It’s a Small(sat) World: Observing the Earth and Potential Returns in the 1st Vertical

The dual shockwaves of accelerating advances in space accessibility due to miniaturization and private sector competition have put NewSpace in the midst of a transformation.

Imagine a continuum of an industry’s present and potential customers, ordered by expected revenue per customer. Costs determine the extent the industry can meet the demand, and, in turn the revenue from this market continuum. Nascent industries like NewSpace possess high costs that may limit prospects and a few companies that tend to make one-off, highly customized products. As costs decrease either through innovation from within the industry (e.g. through reusability efforts and increases in business process efficiencies by companies like SpaceX or Virgin Galactic), or from developments outside the industry, (e.g. increased computing power by companies like D-Wave or Cloudera), the industry can extend its reach and tap customers (and capital) further down the continuum. (Please see “Above the Cloud” in the December 2012 issue of Thruster.) This extension may increase the size and thus diversity of the customer base in the 2nd of the “NSG 4-Screens.” Unfortunately however, the further a company travels down the long end of the tail, the less profitable each customer gets (though in no way impairing their aggregate value). One can picture the progression of an industry down the continuum as a wave, compressing companies behind it while creating a diversity of profitable niches ahead of and about itself. The dual shockwaves of accelerating advances in space accessibility due to miniaturization and private sector competition have put NewSpace in the midst of a transformation.

Satellites are part of the 1st of the “8-Verticals of NewSpace,” the sub-markets of NewSpace ranked by feasibility, and therefore the first to be disrupted by these shockwaves. One way the satellite industry is evolving is through the small satellite form factor. (Please see “Point to Point: Europe” in the October 2012 issue of Thruster.) This is spurring growth in a relatively new sub-vertical in NewSpace: space-based Earth observation (EO).


Hoyt Davidson, Managing Partner at Near Earth LLC, a Connecticut-based investment bank focused on satellite, telecom, and aerospace, spoke recently with NSG. Davidson, who spent the early part of his career in the 1990s educating Wall Street on the investment opportunities in the satellite sector, divides small satellite companies into two classes: “those focused on Cubesat form factors, for example, Cosmogia, and those simply making smaller satellites.” The Cubesat satellite design paradigm emphasises simplicity and modularity to reduce costs and spread technical risk across multiple devices. “The latter is exploiting advances in computerization and miniaturization to perform existing applications and serve existing markets with smaller, cheaper satellite systems. The former [focusing on Cubesats] are exploiting the same advances, of course, but to such a larger degree that it seems to be a difference in kind rather than just magnitude,” Davidson told NSG. Here, the trade-offs forced upon satellite designers by miniaturization and costs are producing fundamentally novel products. “These new companies are often searching for new market opportunities that value cost and frequency of information more highly than the quantity and quality of the information.”

One of these opportunities may be the market for financial data. Valued by Bloomberg at over $16Bln and growing at 3% in North America to 6% in Asia-Pacific, the financial data market is being eyed by San Francisco-based Skybox Imaging, which plans to offer high-frequency, low-cost multispectral video and still imagery of Earth in raw and processed forms for business intelligence and trading firms, as well as disaster response and humanitarian purposes. (Please see “SmallCap Review” in the May 2012 issue of Thruster.) Skybox raised $70Mln in Series C funding led by Canaan Partners and Norwest Venture Partners in mid-2012, joining Khosla Ventures and Bessemer Partners from the $3Mln and $18Mln Series A and B, respectively. Skybox’s satellites, SkySat-1 and the recently announced SkySat-2, are due to be launched this year. (Please see “NewSpace Timeline” in this issue of Thruster.)



Cosmogia (NSG sources indicate a potential Skybox doppelgänger), meanwhile, has been testing its Dove 1, 2, 3, and 4 satellites, which it is also planning to launch in 2013. In contrast with Skybox’s $91Mln in capitalization, the Cubesat-based Cosmogia closed a $10Mln round from Draper Fisher Jurvetson at the end of 2012. Draper Fisher Jurvetson declined to comment for this article, citing Cosmogia’s stealth status. (Please see “NSG Index Review” in the February 2013 issue of Thruster.)

The idea of commercial EO is not as far-fetched as it may seem. New York-based Muddy Waters Research, an equity research company and short seller, used satellite imagery in 2011 to show that Chinese lumber firm Sino-Forest did not, in fact, own any trees. More recently, equity researchers at UBS shook markets by using satellite images of Wal-Mart parking lots to forecast sales.

Yet there is cause for concern. Waning government spending may compress near-term prospects of the domestic satellite sector, which, according to Credit Suisse, accounts for more than half of annual revenues. Further, aggressive regulators could decouple the nascent cross-border NewSpace ecosystem (SkySat-1 and Dove 4 will hitch rides atop a Ukrainian Dnepr launch vehicle). The dark clouds of a demanding market environment are met, though, with the strong balance sheets of NSG PTCs producing ripe conditions for a fertile M&A environment. (Please see “Mergers & Acquisitions” in this issue of Thruster.)

However, excess returns aren’t found in market expectations. “I pay $250,000 a year for an 8.5 millisecond edge between New York and Chicago,” said a trader at a New York-based global macro hedge fund, which makes money by trading on broad systemic factors, such as industrial output and trade flows. “Knowing how many tons of coal a power plant in Hubei is burning or how many trucks are crossing [from Mongolia to Russia] on the M52 would be worth its weight in gold.” With JPMorgan counting 10,000 hedge funds in the United States managing approximately $2 trillion in assets, that’s a lot of gold.

As smallsats like Cubesats revolutionize the 1st Vertical, new uses are opening up as costs are driven down. NewSpace startups are racing to meet the information needs of the financial industry, and the more established satellite players are looking to buy rather than innovate. This is a recipe for a dynamic smallsat market, and the smart money is already being drawn to the first movers.

Arnav Guleria is a corporate finance advisor and a first-time contributor to Thruster.

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  • Researchers at the Yale School of Medicine successfully restored some functions to pig brains that had been dead for hours.
  • They hope the technology will advance our understanding of the brain, potentially developing new treatments for debilitating diseases and disorders.
  • The research raises many ethical questions and puts to the test our current understanding of death.

The image of an undead brain coming back to live again is the stuff of science fiction. Not just any science fiction, specifically B-grade sci fi. What instantly springs to mind is the black-and-white horrors of films like Fiend Without a Face. Bad acting. Plastic monstrosities. Visible strings. And a spinal cord that, for some reason, is also a tentacle?

But like any good science fiction, it's only a matter of time before some manner of it seeps into our reality. This week's Nature published the findings of researchers who managed to restore function to pigs' brains that were clinically dead. At least, what we once thought of as dead.

What's dead may never die, it seems

The researchers did not hail from House Greyjoy — "What is dead may never die" — but came largely from the Yale School of Medicine. They connected 32 pig brains to a system called BrainEx. BrainEx is an artificial perfusion system — that is, a system that takes over the functions normally regulated by the organ. The pigs had been killed four hours earlier at a U.S. Department of Agriculture slaughterhouse; their brains completely removed from the skulls.

BrainEx pumped an experiment solution into the brain that essentially mimic blood flow. It brought oxygen and nutrients to the tissues, giving brain cells the resources to begin many normal functions. The cells began consuming and metabolizing sugars. The brains' immune systems kicked in. Neuron samples could carry an electrical signal. Some brain cells even responded to drugs.

The researchers have managed to keep some brains alive for up to 36 hours, and currently do not know if BrainEx can have sustained the brains longer. "It is conceivable we are just preventing the inevitable, and the brain won't be able to recover," said Nenad Sestan, Yale neuroscientist and the lead researcher.

As a control, other brains received either a fake solution or no solution at all. None revived brain activity and deteriorated as normal.

The researchers hope the technology can enhance our ability to study the brain and its cellular functions. One of the main avenues of such studies would be brain disorders and diseases. This could point the way to developing new of treatments for the likes of brain injuries, Alzheimer's, Huntington's, and neurodegenerative conditions.

"This is an extraordinary and very promising breakthrough for neuroscience. It immediately offers a much better model for studying the human brain, which is extraordinarily important, given the vast amount of human suffering from diseases of the mind [and] brain," Nita Farahany, the bioethicists at the Duke University School of Law who wrote the study's commentary, told National Geographic.

An ethical gray matter

Before anyone gets an Island of Dr. Moreau vibe, it's worth noting that the brains did not approach neural activity anywhere near consciousness.

The BrainEx solution contained chemicals that prevented neurons from firing. To be extra cautious, the researchers also monitored the brains for any such activity and were prepared to administer an anesthetic should they have seen signs of consciousness.

Even so, the research signals a massive debate to come regarding medical ethics and our definition of death.

Most countries define death, clinically speaking, as the irreversible loss of brain or circulatory function. This definition was already at odds with some folk- and value-centric understandings, but where do we go if it becomes possible to reverse clinical death with artificial perfusion?

"This is wild," Jonathan Moreno, a bioethicist at the University of Pennsylvania, told the New York Times. "If ever there was an issue that merited big public deliberation on the ethics of science and medicine, this is one."

One possible consequence involves organ donations. Some European countries require emergency responders to use a process that preserves organs when they cannot resuscitate a person. They continue to pump blood throughout the body, but use a "thoracic aortic occlusion balloon" to prevent that blood from reaching the brain.

The system is already controversial because it raises concerns about what caused the patient's death. But what happens when brain death becomes readily reversible? Stuart Younger, a bioethicist at Case Western Reserve University, told Nature that if BrainEx were to become widely available, it could shrink the pool of eligible donors.

"There's a potential conflict here between the interests of potential donors — who might not even be donors — and people who are waiting for organs," he said.

It will be a while before such experiments go anywhere near human subjects. A more immediate ethical question relates to how such experiments harm animal subjects.

Ethical review boards evaluate research protocols and can reject any that causes undue pain, suffering, or distress. Since dead animals feel no pain, suffer no trauma, they are typically approved as subjects. But how do such boards make a judgement regarding the suffering of a "cellularly active" brain? The distress of a partially alive brain?

The dilemma is unprecedented.

Setting new boundaries

Another science fiction story that comes to mind when discussing this story is, of course, Frankenstein. As Farahany told National Geographic: "It is definitely has [sic] a good science-fiction element to it, and it is restoring cellular function where we previously thought impossible. But to have Frankenstein, you need some degree of consciousness, some 'there' there. [The researchers] did not recover any form of consciousness in this study, and it is still unclear if we ever could. But we are one step closer to that possibility."

She's right. The researchers undertook their research for the betterment of humanity, and we may one day reap some unimaginable medical benefits from it. The ethical questions, however, remain as unsettling as the stories they remind us of.

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