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>> Maria Varmazis: Welcome to T-Minus "Deep Space". I'm Maria Varmazis, host of the T-Minus Space Daily podcast. "Deep Space" includes extended interviews and bonus content that takes a deeper look into some of the topics that we cover on our daily program. We hope you enjoy.
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Today, I'm speaking with two people for my interview, Timur Davis, Director at Munich Re Ventures, and Peter Ortez, Principal at Munich Re Ventures. So, let's start off with an introduction to what Munich Re Ventures is and what it does, with Peter Ortez answering first.
>> Peter Ortez: Munich Re Ventures is the corporate venture arm of Munich Re, which is a large global reinsurer and insurer. And our goal as a CVC is to go out and invest in companies and technologies that are impacting the broader risk transfer space. One of those areas that Munich Re is quite active in is the insurance of space assets. So, insuring launch vehicles, insuring stuff in space, is a key area of activity that Munich Re operates in, and is one of the leaders in that sector. And so, as investors at MRV, we are looking quite broadly in a bunch of different topics. And one of those topics is space. And our investment thesis really centers around what's coming next for the space industry. If we think back a few years, we- we can look to the, you know, LEO revolution as sort of a huge topic that pushed the economics of space in a different direction. And for the space insurance industry, Munich Re was, instead of having to think about, instead of insuring, you know, one $100 million spacecraft, you know, maybe we're insuring 100 $1 million spacecraft. And so, it's things like that, that we want to think about, you know, with respect to what are the new technology changes disrupting, the current space industry as we know it. And so, our- our current investment thesis has really centered around what we're calling the in-space economy. The idea of companies that are, you know, doing space-based services for space-based applications. As opposed to what we've seen, you know, in this robust first wave of the new space revolution in companies that are doing space-based services that ultimately have their direct customers, you know, as a user on Earth. Whether that's for Earth observation or communications or things like that. So, the goal is In Space for Space. And we're looking at a lot of these technologies such as refueling, life extension, as, you know, key questions and key interesting topics that, you know, the insurance industry down the road will have to and should be excited to address.
>> Timur Davis: Yeah. I'll just add a couple of quick things. On the insurance topic, what's really interesting is that you know, historically, space insurance has been similar to the space industry itself. Right. Very sort of one-off exquisite products with very specific applications that are very expensive. Peter said as the trend has shifted from one $100 million spacecraft to 100 $1 million spacecrafts, the insurance industry has been a little bit slow to catch up. Because the existing underwriting methodologies that, you know, work when you're doing one deal a year, don't work when you're doing 100 deals a year, obviously. And so, as Munich Re is shifting from this kind of, you know, old space to new space, they are relying on us as the kind of, the venture capital team and the tip of the spear, you know, to find kind of innovative new companies. Invest in them. And then, bring them into the fold, so to speak. And help our colleagues in- in Munich, you know, really understand what's around the corner, what's, you know, past the horizon in the space industry, so that they could develop new products and, you know, new business models and- and new types of insurance to accommodate, you know, what's- what's on the horizon. And so, in- in terms of the topics that we've been focusing on with our in-space economy thesis, it's essentially what- what Peter just said. It's about one, you know, refueling, and, in general, sort of the infrastructure that would make the business model close, so to speak. So, we invested in a company called Orbit Fab. In fact, we led the seed round of Orbit Fab in 2020, with kind of this idea that if a future space economy emerges, refueling will need to be a key part of that. Right. Like, today, you know, when you purchase your car, you don't kind of drive it off the lot until it runs out of fuel and then dump it at the side of the road and go purchase a new car. The same, you know, concept applies with Orbit Fab. We then expanded our thesis with sort of the second big topic which is Space Domain Awareness. And there, we invested in a company called OKAPI:Orbits, which is Space Domain Awareness slash Space Traffic Management company, where again, we led the seed round. And- and here, you know, the idea is, as you have more spacecraft in space, and they're now being refueled and doing useful, you know, sort of services on each other. You need to have a way, you need to have some kind of highway traffic control, right, as space gets more crowded. As you're trying to avoid the Kessler syndrome of sort of, you know, collisions, setting off a chain reaction of collisions that ultimately pollute all of space. And so, that was our second bet. And then, finally, third, earlier this year, earlier 2023, we led the series A of Starfish Space, which is a company doing both mission extension in GEO, as well as debris removal in- in LEO. And there, the idea is, old space is not dead. Right? GEO satellites are still incredibly important and incredibly relevant. And if anything, I think we're starting to see the pendulum maybe start to turn a little bit in- in the favor of GEO. And in that case, if you can extend the life of a 20-year asset to 25 years, or what have you, then there is, you know, tremendous economic benefit that you can create. And, in fact, those, you know, those economic models can be sort of completely rewritten. And then, on the LEO kind of debris removal side, this is, you know, I- I think there's still questions around the how the business model of debris removal will work. But ultimately, it's going to be critically important in LEO to have, you know, a safe and clean, you know, highway that the SBA guys will then be able to help monitor.
>> Peter Ortez: If you kind of look back across where we've invested and how we've invested, we're- we're really looking at, you know, infrastructure and to use an overused term like platform plays in the sector. You know, we look at something like Orbit Fab as- as kind of laying the groundwork. We look at something like an OKAPI:Orbits and the Space Domain Awareness sector as kind of providing a key piece of information and insight to these companies. And then, when we looked at Starfish, it was the opportunity to have a platform for in-space servicing that was really, you know, targeted towards several different, you know, sectors and parts of the space ecosystem. So, I think- I think when we think that's the other key part of our investment thesis is, you know, it's the picks and shovels plays. It's the- the folks that are, you know, addressing a wide range of critical, you know, needs in the-in the sector gets us really excited.
>> Maria Varmazis: That picks and shovels phrase in that fabulous piece that you published on Medium, which we'll make sure we link as well, it really stuck in my mind because it does summarize it so well. It made me wonder, because we cover these incredible companies, and I'm a big fan of what they're doing. When we talk about what they're innovating where a lot of it is looking towards the future, when we're getting ready for when we need these services. And we're starting to use them now. But we're getting ready for it. What do we think is the timeline for something like this? Because we're starting to get geared up for all these things, but what are we- what are we actually realistically looking at for when we're going to really see these things go?
>> Peter Ortez: Yeah. I don't- I don't think we quite have a crystal ball on that part yet. But what I think we're excited about is there's a lot of stuff happening, you know, in the near term that can. That's really moving us in this direction of, you know, where we think we're going, which is this- this world of us living, I think Jeff Bezos used the phrase like living and working in space. And I think folks like, you know, Orbit Fab are looking to, you know, have- have assets in space that they're, Starfish, I think as well, that they're, you know, looking at testing and working on and, you know, to provide key information to figure out how the next mission is going to go. I think with respect to the- some of these elements, like Space Domain Awareness, is happening now. Right. We're looking at- at, you know, tracking all this debris and all of these different, you know, items and- and assets in space to understand how we're going to react when these, you know, scary moments that are of impending collisions are starting to happen more and more frequently. I think, you know, we look at commercial partners as saying, hey, we're- we're ready to kind of jump in and explore this in the next, you know, three to five years to at least get, you know, let's call it a demonstrator satellite up. And- and exploring how- how these customers are altogether ultimately going to interact with- with the startups. I think one, you know, one example that we've seen, and it's- it's not in the startup space, but you know, Northrop Grumman launching and executing their- their Mission Extension Vehicle program was a good, like, flag in the- planting the flag in the ground saying that we are kind of in this era of in-space servicing. And it's- it's now, you know, answering the question of commercial scale-up and- and getting this to be a repeatable, more regular activity. So, I kind of rambled a little bit there. But, you know, I think, in summary, you know, there's- there's a long-term view that's, you know, it could be, you know, maybe decades before, like a steady state. Everything, you know, existing in space like it is on the ground. But I think where we are now is- is we're in that crucial proving ground of- of how do we make sure that these- these technologies are- are the ones to move us in that direction.
>> Timur Davis: And maybe just add one quick point. You know, we consciously, I think, avoided some, you know, investment opportunities into companies that don't have these intermediate success points between now and the vision coming to fruition. Because there are all sorts of great ideas out there and excellent teams that are, you know, doing stuff that really won't have traction for a decade, right or- or longer. And, obviously, that's all really important and a key part of the in-space economy. But we think that the infrastructure has to be built first. And on the infrastructure front, we are seeing incremental steps that are kind of leading us toward that promised land. And- and we, you know, when we look at investment targets, we want to see those, the pathway, that, you know, that roadmap that incorporates those incremental steps.
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>> Maria Varmazis: We'll be right back after this quick break.
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So, given that you're looking at companies with a vision with, again, those- those milestones, as you mentioned. And given that you're looking for those picks and shovels kinds of firms with- with that kind of ambition. What kind of startups are you looking at? And maybe I should say, what kind of startups aren't you looking at? Like, what- what appeals to you, when you're- when you're going to look around at startups, and you go, these folks have a clear path, and we really dig what they're doing. And, you know, we think that they're- they've got something viable or versus that they're not going to go the distance?
>> Peter Ortez: Yeah. I think- I think with respect to what we're looking at, you know, it's- it's companies with, you know, teams that have been in and around this industry for a bit. Whether that's in the academic setting, whether that's, you know, having worked at other startups or space companies. It's interesting, we're kind of in this, you know, second wave of- of a space, you know, startup rush, where, you know, probably 2015 to '17, we had, you know, the Planet Labs, the, you know, we had the acquisition of Skybox in 2013. We started to see the beginning of what was once not considered a venture investment at all. And now something where, you know, we're seeing the- those entrepreneurs who came from other space startups taking what they've learned and bringing them to, you know, a new- a new company. So, I think, one, we're looking for teams that really know that the industry, the sector, well, but who are also looking at things with- with fresh eyes and figuring out, okay, here's- here's the challenges over the last few years. Here's how we can innovate on- on them. You know, as Timur mentioned, we like to see companies that have some sort of path towards, you know, initial commercialization or initial, you know, de-risking. What I think we're- we're a little bit more wary of is those companies that have really grand visions, but, you know, it's only going to be an all-or-nothing sort of outcome. And we're not going to know until their first major milestone that- that may be five to 10 years away. So, I think that's- that's a little bit where we- where we stay away from. And I think what we also like to see is- is companies that are, you know, going after, sort of known or- or understood pockets of demand in the- in the space industry. Trying to create new markets, especially when you need a lot of capital to do that, is- is a bit challenging. So, you know, each of our investments has been in- in a sector where folks are really crying out for, hey, we- we either don't have this, or we want this, but we want it better. And I think that's- that's really exciting. I think where we typically stay away is- is, you know, as I previously mentioned, those- those binary outcomes around, you know, whether there's capital here or not. And we also tend to wait, tend to stay away from spaces where we see, you know, a ton of competition from other startups and from the incumbents. We like to look at those places where the incumbents are either not thinking or viewing it as not, you know, core to their business.
>> Timur Davis: Just to add maybe a quick thing to- to Peter's wonderful response, I think we want folks that have demonstrated a little bit of traction before we invest. So, although we're happy to be seed investors, the way we say it is we don't like to fund science projects. You know, so we want to see technology that's, you know, at least somehow being taken out of the lab and sort of brought into more of a startup or- or more of a commercial domain. So, using Orbit Fab would be a great example wherein they had demonstrated fluid transfer on the International Space Station by refueling a water tank with their fueling port before we had invested. And so, you know, they had their fueling port in space, doing fluid transfer. That's- that's a great bit of progress that I think really demonstrates the viability of the technology. So, that's one. We've seen the kind of the DoD and- and sort of all the associated organizations and agencies play a really big role in the space for obvious reasons. And- and that role is- is, you know, if anything, increasing as geopolitical kind of situations evolve. But that having been said, we really want to focus on companies that are commercial kind of first or dual-use. Right. So, we- we won't discount the military side of things. And, obviously, it's- it's very important in a great way, especially early on, to get traction. But, ultimately, we are focusing on folks that are targeting the commercial sector. And that's, I think that's an important differentiation point. And then, maybe third, as- as Peter was saying on the capital front, I- I think we are keen on folks that are, you know, as capital-efficient as one can get. Obviously, it's space, we're building stuff. There are some software plays, but most things are hardware, and it's expensive, and it's complex. But I still think there are kind of different levels on that scale. You know, we- we are a little bit, I would say, hesitant or reticent to go kind of the most, to go to the most capital-intense side of that spectrum. And we want to see folks that have innovative business models and- and innovative ways to be, if not capital-light, at least capital-medium.
>> Maria Varmazis: Fair enough. Fair enough. Given the fascinating context of MRV within the Munich Re group, so we're talking not just insurance and- venture capital and insurance together, risk is a big part of what you both are dealing with. So, this is a philosophical question, admittedly. So, what is your approach to risk?
>> Peter Ortez: I mean, I think the risk is what makes this industry this industry. Right? It's not venture capital if there's not risk and- and things that are uncertain. Right? Otherwise, we'd be putting our money in bonds. What we want to do here is we want to go after companies that have an edge on that- on that risk-reward balance. Right. Where they can see, okay, we- we understand the risks that are out there. And here's why we, as individuals, as technology, as, you know, a business model, as builders of all these three things are uniquely positioned to gain more reward than, you know, the rest of the industry can from this- from this sector. So, we're not- I would say, we as investors are not afraid, you know, to take early-stage risks, if we see something that, you know, really indicates this could work out really well. Or- or these folks really have an edge here. I think as Timur said, like, you know, we- we want to see somebody validating things from the outside. You know, this- the science or technology risk isn't there. Or is the science risk isn't something we want to take? Oh, but I think, you know, in this sector, there are real- there are a lot of really smart people that are really going after this idea of, you know, we're engineers. We've been engineers at this company or that company for a while. We think we know how to do this in a different way. We want to take what we learned from other industries and kind of merge them into this interdisciplinary approach to, you know, the space industry. And, you know, that's- that's a way folks are getting around some of these early-stage risks that exist in space. So, you know, it's exciting. It's- it's also unavoidable. And so, when we make investments, we want to make sure that we- we feel as good as we can about the risks we're taking on. I think what's tough and what I think the insurance industry also hates is this idea like unquantifiable risk is risk that, you know, we can't- can't put a price on it, therefore, we want to stay, well, argument.
>> Timur Davis: And maybe just to add, in some cases, we think we can help kind of bend that risk curve a little bit or the arc of that curve, and, you know, offer some kind of advantage to our portfolio companies. And- and then, you know, that can help support our investment as well. Right. So, using Space Domain Awareness as- as kind of a low-hanging fruit, one can, you know, envision the world wherein if a satellite operator uses an SDA platform to track their assets, as well as everything else. Then, maybe kind of, their insurance premiums, or the risk of their constellation is different than folks who don't use a Space Domain Awareness platform. Right. And- and, in that case, maybe, you know, pricing is a little different. Now, I'm- I'm saying this theoretically. But those, I think insurance is, you know, often overlooked but is, especially in the space world, interestingly, is an incredibly, sort of important tool to help balance and transfer some of that risk. And so, we feel like there are many opportunities where Munich Re, kind of the broader organization, including ourselves as the venture capital, but also all the underwriting capabilities and beyond, can kind of Bend that arc of- of risk a little bit. And create, you know, unfair outcomes in- in our favor, so to speak in terms of the risk-reward balance.
>> Maria Varmazis: Thank you both so much for joining me today. I really appreciate the time.
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And that's it for T-Minus "Deep Space" for June 23, 2023. We'd love to know what you think of our podcast, you can always email us at space@n2k.com or submit the survey in our show notes. Your feedback ensures that we deliver the information that keeps you a step ahead in the rapidly changing space industry. This episode was produced by Alice Carruth, mixing by Elliot Peltzman and Tre Hester with original music and sound design by Elliot Peltzman. Our Executive Producer is Brandon Karpf. Our chief intelligence officer is Eric Tillman. And I'm Maria Varmazis. Thanks for listening.
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