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Space, the new investment frontier…

by Tom Pattinson
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Space Shuttle

Wayne Shiong, Partner at China Growth Capital, explains why he is boldly investing where few have gone before… in the commercial space industry

The space industry carries humankind’s dreams of going into space and the mission to explore the resources it contains. On 3 Jan 2019, China made space history by becoming the first country to successfully land a robotic spacecraft, named Chang’e-4, on the far side of the Moon. After 60 years of hard work, China is catching up with its US and Russian counterparts. According to the New York Times, China now plans to begin fully operating its third space station by 2022, to put astronauts in a lunar base later in that decade, and to send probes to Mars, including ones that could return samples of the Martian surface back to Earth.

Demand well exceeds supply in the commercial space industry

The valuable resources in space may not be what you think… orbital paths, satellite constellations, communication frequencies and so on, are all indispensable and scarce resources that provide important services to users on Earth. Whoever launches satellites and constellations into orbit first takes control of these resources.

Multistage rockets are the only means of transportation to send objects into outer space. Therefore, investing in the launch segment of the commercial space industry is crucial for success. Furthermore, the demand for rockets and launch technology far exceeds the supply, thus creating an opportunity for bold and forward-looking entrepreneurs and investors.

How does China compare to the US?

NASA introduced ‘civilian-military integration’ in the US in 2008, and this drove the rapid development of the commercial space industry. As a result, SpaceX (established by Elon Musk) became the world’s first joint-stock nongovernmental body to undertake national space launch missions. By October 2018, after SpaceX’s latest round of financing, the company’s valuation had reached more than £22 billion. The latest valuation suggests a 93-fold increase compared to the £233 million after the series-C round in 2007. The US model demonstrates the potential of investor returns for their Chinese counterparts.

The demand for rockets and launch technology far exceeds the supply, thus creating an opportunity for bold and forward-looking entrepreneurs and investors

Policy changes in China encourages Venture Capital investment

The venture capital industry is always looking for investment opportunities where paradigm shifting structural changes occur, such as China’s own Civilian-Military Integration policy. For China’s commercial space market, the changes are driven by the Chinese government’s favourable policies:

– In 2014, the China State Council released Document No. 60 “The State Council’s Guidelines on Investment and Financing Mechanism Encouraging Social Investment in Innovation and Key Areas”.

– June 22, 2017, President Xi pushed close collaboration “in terms of technology, industry, facilities and talents to ensure that the civilian-military integration in the field of space is at the forefront”.

– January 2018, the State Administration for Science, Technology and Industry for National Defence issued the “Permits for Civil Space Launch Projects”.

Xi Jinping has also acknowledged that “Space is an important field of scientific and technological progress and innovation and achievements in this regard are also important symbols of a country’s scientific and technological strength”, reports Xinhua Net.

China growth capital invests in LandSpace

In November 2018, China Growth Capital led the series B+ round investment of ¥300m RMB (£33 million) in LandSpace, a privately-owned rocket company. Along with Zhongji Investment, 36Kr, Juzhuo Capital and others, the total raised by LandSpace was brought to over ¥800m (£90 million).

This financing round of LandSpace will be mainly used for the R&D of the 80t liquid oxygen methane engine “Tianque” (TQ-12) and the medium-sized liquid launch vehicle “Zhuque 2” (ZQ-2); both of which are flagship products of LandSpace. The purpose is to create a new commercial aerospace ecosystem consisting of the development, production and testing of the new liquid rockets. The medium-sized liquid launch vehicle “Zhuque 2” is planned to have its maiden voyage in 2020.

A bright future

On 15 January 2019, the China National Space Administration reported that seeds have sprouted on the moon by China’s Chang’e-4 mission. The ability to grow plants on the Moon marks a monumental milestone for humanity. From a venture capitalist perspective, the future of the commercial space industry is bright.

Wayne Shiong is a Partner at venture capital firm China Growth Capital, and a contributing author to “Future Layout” by MIT Technology Review. Since joining the firm in 2012, he has orchestrated VC investments in Aibee, Jingchi Technology, DeePhi Tech, Mech Mind, Sobot Tech, Tezign and specialises in Deep Tech.

China Growth Capital is a leading early-stage venture capital firm in China with an extended interest in Silicon Valley. The firm funds seed to Series B in fintech, enterprise tech and Internet consumer sectors. Since its founding in 2006, China Growth Capital has grown to manage 6 Billion RMB in asset under management across its different RMB and USD funds and has 229 portfolio companies as of 2017.

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