Closing Bell - Manifest Space: $95M Series B Capital Raise with Apex CEO Ian Cinnamon 6/20/24

Episode Date: June 20, 2024

Venture capital is back on the rise for space technology – especially for defense and national security contractors. Apeis the latest to benefit, raising $95 million in a Series B round to ramp production of  its satellite bus production. On this episode of Manifest Space, Apex CEO Ian Cinnamon sits down with Morgan Brennan to discuss the company’s Series B capital raise, the competitive landscape, and the long-term vision for Apex.

Interest rates parked at a two-decade high may continue to depress some venture capital activity, but not when it comes to space tech, especially if it involves defense and national security. Apex Space is the latest example. The maker of satellite buses just closed a Series B round of funding led by XYZ Venture Capital and CRV. CEO and co-founder Ian Cinnamon says Apex will use the $95 million raised to ramp production and bring more products online. We've been very fortunate in the two years of our company's history to raise well over $125 million at this point.

And we're very fortunate that every fundraising round we've done, we've had to turn down a tremendous amount of money. And that all stems from the fact that what we're doing here at Apex is a business where there's a lot of market demand, but there's fundamental unit economics that lets us grow and thrive and frankly, be in a position where we don't need that investor capital. We're just bringing it in because it lets us scale faster. Apex's first bus, which is a satellite's main structure, launched to orbit in March, and the company has a new factory in Los Angeles. Commoditized, mass-manufactured satellite buses may be a new market, but a number of companies have set sights on it, from Taron Orbital to CR Space to Rocket Lab, even as others like SpaceX

and Amazon have chosen to build buses themselves for their own constellations. We're at a point in history right now where the current markets spend on satellite buses. So not on full satellites, but just on what we built. The core set of components for a satellite is well over $30 billion per year. And if you look at how that market's evolving, it's currently growing at a pace of nearly 10% per year, but that's without incorporating things like Starship, which will allow a lot more mass to get to orbit for a far lower price point much more quickly. It's not even taking into account things like the new constellations that are planned for direct-to-device and other things like that. And if you tie everything together, there are not just hundreds, but thousands of new satellites that need to get to orbit for very mission critical needs, whether it be critical commercial needs or government needs or allied nations. On this episode, Cinnamon discusses the capital raise, the long-term vision for APEX,

and the competitive landscape. I'm Morgan Brennan, and this is Manifest Space. Joining me now, Ian Cinnamon, the co-founder and CEO of Apex Space. Ian, it's great to have you on Manifest Space. And I want to start with the news, which is the fact that you just closed another funding round. Walk me through it. Yes. So we just closed our $95 million Series B for our company Apex. And at Apex, we manufacture satellite buses. So that's the core set of components on any satellite that's operating in orbit. And we build them in a productized way. And we're using that money to scale up manufacturing to meet the customer demand.

Okay. So what is this $95 million going to go towards exactly? So really what we've noticed over the last couple of years of our company's existence was this shift in the overall market landscape away from these bespoke, exquisite, very slow to build expensive satellite systems to this idea of a proliferated and attritable architecture of satellites. And as part of that, that's really kind of the customer market and the customer segment that we serve. We build these satellite bus platforms at scale, and we've seen customer demand continuing to increase. And this money really allows us to

ramp up our manufacturing capabilities to meet that new customer demand, as well as introducing a couple of new product lines to the market. Okay, so you already have one product line on the market, you actually already have hardware in space and orbit as well. So I guess walk me through what's already available, and then what this enables in terms of more products and with it, customers. Absolutely. So the first satellite bus platform that we made is called Ares. And Ares, you could think of it as about the size of a full-size refrigerator. And Ares is really intended for customers who are looking to put up small to medium constellations. So think of this as everything from observing the earth, observing space, communications, etc. And the Ares platform

was built from the very beginning to be manufactured at scale. We're currently in our facility here in Los Angeles, producing several of these Ares vehicles at once. The first one that we made is actually on orbit today, flying in low earth orbit for solving a variety of different customer mission needs. So basically, we're talking about mass manufacturing and essentially commoditizing satellite buses, which are kind of like the main piece of architecture that satellites are built around. That's exactly right. And this is really a very recent trend in the industry that has only been enabled by the launch side of the industry. Basically, the ability to get from Earth up to space becoming something where launches are happening far more frequently and the cost is coming way down.

So who are your customers? So our customers really fall into one of three categories, right? So it's either commercial companies, it's US government customers, and that includes typical customers like US defense primes, as well as working directly with the US government, and then international customers as well. And those international customers are allied nations, friends of the US, commercial companies outside the US. And so when you talk about this Aries bus that's already available on the market, that is specifically geared towards commercial customers, maybe like satellite communications type customers. Is that the way to think about it? And now with more funding in the door, you build more buses that are bigger and better suited to national security needs? So somewhat. So what I would actually say is you could think of an analogy that works really

well in this space is the equivalent of satellite buses to automotive manufacturing or cars. So you could think of Aries as the smallest car. Think of that as like a normal sedan that, you know, like a Toyota Corolla equivalent. And a Toyota Corolla could be used by commercial customers, but it also can be used by government customers as well. So on the first mission that's currently in orbit, we have a mix of different customers using that, which includes everything from commercial companies to multiple tier one defense primes that are working on behalf of the US government. So it really can meet the needs of either of those use cases.

Our future larger vehicles that we'll produce are very similar in the sense of, you know, we're making the equivalent of an SUV or a pickup truck. There's commercial uses, but there's also government uses as well. Do you already have customers signed on for these next models that you're designing and developing? Yes. So we're very fortunate to be in a position where we now have a backlog of customers for Aries, which is currently working in orbit.

And we already have customers who have signed up for Nova, which is about twice the size of Aries. So how quickly are you going to be able to manufacture these buses? What we've noticed with the recent trends in the market is there's a shift away from saying, I want to go spend years and years developing this perfect vehicle and getting into orbit. And the shift is moving towards this concept of how can we get more mass up into space as quickly as possible. And that's really the premise behind APEX. And the entire goal of our business model and what we do is saying we want to get more satellite buses into orbit as quickly as possible.

So with that being said, it takes us about eight days to go from parts on a shelf to a satellite bus that's fully assembled and approximately another two weeks of testing to make sure it's really qualified for a space environment. So think of it as one month to go from parts on a shelf to ready to fly in space. That sounds very fast. How does that compare to the previous production process? So look, satellite buses are not new. They've been made for 50, 60 years at this point, and they've typically been made the same way, which is bespoke, custom design every time, re-engineering it, building everything from scratch.

And that process is not fast, right? It typically takes three to five years to get to orbit. And we're measuring our timescale not in years, not even in months. We're measuring it in how many weeks before we can deliver it. So maybe this is a really basic question. But if I just take a step back, why is it this moment now we're actually getting to see a more mass manufacturer approach to satellite buses? So for the first time in history, the bottleneck in the industry is no longer how we're getting to orbit. Over the last several weeks, you've had great guests on your podcast who have talked about

what SpaceX has done for the industry, right? We're talking about SpaceX Falcon 9 launching almost every other day at this point. We're talking about the future of Starship, Rocket Lab launching more and more, Relativity coming online. And as that's occurred, the cost to get to orbit has come way down. But more importantly, the frequency in which you could go from launching is increasing significantly. And because of that, we have many more opportunities to get mass to orbit, but the bottleneck has now shifted away from the launch vehicle side to the satellite side itself. So just because we're able to launch more, we then go to the question of, well, what are we actually putting on these rockets? What are we putting into space? And the reality of the situation is we cannot

build satellites fast enough to meet that demand. And that is why Apex is saying for the first time in history, we're at a point where we need to manufacture these at scale and manufacture them more quickly for this proliferated architecture that's becoming the new reality. So where do you see the biggest growth drivers emerging from? Is it on the commercial side, or is it on the government and public sector side? It fluctuates. I would say in today's world where interest rates are high, commercial companies are kind of camping down their investment, a lot more happens to come from the government side. We are unfortunately in a situation where we have many near peer adversaries. When I say we, I mean the United States, who are near peer adversaries are increasing their capabilities on a daily basis. We have countries like Russia and China who have outpaced our ability to get satellites, humans, et cetera, into orbit.

We have enemies like Iran who just announced for the first time they got their first satellites to orbit last year, and they're launching more this year as well. And this means that we're in a situation in the United States where we created the space industry. We have been the leaders in the space race, but we're, for the first time, or the second time in history, we're in a second space race. And we need to continue pushing the ball forward to stay in the leadership position

and ensure that we're going to win. And the game has changed, right? We've moved to a game where it's no longer about what technical innovation can we make. It's now a game of how do we get more assets to orbit that are able to replenish, that are able to monitor other assets in orbit and provide more and more capabilities far more quickly. And certainly this is something the Space Force and the Air Force more broadly have been very

focused on and trying to field more of these capabilities and to your point bring more to orbit more quickly So I guess how does that how does that work in terms of when you work directly with the government versus the defense primes? Which already have these big robust? space businesses, but to your point have been more tailored from decades of Focusing on exquisite bespoke bespoke, one-off satellites. I guess, what does that mix look like? And what does that mean in terms of when you partner versus when you go and work with the government directly? So our philosophy at Apex is we want to be an enabler of anybody who wants to get to space more quickly. And what that means is, of course, there's commercial companies,

like you mentioned, but there's also a significant number of what we call defense primes. These are the household large names that have the capabilities to get satellites into space. But when they see opportunities where an end customer like the government or allied nations are looking to get more satellites into space more quickly, they'll often call us to assist them and help them win those contracts and get to orbit. So we see our position in the market as being a supplier of everybody who is able to help enable them to get more and more into orbit. Now, there are certain times where the government will approach us directly. We have quite a few government contracts at this point, well over $10 million in government contracts that are directly with the US government. And we continue to push forward there when they ask us to, but our default position is we want to

be a supplier to the great companies that have been doing this for years and years and help them stay on the cutting edge. It's interesting because to your point, we're sort of at this pivotal moment where this is now possible and actually needed in terms of being able to make satellite buses at scale. But we've also seen a number of companies, startups and the like, jump into the space too. So I wonder how you see this competitive landscape evolving. It's a large market, right? We're at a point in history right now where the current markets spend on satellite buses. So not on full satellites, but just on what we built, the core set of components for a satellite is well over $30 billion per year. And if you look

at how that market's evolving, it's currently growing at a pace of nearly 10% per year, but that's without incorporating things like Starship, which will allow a lot more mass to get to orbit for a far lower price point much more quickly. It's not even taking into account things like the new constellations that are planned for direct-to-device and other things like that. And if you tie everything together, there are not just hundreds, but thousands of new satellites that need to get to orbit for very mission-critical needs, whether it be critical commercial needs or government needs or allied nations. And there is a tremendous amount of demand. And frankly, there's just not enough supply to make that happen. So we love seeing new companies pop up on the market. We

love seeing companies kind of push that innovation forward. And we look forward to continuing to be that kind of robust and reliable supplier for kind of those critical mission needs. Some of the biggest builders and I guess drivers of these mega constellations currently and in coming years are vertically integrated themselves and they're building a lot of the stuff out themselves. So I guess how are you thinking about whether it is like a Starlink with SpaceX with Starlink or whether it is Amazon Kuiper, which is building itself. I guess, how are you thinking about those dynamics too, especially when it comes to your own supply chain? So if I were SpaceX, if I were Kuiper, if I were any of these mega constellations, I think their current mentality of needing to vertically integrate is exactly what they should

be doing. Frankly, when they got started and when a lot of these companies got started, there was no opportunity to be able to get a large amount of satellites to orbit very quickly with transparent pricing. Now that APEX is here, that equation has changed. And APEX's goal is to go to these companies, the emerging constellations, both established companies and newer companies, and say, look, instead of having to build it yourself, which before Apex, frankly, you were forced to do, Apex now lets you change that equation. And there's always going to be a certain number of satellites in a constellation where it makes sense to go build it internally. I'm not going to go say Starlink will switch over to using Apex or Kuiper will or any of those companies. But when you're looking at constellations for government,

right, the government does not vertically integrate. When you're looking at constellations for some of these very large, critical commercial companies, historically, they don't vertically integrate either. So some of the market will always want to go down that path, but some of the market won't. Another way of thinking about this is the car analogy that we mentioned earlier. If you were a company, for example, the size of Amazon, and you have a fleet of delivery vehicles because people are ordering, you know, making Amazon purchases every day, it might make sense to build your own delivery vehicles that are customized to your need. But for the vast majority of people, they want to go buy a car from the dealership off the shelf. So we think of ourselves as that

great off the shelf offering. And if you're truly operating at a scale that is so much higher, yes, we encourage you to go vertically integrate and build that yourself. But again, it's such a massive market. There's huge opportunity for both. Okay. So what does all this mean for your own supply chain and how you're piecing it together and your ability to build these buses as quickly as you need? So I will say historically in this industry, nobody has been able to build at the scale that we're looking to build. There's been demand, but nobody has been able to pull it off. And part of the result of that means that the supply chain of subcomponents that we need to

procure, frankly, does not exist. And our goal as a company is we want to help enable our suppliers to be able to ramp up, to deliver and meet the needs that we have. So our default option is we work with suppliers and we actually help educate them on design for manufacturing principles. How do you re-engineer things to scale, et cetera. And our preference is always to work with suppliers if there is availability. That being said, for certain components, there frankly is just not a supply base that's able to do that. And in that case, we are forced to vertically integrate. Interesting. Are there examples of that? There are none that I can talk about right now, but I promise you as soon as we can,

you'll be my first call. So you are the co-founder of Apex. I guess walk me through the origin story. How did this come to be? And why did you decide it was time to make a bet on this and this market specifically? I grew up being obsessed with space, right? Some of my earliest memories were driving out to the middle of the desert with my dad and stopping at the gun store on the way to buy black powder and

try to build my own rocket engines and set rockets off. I've caused zero forest fires, which is very important. And when I ended up going off to college and the first decade of my career working, I shied away from the industry. And the reason I shied away from the industry was, frankly, in order to participate in aerospace, the just amount of capital required to get to orbit to participate in this industry was enormous. And it was something where unless you were really working for the government, working for one of these large primes or happened to be a billionaire, which I certainly was not, it was very hard to participate. I ended up actually starting a very different company focused on computer vision and AI that was applying all of these cutting edge AI systems to national security data like downstream satellite data. I sold that company to Palantir. And at Palantir, I had the opportunity to witness as all of these new commercial companies started launching their satellites into orbit, and we were processing their data. And as I saw that, I started talking to these companies and saying, well, why can't you launch more satellites more quickly? What is

the biggest bottleneck for you? And they all started complaining about satellite bus, what we build at Apex. And I realized that, you know, that was the biggest issue in the industry now that launch was becoming solved. I teamed up with a good friend of mine who spent his career at SpaceX, amazing engineer, amazing design for manufacturing production specialist, Max Benassi. And we came together and we realized that if we teamed up, we could bring kind of my software background, his hardware background together and really create what this industry is needed, which is mass manufacturing of satellite buses. It is fascinating to me. I think we almost don't talk about it enough. The fact that SpaceX and Palantir, you know, they're sort of round. Do you feel like in terms of that capital coming together, do you feel like the market has embraced, at least the private market has embraced

this defense tech and space thesis in a way that it hasn't in the past? So in the past, it depends how far back we go in the past. I think the origins of Silicon Valley and defense tech was funded by venture capital, right? That kind of gave it its start. I think we saw that cooling off. If you remember, you know, years ago, there were protests about, you know, companies like Google or Amazon working with the government, Palantir. I remember protests outside the office on a daily basis.

And then we moved into this zero interest rate environment where just money was freely flowing. I think we're actually at a very special point in history right now where there is a tremendous amount of capital available, but investors have learned their lesson. And investors are now focusing on companies that have fundamental real unit economics, that are real businesses that are tackling large markets. So instead of funding kind of science projects or things that sound exciting, investors are holding onto their money and saying, show me a business that really for every dollar in, I could get $2 out. Show me a business where there's massive market demand and this will actually convert into something that can grow into a large, huge $100 billion public company in one day. And I think if a founder, a CEO, an executive

is able to show investors that, there's almost unlimited capital available. We've been very fortunate in the two years of our company's history to raise well over $125 million at this point. And we're very fortunate that every fundraising round we've done, we've had to turn down a tremendous amount of money. And that all stems from the fact that what we're doing here at Apex is a business where there's a lot of market demand, but there's fundamental unit economics that lets us grow and thrive and frankly be in a position where we don't need that investor capital.

We're just bringing it in because it lets us scale faster. That does it for this episode of Manifest Space. Make sure you never miss a launch by following us wherever you get your podcasts and by watching our coverage on Closing Bell Overtime. I'm Morgan Brennan.