Investing in the Final Frontier with Andrew Chanin and Micah Walter-Range - 7investing

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Investing in the Final Frontier with Andrew Chanin and Micah Walter-Range

May 26, 2022

– By Simon Erickson

Things are really heating up in the commercial space economy.

We noticed last year that several companies were providing the underlying infrastructure that could allow private businesses to set up shop in outer space. Favorable developments like declining launch costs and the miniaturization of satellite components were driving the number of satellites seeking launch approval to increase by an order of magnitude. And thanks to a flood of interest in Special Purpose Acquisition Companies (SPACs…which actually necessarily aren’t all related to “SPACE”), publicly-traded options emerged for investors that included Rocket Lab (Nasdaq: RKLB), Astra Space (Nasdaq: ASTR), and Virgin Galactic (Nasdaq: SPCE).

Yet quite a lot has also changed in the world during just these past six months. Russia’s invasion of Ukraine has prompted governments to double-down on their space-based military operations, especially for satellite surveillance. Out-of-control inflation has driven the Federal Reserve to aggressively raise interest rates, making it more difficult for capital-intensive businesses who conduct space-based operations to raise funding. And the fascination of space from billionaire entrepreneurs like Elon Musk, Richard Branson, and Jeff Bezos has led Space-X’s Falcon Heavy, Virgin Galactic’s SpaceShip, and Amazon’s (Nasdaq: AMZN) Project Kuiper to transform what was once science fiction into commercial realities.

What will all of this mean for investors? Are escalating international conflicts re-invigorating the militarization of space? Will rising rates make it harder to compete against the best-capitalized leaders? Is it better to invest in the down-to-Earth legacy players…or is it worth taking a flyer on a few pure-play moonshots?

To help us answer those questions, we’ve brought in two experts who are actively investing in outer space. Andrew Chanin is the CEO and co-founder of Procure AM and Micah Walter-Range is the President of Caelus Partners. Together, they’ve created America’s first Space-themed ETF that trades with the ticker “UFO.”

In an exclusive interview with 7investing CEO Simon Erickson, Andrew and Micah describe why the space economy is taking off. They describe how Russia’s war with Ukraine is increasing the demand for real-time satellite imagery and is also causing businesses to seek launch providers who are not based in Russia. They compare Rocket Lab democratized approach to launch to Space X’s ridesharing capabilities, and also explain why ‘space tourism’ might actually be less relevant than ‘space-based research.’

In the final segment, Micah and Andrew describe the methodical framework they’ve constructed for the SPACE Index and how some of their thinking has changed in 2022. The also reveal some of the most important unmet challenges facing space-based companies and several companies that should be on investors’ radar.

Publicly-traded companies mentioned in this interview include Airbus, Amazon, Arqit Quantum, Astra, BlackSky Technology, Boeing, Mynaric, RedWire, Rocket Lab, and Virgin Galactic. 7investing’s advisors or its guests may have positions in the companies mentioned.

Agenda

0:00 – Introduction: Overview of the space economy

2:22 – How is Russia’s War with Ukraine impacting the space industry?

6:44 – How do government-funded technologies transfer into commercial opportunities?

9:25 – What impact is ESG and data monitoring having on institutional funds?

12:10 – What will rising rates and the market selloff mean? Will we see more acquisitions in 2022?

19:53 – How are the launch providers different? Do they serve different types of customers and is there room for multiple approaches?

25:00 – What is ‘space tourism’ and how does it compare to ‘space research’?

29:24 – How is Procure AM constructing the index? What publicly-traded companies are you interested in?

35:29 – What challenges are currently underserved in the space industry?

38:34 – How should investors think about the space economy in 2022?

Transcript

Simon Erickson  00:00

Hello everyone and welcome to this edition of our 7investing podcast where it’s our mission to empower you to invest in your future. I’m 7investing founder and CEO Simon Erickson we’re going to be talking about the space economy today and who better to talk to than Andrew Chen and Michah Walter-Range. Andrew is the the co founder of Procure Asset Management, excuse me Procue AM for short. And Micah is the president of Kailis partners, who provides the fundamental index. Andrew and Micah I always enjoy these conversations with you. Thanks for joining me on the 7investing podcast.

 

Andrew Chanin  00:36

Great to be back. Thanks for having us.

 

Simon Erickson  00:38

Just a real quick review of the ETF that you’ve launched the UFO is the ticker on this one, but it’s a pure play for the space economy. From what I’ve seen, Andrew, you were the first ones to actually do this out there. Just for anyone who’s unfamiliar with your organization, or hasn’t listened to our podcast before? What’s so interesting about the space economy? Why did you create this ETF in the first place?

 

Andrew Chanin  00:58

So there are a lot of trend changes that are going on around the world. And space is one that is affecting a ton of change for all types of industries. And knowing that people are always looking for what industries are next, how can I get exposure? ETFs become very important vehicles for people looking to get access to technology, themes, industries, and particularly global themes and technologies and industries and space seem to me to be one of those areas, that would be no different.  And you have many different companies from around the world specializing in all different areas, you have demand from consumers, from companies, from governments from militaries. And this is something that because of reusable rockets, driving down the cost of launch because of technologies becoming more compact, or more expansive, and what they can do, the what you can do with a satellite now is significantly expanded as well.  And so being able to provide investors with exposure to the the constant changes of the growing space economy was something that we hope to be able to provide with UFO, and working with Micah and his team on the indexing side has been a tremendous experience for us all and is really helping us see for ourselves as well, the opportunities ahead for the space industry.

 

Simon Erickson  02:25

Andrew, I’m a big fan of UFO I have personally invested in it. And you know, we last spoke you myself and Micah in September of 2021. We covered a lot of those things that you had mentioned just then about, the declining cost of launch, satellites, the availability that are out there, but maybe to keep today’s conversation a little bit more relevant and recent. There’s a lot that’s happened since September of last year. One that’s notably has been there’s a war going on in Eastern Europe right now. You yourself just mentioned that kind of two of the drivers are governments and military that’s probably more relevant today then anytime in the last couple of months. How do you see this this growing conflict in Eastern Europe impacting the space industry or at least spending in outer space right now? Either of you could take that Mike or Andrew, whoever would like to answer.

 

Micah Walter-Range  03:16

Yeah, certainly from from an operational perspective, you know, what we’re really seeing, I think, is the first commercial imaging space war. So you look at how different capabilities have transferred over from the military to the civilian population over time. So, you know, One really good example of that is GPS, which was developed for the US military. And so we really saw that for the first time in the Gulf War back in the early 90s, and how that was being used. And then of course, you know, that that became commercialized. And so you know, we all have access to GPS now. And it’s built into just about everything we use on a daily basis, all those like location based services. But what we’re seeing now is a similar kind of shift happening on the military side, for for commercial satellite imagery. So, you know, satellite imagery, it’s been around for a long time, you know, these companies have been out there. But now people are looking at the conflict in Ukraine and saying, you know, I have access to almost real time, information about what’s happening on the ground. So you have, you know, relief workers coming in from across Europe, you know, people just delivering supplies, participating in the Defense of Ukraine, and they are able to do that because they can look and see, do these bridges still even exist? You know, where are the likely places where we might get ambushed with with supplies, you know, that we’re trying to get through to these besieged cities, you know, what are the Safe Passages to get people out of the conflict zone? And, and you have all of that happening.

 

Michah Walter-Range  04:59

So And sorry, my audio just switched. Can you still hear me?

 

Simon Erickson  05:06

I sure can go ahead and come through loud and clear. We hear you no problem.

 

Michah Walter-Range  05:11

Okay. Yeah, sorry about that. I just had to get you back. So, so we’ve got all of these things going on where where people are saying, How do I use space to support the Ukrainian war effort. And, and you also think about the media battle that’s playing now, and how I’ll probably get a lifetime banned from Russia for saying this. But one of the enduring images of Russia’s absolute failure to accomplish their early objectives was that long convoy stretching for miles outside Kyiv. So we could see that from space, and that was transmitted around the world. And so that that made people sit up and say, Oh, maybe the Russians are not going to accomplish what they’re trying, maybe it is still worth the effort to try to help Ukraine. And you think about how that shifted attitudes, and, and, frankly, political decisions around the world. So you know, that those are just some of the impacts. And then then you get into the very specific parts, like what is happening in space. And it turns out, the Russian approach was not necessarily to attack satellites in space that were providing services in Ukraine, they attacked the ground systems. So it was more cyber warfare against the terminals that people use to connect via satellite. And so you know, that’s, that’s got the industry now thinking about, you know, what are the real targets? You know, if they get caught up in a conflict again, in the future?

 

Simon Erickson  06:44

Some great points there, Mike, you know, it’s certainly there’s, there’s military operations that can identify benefit from satellite imagery is you’re translating that, like you just mentioned about GPS into businesses that are profiting from this. With logistics be one opportunity for that. I mean, you’ve got a lot of stuff that’s being shipped around the world that has to worry about weather and you know, things like this, is that the opportunity for satellite imagery from a commercial setting? Or is there beyond that opportunities you think you’re excited about as this goes to the commercial space economy?

 

Michah Walter-Range  07:17

Yeah, so logistics are a huge part of it. And you know, when you think about weather forecast, I mean, that’s a huge one. If you’re talking about air travel or, or shipping in particular, you know, maybe less for ground transportation. So that’s an area where the commercial industry, that’s not traditional imagery, but it’s still data that’s being collected from space, buy these commercial satellites. And so they’re working with governments now to see how do we add as an industry to the data set that’s built up using the government satellites? So, you know, weather forecasting agencies they have, they have these, you know, big multibillion dollar satellites that they put up there that gather the best data possible. But is there a way to supplement that and provide additional detail and more Rapid Refresh? For the calculations that go into weather forecasting? And can you do it? Can you provide more localized insight. So I’ll just give you one example, I was talking to some people working on offshore wind farms recently. And they said, you know, it would be really great if we could get real time insight from space, on the height of the waves around those turbines. Because that affects whether we can get a boat up alongside to do maintenance or not, if it’s above a certain height, then the seas just too choppy, and we can’t do it. Similarly, because those turbines they they are really optimized to face directly into the wind. And, and that’s actually quite hard to do. So if you can monitor an entire field from space and say, well, it looks like that one’s you know, 10 degrees off from the direction that the wind is coming, you know, then you adjust it, you’re increasing power output, and you’re decreasing the wear and tear on machinery. So you’ve got all these emerging applications, that, you know, some of them are very government oriented, and some of them are absolutely not, it’s just things that the regular economy needs like power.

 

Simon Erickson  09:25

Andrew, let me come to you in just a minute for this because, you know, as one investor to another, I’m interested in where the opportunities from from what Mike is describing arise. Before I do, though, Michael, one more thought that I’d like to pick your brain about is ESG seems to be kind of a rising concern, especially amongst institutional investors, the IE being environmental, a lot of that being carbon related and atmosphere related. Are we sensing things more effectively from outer space that might tie into this theme? Or is that kind of still off the radar of an ESG investor that would be interested?

 

Michah Walter-Range  09:59

Yes. There are there are companies out there, space companies that have built their business on providing monitoring services for carbon emissions and other emissions too. So there’s one company GHG set, still a private company, based up in Canada. And and that is a service that they provide to, you know, power stations and other emitters is to say, we will track your emissions from space. So that improves your compliance and improves your reporting. It improves your operations, frankly. And that’s why the, the power stations and other customers sign on, because it’s more effective to do the monitoring from space than it is to send a guy out with measuring equipment, in a car to different points around to take measurements periodically. So yeah, it definitely a lot to contribute on that front. You know, climate science, in general, would be nowhere near what it is today, if we didn’t have the monitoring from space, to see global temperatures, changing water levels, that’s another one that you can detect. So you know, when we’re talking about droughts across the country, how do you actually detect that? How do you know how bad a drought is? Space can tell us that before you actually start running out of water in the ground, because you can even see things like the the height of the ground changing as those subterranean aquifers are drained, and then the ground sinks down accordingly, because it’s not being held up. There’s nothing there anymore. So space is fantastic on that front. And then just the environmental concerns about the space industry itself. Yes, you know, as the number of launches go up, there is a concern. But at the same time, I’m seeing new launch vehicles coming to market that have very minimal carbon emissions, very minimal environmental impact, they’re being engineered to be as clean as they possibly can be. And I think that’s an encouraging sign for the industry as well.

 

Simon Erickson  12:10

Andrew, let me bring it back to you. You know, one of the things I love is being an investor as being innovative, looking at markets that are changing looking how things are changing out there, and almost always requires an enabler of somebody that’s going to push the change that others will commercially take advantage, right. So examples that I’ve seen in my own 7investing recommendations, we’ve seen this in life sciences and genomics, somebody had to be the Illumina that would go out there and make DNA sequencing affordable for hospitals and oncologists to benefit from it. Semiconductor Industry, the same thing, there had to be fabs are actually making smaller and smaller node sizes, that are logic gates that would go into the world’s most advanced chips. I mean, space economy certainly has my interest, because it’s that same story of innovation, that there’s a lot of infrastructure and a lot of CapEx capital expenditures that has to go into this industry. The reason that I bring this up is last year was a great time to raise money. If you’re a space company, we saw so many raising money through special purpose acquisition vehicles, you know, the specs that we saw a special acquisition, excuse me, special purpose acquisition companies, the specs, it was kind of the perfect time to raise money for a business that needed to put it to work. Different story today, Andrew, rates are going up economies might be heading into recession is very difficult to raise capital, how has the market sell off? And the investing environment impacted your thinking about space economy? Or is there no difference in thinking from 2021 to 2022? You know, it’s

 

Andrew Chanin  13:40

not necessarily as much our thinking as what kind of broader broader markets and participants are thinking, we can even elaborate a little bit more on your what we’ve seen with Ukraine, and Russia. And there are opportunities that are that are immediately emerging from the fallout from this conflict. And so one major area, you know, we talked about satellites being an important factor in Modern Warfare. But Russia was a leader in in launch. And Joe, even the US relied on Russia for launch capabilities for numerous years, until more players came forward offering launch solutions. And so countries, companies militaries that previously were okay doing business with Russia, as long as Russia can be, you know, a good partner and to help them achieve their goals. They’re starting to rethink that. And this could be something that could impact the Russian commercial space industry for decades or possibly even longer. And so as companies start to look at what their next goals are, what their next missions are, they’ll start to take in to account how good of a relationship we have with with the country that the services are being operated from. And so in particularly in the area of law Launch, Amazon and project hyper came out announcing a massive commercial launch deal. There are plenty of players out there that have requirements for launch. And there are only so many currently active launch vehicles only so many currently active launch pads where you can, where you can provide these services from creating more infrastructure here on earth to help us be able to pick up with these increases of demand for launch capabilities is an industry within its own. And when you look at some of these newer companies, you have like a rocket lab or an Astra that are providing launch services will be interesting to see people that were possibly considering working with Russia for those needs, if they pivot and that creates, you know, increased demand. And just from satellites alone to these massive networks. Massive constellations require numerous launches, it’s not yet typically, hey, you send up one payload and your inner constellations Donya, that these are multi year deals with launch providers. And that’s creating some, you know, some really interesting opportunities in the immediate and long term for non Russian commercial space companies. So I think that’s your one major area. But then also, we probably touched on last time we spoke the militarization of space. You know, we’ve seen Russia successfully demonstrate in a satin anti satellite, missile weaponry technology, to take out a satellite that creates debris fields, which creates new risks, as well as opportunities to avoid debris figure out how to repair satellites, better, that get affected by debris, how to reposition satellites, so they can avoid debris fields. But hypersonics is another major area of concern, especially here in the US and Europe, where we’ve recently begun to believe that China and Russia have outpaced our capabilities in the area of hypersonics. So a you need to develop hypersonic technologies and make sure that reliable, but you also need to detect them and track them once, adversaries have launched hypersonic weaponry. So there are some very pressing issues at the highest levels of government and intelligence and defense, that are pushing a lot of these industries as well. And you know, some companies, you know, may be positioned to benefit from it, others might not be their bailiwick. But, you know, the government, the military are going to look for strong, strongly capitalized and resilient companies that will be able to succeed, regardless of the broader market conditions, and that may affect contracting going forward.

 

Simon Erickson  17:45

And one step further on that exact note you just made. Andrew, you’ve got now some very well capitalized companies that are gaining a lot of momentum out there. Maybe they raised money with Spax. Last year, maybe they had it from before. Space is hard, you know, it’s not enough to just have one technology that works, you want to be an integrated player. Prices are down pretty much across the board, from what least I’ve what I’ve seen, what are you think we’re going to see more acquisitions in this space in 2022?

 

Andrew Chanin  18:13

It wouldn’t be surprising, you know, in the past, you’d have Yes, some really interesting technologies with companies being developed, you know, at the private level, and you know, in many cases, those technologies wouldn’t necessarily see the light of day or wouldn’t necessarily, company wouldn’t be able to last long enough to get the required contracts to keep those companies afloat. And you’re really large prime players, were able to scoop up your really valuable assets on the cheap. Yeah, that happens across to numerous industries, in different cycles of the market, when things are cheap, you have companies that are looking to make some value investments, and you have technologies can get spun off in order to do that, or companies can get acquired. Some companies are vertically and horizontally integrated better than others, some may see this as an opportunity to find those areas that maybe their company wasn’t successful in building organically. So, you know, you point to companies that were successful in raising money. And, you know, although the the share price has taken a hit, you know, Virgin Galactic, I think was, you know, absolutely one of those companies, when they saw their stock price rising, they made the wise decision to raise capital to help them weather, you know, potential future storms. And as we’ve seen them have to push out further their commercial space launch date to q1 of next year, you’ll having that capital is going to be very valuable for them for having done so. But not necessarily every company is going to be in that position and go could cost more to raise. Maybe there’s other types of strategic partnerships that companies can get involved in to weather the storm that we’re currently

 

Simon Erickson  19:53

chatting just a little bit more about launch. You know, you mentioned several launch companies, their Rocket Lab is one of them, you know, they’ve kind of democra To Space Launch, we know that this is a bottleneck, we know that just even getting a satellite into orbit is not as easy as it sounds like it might be. You can either work with a smaller more maybe I could call it customer focused company, like a Rocket Lab, or you could play by Elon rules and try to ride share on on SpaceX and these massive, you know, Falcon Heavy rockets. And these guys out there, are you seeing what a preference for one of those approaches or the other where you’ve got Elon building giant, you know, rockets to send satellites in outer space and put up constellations all at the same time. Versus I think rocket labs, electron rockets can bring up a payload of like 300 kilograms, very, very small. But they’re trying to work their way up through building the neutron rocket and kind of larger and larger payloads. Do you think one of those is more preferential for customers? Or is it just totally depends on who the customer is. And there’s room for both of these to win in that space?

 

Michah Walter-Range  20:53

I would say there’s absolutely room for both approaches. And, you know, it may be different parts of the market. So you know, for for large constellations, yes, you’re not going to want to do that one at a time that’ll take you years, if not decades to get your constellation and Blake’s. So it’s simply not an option to go to the small side. But then, you know, for very specific small satellites, where you want it to be in a particular orbit, and the thing about a small satellite is, it has a limited amount of fuel maneuver and fuel on board, right. So if you need it to be in a particular orbit, taking the rideshare option may not work for you. Because if you can’t get from wherever that rideshare wants to drop you off to the location where you really need your satellite to be. You’ve either used up maybe half your satellites, useful lifetime, because you’ve used up most of your fuel, or where you just say, no, this doesn’t make any sense whatsoever. So you know, there is a need for these other options. And again, you know, thinking about the military purposes, this is where there’s some interesting experimentation going on, for call them tactical satellites. So if you have a specific operation that you want to run, and you don’t have satellites that are currently scheduled to go over at the right time, and provide support and all the rest, can you quickly put a satellite into place to support that military operation? It’s something that the US government in particular has calling toying around with it for years may be unfair to people who put a lot of hard work and but they haven’t really committed to that approach yet operationally. But there is there is a continued recognition that it is very valuable, or could be very valuable, if all the pieces can be lined up. So that’s why DARPA in particular likes to fund these small launch vehicles, just helping helping move the industry forward and get to a point where you could have that type of tactical, very responsive space launch and satellite deployment. So lots of different opportunities there. And and I do think, as well that the sovereign question comes into play. So we’re seeing nations like the United Kingdom that have never had launches take place from their own soil. They’re on track to do that either later this year, or sometime next year, they actually have three different space ports that are moving forward at a pretty good rate. And and different launch vehicles associated with each of those spaceports. So, you know, those are all on the smaller end of the scale. But that might be just right, for a lot of the small satellites that are being produced in the UK, there actually at Scotland, in fact, is one of the leading producers of small satellites in the world. So you see that kind of matching process going on as well as, as national governments think about? What do I have? What do I need? And how do I make sure that those things sync up together?

 

Simon Erickson  24:12

One other part of this that I wanted to hear from both of you about is space tourism. And before we started talking, even in for this conversation, we said that this might be something that’s getting a lot of attention, but it might not be fully understood, or at least represented correctly and accurately in the media today. Certainly, you’ve got Richard Branson, and Jeff Bezos, you know shooting themselves up into into into space and filming themselves floating around and it’s really awesome. It gets a lot of headlines. But critics say that maybe space tourism is not ever going to be affordable for most people and the costs are not going to get to a point that that people could afford this. What are your thoughts on space tourism? How is this misunderstood today? How do you see this evolving? Do you think this is a viable opportunity?

 

Michah Walter-Range  24:57

Andrew, do you want to take that first and then I’m happy Gotta jump in.

 

Andrew Chanin  25:00

Sure. You know, I think there’s absolutely opportunities for numerous players in this industry. You know, the two, three big factors, you know, first is safety, then costs then experience, from my perspective, and to the extent that companies can successfully repeatedly do these launches safely. That’s the foundation. Now, can people go and have, you know, a fantastic experience? And when they come back, are they happy that they did this or that they were that they just forked over a small or large fortune in order for this type of experience. And so we’re seeing a little bit more differentiation, emerging as far as what these experiences can be. SpaceX does have capabilities to provide space tourism as well, in a much more differentiated fashion where you can do send someone, you know, through several, you know, Orbitz, or several days long type of experience if they so choose to move in that direction. But you know, like you said, it gets the lion’s share space tourism gets the lion’s share of media attention today. But you’d look at different analysts projections. And by the end of this decade, you have some are predicting that this will be a three to $4 billion annual industry, and that would be less than 1% of the overall space economy today. So there’s not necessarily a reason that people shouldn’t be excited about it or think that this could be a viable industry, that absolutely does have potential, but is this going to become the largest part of the space industry or the major driver, your time will tell, and it’s probably going to take a lot of time to see how largest industry can truly get.

 

Michah Walter-Range  26:46

And what I would add to that is, space tourism is an easy term, people understand it intuitively. And has the benefit of being nice and short. The the more accurate term might be something along the lines of You know, private spaceflight or commercial human spaceflight, something like that. Because it’s not just about tourism, it’s not just about wealth. Some of them are, let’s be honest, some of it is just hey, I was weightless, and I had a great view and and I took a lot of selfies while I was up there. But that’s absolutely what some people want to do. And that’s fine. No issues with that. But then, then I think what we are seeing as well is a push, certainly for some of the people doing more extended stays in space, a push to make it commercially valuable. So they’re doing research up there, they team up with universities, or they may have their own companies that there’s something they want to understand better. And so they’re taking the the experiments and doing those different kinds of tests up there. And so, you know, I think it’s still very much at what you might consider the the amateur stage. But I think as time goes on, we’re gonna see that become more and more professionalized as an industry where we’re saying, it’s not just the government astronauts that are doing the research and experiments and technology development aboard the space station. There are private entities doing this as well. And this is, this has been the case for a long time, because NASA in particular, has worked with private companies to try to get them and their technology and experiments up to the International Space Station so that they can do research. Yeah, plenty of examples there new materials, new techniques for making things, there’s a lot you can test in space that you just can’t do on Earth. But but now we’re saying, you know, let’s move beyond that. Let’s move to the point where it’s, it’s not that you need to have that partnership with the government, you can just go do it completely commercial, completely private, it is a company to company deal. And, and that might actually make it a whole lot easier for these companies to do that type of work. certainly couldn’t make it a whole lot faster, if they don’t have to go through the very lengthy process. That that is currently in place.

 

Simon Erickson  29:24

I love that. I think it’s a perfect segue for me, Mike to talk a little bit about kind of how you’re constructing the index that follows this, you know, whereas media sometimes might overgeneralize things you you clearly you and Andrew both have a very clear understanding of what’s really going on and you’re seeing opportunities emerge and kind of you in sub segmenting those into maybe smaller markets and a lot of others might might be doing right now. Without talking about the actual trades of the ETF which anybody can always follow along with those. That’s a UFO is the ticker on this. But but maybe if we just philosophically talk about the The index that you’re creating, can you can you tell us a little bit maybe about some of the sectors of that you’re really interested in some of the opportunities you see arising out there that you’re really kind of excited about?

 

Michah Walter-Range  30:13

Yeah, absolutely. So the index, as it was constructed, is very much focused on ensuring that we’re delivering real space companies. And the challenge there is, the space industry is extremely broad in the sense that there are 1000s of companies worldwide, that are engaged in it in some capacity. And for many of them, though, it’s not their primary business, they build a few small parts that happen to go into spacecraft, you know, maybe they have to do additional engineering on those to make sure they meet space industry standards, but, but that’s still not really the business that they’re in. So looking to set this up, you know, when we were doing that, we said, how do we make sure that these are in fact, companies that are focused on the business of space, and so we put certain revenue thresholds in place, that they either needed to get at least 20% of their annual revenue from space activities, or at least $500 million. So you know, that allows some of the bigger ones like say, Boeing, or Airbus, which clearly have much larger commercial aircraft business. You know, they’re still also very major players in the space industry, easily doing billions of dollars of business and space each year. So we wanted to capture that too. And then when it came to the weighting of the companies within the index, we’re certainly rewarding the pure play space companies with heavier weights, and and recognizing the more diversified companies, but not allowing, say, the aircraft business to substantially shift things on its own. So that’s just a little bit about the philosophy of how we approach it. And then the the interesting thing that I’ve seen just over the past, let’s say 18 months, is to do with the composition of the index and the companies that are coming in. And so you mentioned earlier specs, and how a number of space companies have gone to market with a spec transaction, again, in about the past 18 months, two years. And, and so many of these have been added to the index and consequently to the ETF. And the thing that is different about these is they often tend to be much narrower in focus. So they’ve taken on something like lunch or Earth observation that previously might have been the domain of these larger diversified companies. And so just looking at the ones that were added to the index in the last reconstitution in December 2021. We have to launch companies, Rocket Lab, and Astra we have to Earth observation companies, spire and black sky. Some space infrastructure companies, red wire, momentous. And, and then just a couple of other interesting things. One is Archit Quantum. So that’s how you provide quantum security services through a satellite. And, and so it’ll be interesting to see how that plays out. Because no one’s ever really done that before. And then the other one is, or is it now I just lost it? Oh, my Norik, which is laser communication. So you know, most satellites, most communication from satellites is done with radio waves, because that’s the technology that’s been around for a lot longer, and it certainly works. But as a spectrum gets more congested, people are saying, well, can we do this with laser beams instead, because that gives you a very tightly focused signal, you don’t have to worry about interference as much. All you have to worry about is transmitting a laser through the atmosphere, which is a little challenging, in order to carry the data from point A to point. So this is another area that’s moving forward. And, and so you know, just looking at those companies, very specific pieces of the space industry, very specific business focus for each of them. And as they’ve gone to market that way, but now we are seeing some of them like Rocket Lab as an example, where they’re best known for launch, because that’s what the company was built around. But a little while ago, they also acquired a satellite manufacturing company, and last quarter, most of their revenue came from building spacecraft, and not from doing lunches. And that will probably change. It’ll fluctuate depending on what’s happening in any given quarter. But I think it’s a very healthy sign that these companies are saying look Okay, we focused on our core competency. Now we’re building out. And that goes to the the point you raised earlier as well about acquisitions, the companies that have the cash steal from their fundraising last year or before, if they have that on hand, they might find some very attractive acquisition opportunities out there in the current market, when valuations of targets are potentially depressed. So I think it’ll be interesting to see how many of them act on that.

 

Simon Erickson  35:29

And then my my one final question, before we wrap this topic up my case, you know, we were talking about innovation. Earlier, we mentioned semiconductor industry, we talked about life sciences industry. Each of those, since we’re talking about opportunities have have big pain points that need to be solved in those industries, right. So for the semiconductor example, it’s Moore’s law, it gets really, really hard as you’re making smaller and smaller chips to economically produce it in a way that you can make it ship affordable. Life Sciences, I would argue it at least in genomics would be the variant of unknown significance, you know, you see, you see things in the genome, but you don’t really know how correlated they are with diseases are just examples of like, problems, pain points in these industries, that might not have a clear cut solution yet, could you give me maybe just one or two of those pain points in space economy, that companies are actively trying to solve right now. But maybe we don’t have a really great solution for it yet. But you think that that could be an opportunity?

 

Michah Walter-Range  36:31

So one of them actually addresses the semiconductor challenge. So linking the two together very nicely. And that is the idea of manufacturing in space, what can you do there that you cannot do on Earth? So there’s one company based in the UK, called Space Forge, that is looking to build on research that was done, I believe, by NASA, several decades ago, on building semiconductors in space, or manufacturing, very specific components. And, and, you know, those experiments were a huge success, but utterly pointless, because who’s going to go and do that in space, it’s not economical to do that. So what space Forge is working on is building, effectively, small factories inside a small satellite, where you launch it out. And then the manufacturing takes place in space for these very high value limited run components. And then you have the satellite deorbit, you capture it, and then you take the parts out again, and how do you do that cost effectively? Well, that’s what they’re working on right now. And they raised some funding recently, another funding round to keep working on that, so that they seem to be making good progress. And I think it’s that that logistics element is still a challenge. So even though launch prices have come down tremendously to the point where we can even consider something like this, there is still a lot more to be worked out when it comes to bringing things back from space economically, or moving them around in space. And so yeah, logistics, I think will continue to be a pain point for at least a little while, but people are working on it. And I think in the next few years, we might see some breakthroughs.

 

Simon Erickson  38:34

Fantastic. And, Andrew, if you could bring us home with one last question here, you know, thinking about investing in the space economy in 2022. We’ve talked about some of the challenges, you know, with funding and raising rates of it certainly seems like there’s plenty of opportunities, several of which are still unmet by anything that’s commercially available right now. How are you? How are you thinking about investing in this space in 2022? Bigger Picture, what should investors be watching out there?

 

Andrew Chanin  38:57

Yeah, you know, there have been tons of research, as far as you know, from investment analysts at different banks as far as where they see space going, you know, the next 10 2050 years. And one thing that seems to get missed as yes, there are large estimates of how large the industry can be. But a major driver of that is communications. So broadband internet, connecting the world to remote places, in remote places to the rest of the world. And many believe that you’ll over 50% of the growth over the next few few decades will come from satellite broadband internet, things like that. And so your UFO is a fund that has a fairly large satellite related exposure. And many many funds just don’t provide that much satellite exposure. So it’s a really kind of interesting area that UFO has been providing exposure to for investors. But really, you know, it’s it’s a volatile markets volatile across to many different industries. So industries have been performing well even like like energy. It has also been volatile. And it’s going to be difficult just like any other industry to pick who the winners are. But I think you know, one of the one of the things that excites me about UFO is that this underlying index is reconstituted semi annually rebalanced quarterly, and to global index. And you know, as space becomes more collaborative, or potentially less collaborative, like we’re seeing with the fallout from the Russian Ukraine conflict, you know, there are numerous opportunities that are emerging, there are new technologies that are, you know, helping us achieve new types of things and space. And your diversification. I think it’s one of those interesting things about utilizing you know, an ETF especially with a global focus. So the other companies around the world that a typical US investor might not be able to invest in because hey, we’re domiciled here, the UFO is providing access to companies all around the world and that can be pretty pretty interesting and your diversification is a tool that you have many investors can can utilize

 

Simon Erickson  41:06

pretty awesome Andrew not only exposure to the rest of the world, but also orbiting around the world itself. UFO is the procure am ETF that ticker on that UFO for anyone interested Andrew I really appreciate you being on the program and Andrew is the CEO and co founder of procure Iam really enjoyed the conversation with you here today.

 

Andrew Chanin  41:24

Thank you very much Simon.

 

Simon Erickson  41:25

It’s a pleasure as always. And Micah Walter Range, constructing the index underlying the ETF. Micah, it’s always a pleasure hearing your perspectives as well. Thanks for being on the 7investing podcast.

 

Micah Walter-Range 41:45

It’s a pleasure.

 

Simon Erickson  41:50

And thank you everyone for tuning into this edition of our 7investing podcast. My name is Simon Erickson. We are here to empower you to invest in your future. We are 7investing.

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