of equally curious readers.
Until next time. This has been,
The Weekly One Pager
