Small rocket builder Vector raised $70 million in a round of financing announced Friday, with a Morgan Stanley alternative investment fund joining Silicon Valley backers of the space company.
Vector is developing rockets priced at less than $3 million a launch, capable of putting up satellites and spacecraft about the size of a microwave, a premium part of the rocket market. Small rockets can save customers months of time getting to orbit but come at a higher cost compared to flying as a "rideshare," or secondary payload, on a larger rocket like the SpaceX Falcon 9 rocket.
CEO Jim Cantrell told CNBC that Vector is trying to do "essentially what Henry Ford did with the automobile assembly line," but with rockets. Vector's end goal is to be launching more than 100 times each year, with this latest round of funding intending to get its two rocket types, the Vector-R and the Vector-H, flying to orbit – and flying often.
"We're looking to fly up to a dozen next year," Cantrell said. "We've got to get the Vector-R launched first but we're also hoping to have the inaugural Vector-H launch next year."
New York-based Kodem Growth Partners led the $70 million round in conjunction with Morgan Stanley Alternative Investment Partners (AIP Private Markets). Previous investors Sequoia Capital, Lightspeed Venture Partners and Shasta Ventures also joined this round.
"What drew us to Vector was the the vision Jim Cantrell and John Garvey painted for us about how space communications and the satellite industry were fundamentally changing," Lightspeed partner Alex Taussig told CNBC. "They convinced us that there was this bottle neck and if you solve the bottleneck then you will multiply the addressable market significantly."
AIP Private Markets is a $3.5 billion fund within Morgan Stanley – which has about $475 billion total assets under management – and is only accessible to a limited number of the investment bank's clients. Despite its smaller size, AIP Private Markets has invested in about 200 companies since its inception in 2001. AIP Private Markets did not respond to CNBC requests for comment.
"Silicon Valley is where we got our start but we have found that there was a huge interest in the New York money community," Cantrell said of Kodem and AIP Private Markets investment in Vector.
Kodem operating partner Phil Friedman also joined Vector's board of directors, intending to help prepare the company for an initial public offering. Cantrell described Friedman as "an insider in the aerospace industry," saying Friedman has been in both buy-side and sell-side roles on Wall Street for over 35 years, especially focused on investments in the aerospace and defense industries.
"We were very impressed with management's forwarding looking view regarding how to ramp production once the development phase had ended," Friedman told CNBC.
While Friedman said Kodem's investment does not have a "preconceived philosophy regarding exit," Cantrell estimated an IPO for Vector is about three years away.
"We think the new space community needs more IPOs and intend to be the ones leading that," Cantrell said. He added that he's seen anecdotal interest from the public, with retail investors asking to buy shares in Vector. Cantrell said he's hopeful an IPO in only a few years, as he is "trying to give the public and our investors a feel for what it's like to develop a rocket company."
Vector flight tested the Vector-R rocket in a short August 2017 launch to 10,000 feet. Since its founding in 2016, Vector raised about $100 million, with this latest round intending "to get the Vector-R operational," Cantrell said.
The company is testing a "Block 0" version of the Vector-R to complete more testing of its "ground architecture and the launch infrastructure," Cantrell said, although he clarified that the Block 0 rocket itself "isn't quite as big and won't go very high."
"But we're taking the training wheels off the rocket for testing," Cantrell said of Block 0. "Even if it's a small altitude, it has full functionality."
That testing is leading up to the company's first launch of its full "Block 1" version of the Vector-R. Set to launch from Alaska's Kodiak Island spaceport in the next few months, Cantrell said that "is a developmental flight and won't place payload in orbit."
"We expects flights two, three and four will, with paying customers," Cantrell said. "We still move the needle forward on the development of the rocket by doing this launch."
Much of Vector's testing is focused on demonstrating that the company can launch from most anywhere in the world with its mobile launch system and remote operations. Demonstrating that flexibility is "very key to being able to fly lots of rockets," Cantrell said.
Kodem "liked the mobile nature of [Vector's] launch capability as far superior to those that require significant capital to build multiple launch pads," Friedman said.
Vector can produce about "25 rockets a year," Cantrell said, but that's with "an interim factory." Vector plans to break ground on a much larger factory in Tucson, Arizona, in spring of next year. Cantrell said Vector will be seeking separate, debt financing for the Tucson factory, with the company "putting that financing together over the next few months."
"We're seeing the demand in the years out being much more than our interim factory can produce," Cantrell said. "It's critical we can start production now so we're ready, in terms of how fast we can ramp up flight rates."
In the meantime, Vector will produce "all of the 2019 Vector-Rs and the first Vector-H" at the interim factory, Cantrell noted. Vector's ability to scale is one of the key draws for Kodem's Friedman.
"Many other companies we have looked at just don't think far enough in advance regarding how to scale," Friedman said.
Friedman specifically pointed to the low number of parts making up the Vector-R, which he says is one-tenth "or so of its closest competitor" and critical to mass producing the rockets.
Cantrell said Vector has added five new customers to its manifest, on top of seven previously announced.
"We're selling launches for both 2019 and 2020," Cantrell added. "Most of those new customers signed for Vector-H."
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