Developments at Seraphim Space through FY21
Over the course of the year, Seraphim Space (the fund manager) added senior personnel designed to enhance the already significant experience and expertise within the team. These included:
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Sarah Shackleton, who joined as COO in March 2022 and has extensive private equity board and operational experience.
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Patrick McCall (previously of Virgin Group and chair of Virgin Orbit and Virgin Galactic), who joined as a venture partner to support investee companies.
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Andre Ronsoehr, who joined as investment principal having previously worked for Sir Richard Branson’s family office and having co-led the investment into One Web and assisted on the investments into Virgin Galactic and Virgin Orbit.
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Maureen Haverty, who joined as a vice president, with ‘new space’ experience as COO at Apollo Fusion and subsequently at Astra where she worked on acquisitions, strategic partnerships and venture capital investments.
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Ann Winblad, who joined the Investment Advisory Committee. She is co-founder of the influential Hummer Winblad Venture Partners and has had a 30-year career in software and venture capital investment, including launching some 160 enterprise software companies.
Seraphim Space Accelerator programmes
The fund manager Seraphim Space derives deal flow from a diverse range of sources, but one of the most effective and unique is via its innovative accelerator programmes. The Seraphim Space Accelerator is an affiliated programme and plays a key role in sourcing deal flow for the trust, with around 75 companies having passed through the programme, some of which are now in the SSIT portfolio. These international accelerator programmes run several times per year for up to 10 space technology companies per cohort, for three months, which leads to them raising equity funding from other venture capitalists. Through the subsequent careful ongoing monitoring of technical and commercial progression post-graduation from these accelerators, the fund manager, Seraphim Space, is able to cherry-pick which graduate companies to back. The accelerator programmes also put Seraphim Space at the heart of the space technology ecosystem, building deepening relationships with the global investor community for co-investment and deal syndication. Seraphim Space has recently launched a US subsidiary (Generation Space LLC) to facilitate its US-based affiliated accelerator programme and to widen the net from which potential investment opportunities may arise.
Space is an impactful sector: The role of ESG within SSIT
Seraphim Space is a signatory of Principles of Responsible Investment, which is a UN supported group of investors focused on sustainable investment by incorporating ESG factors into their investment decisions. Seraphim Space regards ESG factors as an absolute bedrock of the development in space technology and believes that space has a ‘unique role’ to play in addressing the climate crisis and, more broadly, driving and meeting the UN Sustainable Development Goals (SDGs). Seraphim Space has engaged with external sustainability consultant Sancroft to develop a proprietary ESG tool and to ensure that ESG considerations are fully integrated throughout the investment process, from idea screening, initial due diligence, investment, hands-on management of companies and finally when exiting positions. Seraphim Space applies a list of hard exclusions to investing, including never knowingly investing in controversial weapons (ie nuclear, chemical etc) or autonomous weapons, where a company’s technology is a key element of weapons technology, in companies that sell their military technology to high-risk countries or where technology is used to identify individuals in countries with high human rights risks. In aggregate across the portfolio, all 17 SDGs are addressed, with many goals such as zero hunger, responsible consumption, climate action and peace, justice and strong institutions addressed by multiple portfolio companies.
Investment process recap: Seeking winners within vast addressable markets
Seraphim Space seeks high-growth, early-stage space technology businesses that are addressing very large market opportunities. These opportunities are likely to persist for many decades, providing a long runway of growth and powerful long-term secular tailwinds. Investee companies must embrace the vast potential of space, take long-term investment decisions, be leaders in their field and be willing to tilt towards the best multi-generational opportunities. These best-in-breed leaders with first-mover advantage are well placed to disrupt existing incumbents to address the wide opportunity set or to create entirely new markets via the application of evolving technology. First-mover advantage can be hugely beneficial and create barriers to entry. For example Spire (which is one of the relatively mature listed holdings) is currently on its seventh generation of technology. Technical innovation is key, and it would require extensive investment for a new entrant to catch up. IP is also an important competitive moat for the category leaders, with a number of SSIT portfolio companies that have patents ranging in number from 100s to over a 1,000 in total. As first mover, there is often a greenfield opportunity to patent cutting-edge technologies, which creates legal challenges for competitive followers.
SSIT will apply the same consistent process that Seraphim Space has used to good effect since the launch of the Seraphim Space LP fund in 2016. It invests throughout the life cycle at seed, Series A through D, pre-IPO and IPO stages and will take minority stakes, although it has identified the B to D series rounds as a sweet spot. At this stage companies have ironed out technical risks and demonstrated that the product has a place in the market. At series C and beyond, companies are establishing market leadership potential. At June 2022, 20% of SSIT was in Seed or Series A stage (December 2021: 9%), with only six of the 26 holdings pre revenue (albeit all except one are pre profitable at this stage). Seraphim Space typically utilises preference shares, convertible loan notes and ordinary shares to access holdings rather than debt instruments. It will make follow-on investments at subsequent funding rounds, subject to a disciplined review of the milestones achieved by the underlying business. As a minority investor, Seraphim Space will potentially accept some dilution of a holding if the subsequent valuation is too high or milestones are not reached. Syndication of investments and the financial capability of co-investors is of key consideration. Seraphim Space does not invest alone, preferring to invest alongside well capitalised investors. For example, it co-led alongside Insight Partners in the HawkEye 360 Series D raising in November 2021. Insight Partners (a US VC and PE growth investor) operates a mega-fund of nearly $20bn, which shares the same long-term investment philosophy.
The first element of the investment process is to evaluate as many opportunities as possible; this allows a wide appraisal of the available opportunity set and developments in technology and applications. The manager does not have a specific target for the number of investments but has guided for a portfolio over time of 20–50 holdings.
Seraphim Space has cultivated a very strong symbiotic network of expert contacts and co-investors. It has corporate partnerships with leading global multinational space companies, many of which are investors in its funds, including Airbus Defence & Space, SES, Telespazio and MDA. These corporate partners in turn provide Seraphim Space with access to their expertise to facilitate due diligence evaluation and portfolio company commercial collaboration.
NAV valuation methodology
An unaudited NAV is calculated quarterly in pounds sterling for end September, December, March and June. The June NAV is independently audited by BDO, which tested 99% of total investment valuation. Publicly listed securities are valued at their bid price or last traded price (these currently comprise Arqit (ARQQ), Spire (SPIR) and AST SpaceMobile (ASTS)). However, the majority of the portfolio is unquoted. These assets are valued using International Private Equity and Venture Capital Association methodology including earnings multiples, discounted cash flow analysis or use of the value at the most recent funding round. More recent purchases may be held at cost until such time that alternative measures become more appropriate. Assets yet to generate profit or revenue are typically valued at the most recent funding round cost. The above factors, and the nature of the portfolio, containing early stage and unquoted assets, mean that there is likely to be an inherent element of lag in the quarterly reported NAV.
The fair value of the investments at the end of June 2022 was £186.1m in aggregate. 9.9% of the portfolio is valued via the available market price, which are the listed holdings of Arqit, Spire and AST SpaceMobile, and 11.3% via milestone multiples, with the majority of the portfolio valued in relation to funding rounds between three and six months ago (30.1%) and those where funding rounds occurred over six months ago (35.1%).
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General disclaimer and copyright This report has been commissioned by Seraphim Space Investment Trust and prepared and issued by Edison, in consideration of a fee payable by Seraphim Space Investment Trust. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services. Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note. No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors. Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest. Copyright: Copyright 2022 Edison Investment Research Limited (Edison).
Australia Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument. New Zealand The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.
United Kingdom This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has been approved and issued for the purposes of section 21 of the Financial Services and Markets Act 2000 (“FSMA”) by Edison Investment Research Limited. This document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.
United States Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. |
Frankfurt +49 (0)69 78 8076 960 Schumannstrasse 34b 60325 Frankfurt Germany |
London +44 (0)20 3077 5700 280 High Holborn London, WC1V 7EE United Kingdom |
New York +1 646 653 7026 1185 Avenue of the Americas 3rd Floor, New York, NY 10036 United States of America |
Sydney +61 (0)2 8249 8342 Level 4, Office 1205 95 Pitt Street, Sydney NSW 2000, Australia |
Frankfurt +49 (0)69 78 8076 960 Schumannstrasse 34b 60325 Frankfurt Germany |
London +44 (0)20 3077 5700 280 High Holborn London, WC1V 7EE United Kingdom |
New York +1 646 653 7026 1185 Avenue of the Americas 3rd Floor, New York, NY 10036 United States of America |
Sydney +61 (0)2 8249 8342 Level 4, Office 1205 95 Pitt Street, Sydney NSW 2000, Australia |
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