OTPP Launches Into Space

Michael Sheetz of CNBC reports that SpaceX is raising over $300 million as new Ontario Teachers’ tech fund makes its first investment:

SpaceX is raising yet another round of funding, a month after completing its second fundraising of the year.

The latest round, filed on Monday, seeks to raise $314.2 million at a price of $214 a share, according to a document seen by CNBC. The new equity would bring SpaceX’s total 2019 fundraising to $1.33 billion once completed.

The company declined to immediately comment on the filing.

Part, if not all, of the investment in SpaceX is from the Ontario Teachers’ Pension Plan, which has $191.1 billion in assets under management. The investment is the first by a new technology fund that Ontario Teachers’ launched in April.

“SpaceX is the world’s leading private space launch provider, and we are excited to work with the company in the next phase of its growth as it rolls out its Starlink satellite network,” Teachers’ Innovation Platform fund senior managing director Olivia Steedman said in a statement.

Ontario Teachers’ said that SpaceX was seen as a “a compelling investment opportunity” for the fund because of “its proven track record of technology disruption in the launch space and significant future growth potential in the satellite broadband market.”

SpaceX raised equity rounds of $486 million and $536 million earlier this year. Before this latest round, SpaceX’s valuation had risen to $33.3 billion, people familiar told CNBC in May.

Elon Musk’s company is bankrolling two capital intensive projects: Starlink, a network of thousands of small internet satellites, and Starship, a massive rocket to send people and cargo to Mars.

Starlink would consist of 11,943 satellites flying close to the planet in what is called low Earth orbit and is intended to be an interconnected network, called a “constellation.” The satellites would create a web that beams high-speed internet to any place on Earth. The company’s first full mission of 60 Starlink satellites launched in May, making the funds SpaceX has raised this year key to scaling up development and production to meet its ambitious goals. Musk said last month, before this latest round, that SpaceX has “sufficient capital to get to an operational level ” for Starlink.

Starship, on the other hand, is the company’s plan for a next generation rocket. Designed to transport up to 100 people at a time to the moon or Mars, Starship is designed to be a fully reusable launch system. Two prototypes are currently in development, one in Texas and the other in Florida, and SpaceX is deep in finalizing the design and production of the Raptor engines that will power Starship.

Musk sees Starlink as the way for SpaceX to fund the development of Starship. He estimated recently that SpaceX revenue from launches likely peaks at about $3 billion a year but said he believes internet service revenue is potentially “more like $30 billion a year.”

OTPP put out a press release on this deal:

Ontario Teachers' Pension Plan (Ontario Teachers') today announced an investment in Space Exploration Technologies Corp. (SpaceX), a leading designer, manufacturer and operator of advanced rockets and spacecraft. It is the inaugural investment by the Teachers’ Innovation Platform (TIP), which was launched in April 2019.

Founded in 2002 by Elon Musk, SpaceX has disrupted the long-established space launch market. With over 75 successful launches, SpaceX is the world’s leading private launch provider, and the first to successfully reuse an orbital class rocket. SpaceX is also working to launch Starlink, a next-generation satellite network capable of connecting the globe with reliable and affordable broadband internet services.

"SpaceX is the world’s leading private space launch provider, and we are excited to work with the company in the next phase of its growth as it rolls out its Starlink satellite network," said Olivia Steedman, Senior Managing Director, TIP.

SpaceX was identified as a compelling investment opportunity for TIP due to its proven track record of technology disruption in the launch space and significant future growth potential in the satellite broadband market. TIP focuses on late-stage venture capital and growth equity investments in companies that use technology to disrupt incumbents and create new sectors.

"Our investment in SpaceX fits well within the TIP investment strategy of capitalizing on significant global opportunities in new businesses and sectors that are emerging as a result of unprecedented technological change," added Ms. Steedman.

Financial terms for the investment were not disclosed.

This morning, I had a chance to speak to Olivia Steedman, OTPP's Senior Managing Director, TIP. I want to begin by thanking her for taking time to speak to me on her vacation, that was really nice.

Olivia began by explaining the genesis and purpose of Teachers' Innovation Platform (TIP):

TIP focuses on late-stage venture and growth equity investments in companies that use technology to disrupt incumbents and create new sectors.

It seeks to capitalize on significant global opportunities for investment in the new businesses and sectors that are emerging as a result of unprecedented technological change.

Based in Toronto, London and Hong Kong, the TIP team seeks equity investments – through partnerships, platforms, funds or directly – in companies from around the world that have a proven business model and a known path to market.

Olivia emphasized that Teachers' has had great success investing in venture capital funds but they realized there are many late-stage technology companies that need patient capital and that is where this new platform comes in, either by co-investing with existing funds, building a new partnership or platform or by taking a direct equity stake as they did in SpaceX.

She said three things differentiate TIP:

1. Global platform: They are looking all over the world to for opportunities in late-stage venture and she told me she visited Hong Kong, Beijing and London recently to meet with her colleagues and discuss strategy.
2. Cultivating strong relationships with corporations: She told me the Teachers' brand is strong which is how they were able to invest in SpaceX and she said they have built on their relationships with Alibaba, Tencet and Google (the Verily deal) to leverage off these relationships.
3. Patient capital: Their asset management approach strikes the right balance between "helping and letting them do the right thing". It's a targeted and flexible approach that centers around patient capital.

In terms of where TIP heads going forward, she said they are not focused on one technology and are looking to cover a few areas such as:

• Fintech
• Health related platforms
• Smart cities 
• B2C space 

They are currently working on their strategy and it covers a few sectors and geographies but again, the emphasis is on late-stage growth, they are not going to invest in early stage and will build on their venture fund program.

As far as the SpaceX deal, Olivia told me the company is working to launch Starlink, a next-generation satellite network capable of connecting the globe with reliable and affordable broadband internet services. She said this will offer access to broadband in remote areas of the world.

Interestingly, I asked her if this is completely different from "5G" and whether it will potentially disrupt it and she said "yes".

She also told me SpaceX has pioneered a rapidly reusable rocket which is a pivotal breakthrough needed to substantially reduce the cost of space access. With over 75 successful launches, SpaceX is the world’s leading private launch provider, and the first to successfully reuse an orbital class rocket.

She told me they did an intense due diligence on the company and got investment approvals on the deal. The key is this:

SpaceX was identified as a compelling investment opportunity for TIP due to its proven track record of technology disruption in the launch space and significant future growth potential in the satellite broadband market. TIP focuses on late-stage venture capital and growth equity investments in companies that use technology to disrupt incumbents and create new sectors.

If SpaceX does disrupt broadband and makes traveling to space accessible, it will grow by leaps and bounds in the coming decades and Teachers' will reap the gains of its equity stake over the long run.

No doubt, the company and its founder (Elon Musk) have plenty of critics but TIP conducted a thorough due diligence and got investment approvals which tells me a lot.

I ended my conversation with Olivia by asking her what attracted her to this important role given her background in infrastructure.

She told me she has a degree in civil engineering and is a chartered accountant, has been at Ontario Teachers' for 17 years and prior to heading up TIP, she was doing greenfield investing in infrastructure taking on construction and development risk.

She shared a nice quote: "Greenfield is to infrastructure what venture is to private equity, if you do it right and manage the risks properly, you get interesting returns."

Smart lady and super nice too, I wish her much success in this role and it's important to note she's surrounded by great professionals like Maggie Fanari. Managing Director, Teachers’ Innovation Platform & High Conviction Equities (London) and Russ Hammond, Managing Director, High Conviction Equities who she works closely with.

She also has a great boss, Ziad Hindo, OTPP's CIO who I spoke to back in April when he explained the three main reasons behind TIP:

1. Defensive: OTPP has over 100 portfolio companies and they want to understand how disruptive technology will impact them. This is part of Teachers' rigorous risk management approach.
2. Offensive: OTPP is seeking high risk-adjusted returns and this platform will allow them to capitalize on new opportunities in disruptive technologies that will shape the world for years to come.
3. Access to innovative partnerships: The platform will allow OTPP to build on its existing partnerhips but also to build new partnerships with technology leaders.

So TIP isn't just about investing in great companies/platforms all over the world, it's also about understanding how disruptive technologies can impact Teachers' overall portfolio.

Other pensions like OMERS Growth Equity headed by Mark Shulgan and CPPIB with its thematic investing approach are also looking into making late-stage technology investments but so far, TIP has shared the most with me and it's really looking at disruptive technology from a holistic angle including risk management.

These are exciting times for late-stage venture but there's also a lot of hype out there so you need an experienced team that is partnering up with the right partners to make these type of platforms successful over the long run.

Below, when Falcon Heavy lifted off, it became the most powerful operational rocket in the world by a factor of two. With the ability to lift into orbit nearly 64 metric tons (141,000 lb)---a mass greater than a 737 jetliner loaded with passengers, crew, luggage and fuel--Falcon Heavy can lift more than twice the payload of the next closest operational vehicle, the Delta IV Heavy, at one-third the cost.

And SpaceX's CEO and Chief Designer, Elon Musk, makes an argument for making life multi-planetary and going to Mars. Say what you want about Musk, he may be controversial to some but to others, he's a visionary who is transforming our world in ways we can't fully appreciate yet.

On that note, wish all my American readers a Happy 4th of July!