Ursa Major: Propelling the US to the frontier of space & national security
Startup Spotlight #12
For years, the United States (and many others) have relied on Russian technology for rocket engines. This has significant implications on national security, and recent geopolitical events have made that quite clear. Ursa Major is a great example of the tech industry solving real problems for us. This is a company that should make us optimistic about our future, as well as tech in general. Enjoy!
For the past few years, our recent space activity has been pejoratively referred to as the "billionaire space race." My hypothesis is that people simply have not been exposed to the true importance and potential benefits of space. In my post on Varda Space, I walk through one of the many potential life-altering use cases.
In mid-March, Russia used a hypersonic missile against Ukraine for the first time in history. Recent events like this are a reminder that space & rocket supremacy are vital to national security.
Generally speaking, the United States has been quite behind on rocket & missile supremacy. Thankfully, SpaceX (h/t Elon Musk) innovation has driven a significant amount of talent and resources into the sector. SpaceX alumni have created a whole new field of innovation, including the company that will drive US engine innovation forward: Ursa Major.
The Context: The growing importance of propulsion
The space race continues to accelerate. If we look at FAA records, the number of licensed launches is increasingly rapidly each year.
Preparing for launch, however, takes a long-time. For that reason, the # of launches is a lagging indicator. If we look at investment, it has been accelerating for years.
Starting in 2013, investment took off! And this is unlikely to slow. As I mentioned, this is not just a billionaire space race. I would argue it is a combination of a global cold war and the next gold rush.
Over this ten year period, Space capital estimates roughly one third of the investment is from China.
And the bulk of the investment has been in satellites!
But, of course, satellites do not just appear in space. They are transported there, and at the core of that process is propulsion.
Put simply, propulsion is the act of driving forward or onward. The first thought is a rocket launch, and this would certainly be a large use case. But propulsion can be used in a variety of ways, and every year, the use cases grow. Consider a few of these dimensions (some of them seen in data above):
In space vs. on earth: propulsion could be focused on launching into orbit, or it could be used for applications on earth (e.g., hypersonic missiles, airplanes)
Launch vs. post-launch: propulsion could be focused on launching items to space, or it could be used to maneuver objects in space or returning from space
Commercial vs. Public sector: public sector (e.g., research, defense) has a huge need for propulsion, but now, private sector (e.g., tourism, manufacturing) has growing use cases
Because of all of these vectors, the entire space economy is growing (+5% CAGR & +$500B by 2026), and propulsion systems are outpacing overall space economy growth (+7% CAGR).
The large growth is driven by a multitude of sub-segments, including space propulsion (+22%) & on-earth propulsion (+11%).
Missile defense is lagging, but this is likely to accelerate given recent events. Consider the forward-looking macro factors of today. Not only are there increasingly lucrative markets like Starlink, but geo-political action of late has made people re-evaluate national security. A few sources:
China: launched a hypersonic missile around the world and hit a target; one of hundreds of tests over the years (Source)
Russia: Launched 10 hypersonic missile tests in one day (Source)
Russia: Uses first hypersonic missile in battle (Source)
Europe: Seven European countries increase defense budgets as a result of Russia-Ukraine conflict (Source)
In summary, the demands for propulsion globally are increasing dramatically, and the number of applications & use cases are increasing in complexity.
The Problem: Building in Siloes (Sorry!)
If propulsion is so important, then we must focus on it a lot! Well... not exactly. There are some glaring issues.
It is the age old question: Build or Buy?
Build in-house
Let's start with build.
Building has its positives. If you are worried about propulsion at all, then you are likely building to a larger mission. Large defense contract. Colonizing mars. Whatever it is, there are no real "small and cheap" missions to space.
Your mission will not get off the ground (get it?) without propulsion. So by building it in house you get two huge benefits: control and customization.
You can fully control the investment, supply chain, and timelines. Now, for some parties, this could be a negative. They may not be good at it. But for strong operators like SpaceX, it has clear positives.
Customization can be helpful as well. Maybe you do not need all of the bells & whistles. You simply want the bare minimum needed to complete your mission. For example, maybe you do not need a fully reusable engine if you only plan to launch once!
Building in-house, however, is extremely slow and inefficient. Think of the old quip, "come on, this isn't rocket science." Well... in this case, it is. And rocket science is challenging. Even if you have the right people, the R&D can be incredibly time-consuming and expensive (ex. the US estimated it would take $1B over five years just to replicate production of the RD-180).
Inefficiency is compounded because individuals building in-house are short-term focused. You might think the propulsion team is the start of the show, but it can be quite the opposite. The engine is a requirement for the larger mission & rocket. It is a subcomponent. For that reason, building in-house means teams constantly make cost vs. performance tradeoffs, and R&D is limited to bare minimum.
What do I mean by this? The question is not, "How do we make the best rocket engine possible?" It is, "How do we make the best engine for this mission at the best cost?" And this makes sense for an individual project, but long-term, it leads to fragmented R&D, siloed progress, and increased costs.
Buy from third-party
So building in-house sounds terrible. Obviously, we should buy from a third-party. Buying off-the-shelf solutions makes a lot of sense, but it does have tradeoffs, and in today's market, it is particularly challenging (until now!).
There could still be an R&D and setup phase even if outsourcing propulsion, but it will be dramatically faster and more efficient than building in-house. Not to mention, without having to develop engines from scratch, internal operations can be far more focused on the other components of the launch
Buying does have a tradeoff, however. It may limit customization, and it reduces overall control, particularly on supply chain dependencies. If the market is not fully developed, this can be problematic.
The challenges with the propulsion market today
Given the massive cost and talent requirements to build engines, buying from a third party is the logical decision. And to date, that is what most people have done. The far-and-away leader here has been the Russian RD-180/181 engines.
Since the 1990s, the US has ordered 122 of these engines, resulting in ~$140-180M in annual Russian profits. The US also ordered 20 of the RD-181's. Even Elon Musk (SpaceX builds engines in-house) acknowledges the engines are 'great.'
But largely, the Russian engines are one of the only multi-purpose engines on the market. The overall lack of competition has created two huge issues:
Lack of innovation
Dependencies
First, the engines may be 'great', but the technology is +40 years old. Consider all of the technological advancements of the past 40 years. Software and hardware improvements have been astounding, yet we are still leveraging +40 year old technology?
My hypothesis is that the RD-180/181s are great. They are sufficient. Similar to people building in-house, why push the boundaries of innovation (which is expensive) if the current option suffices. Short-term this may make sense. Long-term, the lack of competition has dramatically reduced innovation.
Secondly, the reliance on one primary supplier like Russia has created a scary supply chain dependency. With their attack on Ukraine, global superpowers (including the US) are realizing how dangerous it can be to rely so heavily on a potential adversary for a technology vital to national security. Russia has responded by halting supply of Russian-made engines to the US.
This has already proven to have massive effects. Russian Soyuz and Proton rockets accounted for 18% of global commercial launches in 2021! The European Space Agency intended to use Russian Soyuz & Proton for launches in 2022. Arianespace's Vega C uses RD 843s from Ukraine for their upper stage. Northrop Grumman can no longer access RD 181s and the Antares vehicle. All of these have severe Russian dependencies, and the replacements are massive overhauls. Even then, replacements like the BE-4 have had years of delays!
The Solution: Creating the Market-Facing Masters of Propulsion
Famous astronaut Peggy Whitson has voiced that the solution is for us to build more rocket engines in the US. To date, many leaders like SpaceX (the Merlin) and Blue Origin (BE series) have done just that. And those engines could be sold to newcomers (Note: the Merlin will not be & BE-4s have been to the ULA's Vulcan, but are not sold at production rate).
Note: Yet again, we fail to realize how much Elon Musk has really done for the US. SpaceX has done wonders
But again, the Merlin & BE series are designed to satisfy SpaceX and Blue Origin's needs. They can be repurposed, but what underlying tradeoffs have already been made?
The real solution is a true market-facing company focused on propulsion. That company is Ursa Major.
To understand the benefits, let's walk through eight key factors that will lead Ursa Major to success:
Experts on propulsion
The first main advantage Ursa Major has is hyper-focus. If you are a space company building everything in-house, you need to design everything. This is effectively what SpaceX has done, but let us not forget, SpaceX is an outlier. Not the normal. Very few (if any) people can build like Elon Musk.
Not to mention, SpaceX did this because their ability far outpaced the maturity of the rest of the industry. As the market matures, however, it is hard to imagine SpaceX (or anyone) can continue to lead in every technical aspect of production.
There is an endless trope in Silicon Valley: "What if [Insert FAANG company] builds this?" That question will continue in perpetuity, but we have seen time and time again that a smaller, hyper-focused company can outpace a larger company with distributed focus. This is Ursa Major's first advantage. They have one focus: propulsion.
And if you are a propulsion engineer, this will resonate.
If you are the Lebron James of propulsion, would you rather join a company where the propulsion department is a sub-segment that may even be deprioritized? Or would you rather join the company where propulsion is the focus? Likely, the latter. Ursa Major is assembling the Super Team of propulsion
Build for the market
Propulsion is a very complicated space. As shown in Exhibit 4 & 5, there are many applications like hypersonic missiles, rocket launch, navigation in outer space, etc. The space market is changing rapidly, and it is likely to accelerate.
For this reason, Ursa Major is building engine versatility. Despite geo-political risks and older technology, the RD series retained share due to relative versatility. Ursa Major is taking this to the next level.
The benefits are clear. Rather than traditional companies build a unique engine for each application (left-hand side), Ursa Major will create an extremely efficient & effective engine that has a variety of applications.
And we are already seeing that. Of course, it is unrealistic to think one engine should service everything in space! Especially as variety increases. As a result, Ursa Major is creating engine performance tiers.
This may be hard to conceptualize, but we see it all of the time in real life.
Consider the Ford Truck series. Depending on your day-to-day, you may not need the towing capacity of an F350. So why pay extra for the capability to tow seven houses? Ford solves this with a series of models: the F150, F250, F350, and beyond.
Similarly, Ursa Major offers the Hadley & Ripley engines. The Ripley is slightly stronger. They have not unveiled tier #3, but I would presume it will continue to stair step up the levels of performance, so ANY space use case can pick an engine fitting their needs.
Extend the frontier
By focusing solely on propulsion, Ursa Major's role is to lead the market. I do not mean tell the market what to build, but rather, I mean they need to be the market-leader in performance. The #1 performing engine in the market.
They are already doing this, and here are three examples: i) closed-cycle engines, ii) reusability, and iii) hypersonic test beds.
First, let's talk about closed-cycle engines. What are they? Put simply (as I am not a rocket scientist), open-cycle engines emit exhaust. This is energy leaving the system. Closed-cycle engines, however, use the hot exhaust & reconnects to the combustion chamber. The heat from the exhaust increases the pressure, and it is used to continue the cycle.
In other words, an open cycle engine removes the waste (exhaust). The closed-cycle is able to reuse the waste (exhaust). This dramatically increases efficiency.
Why doesn't everyone do this? Well, the closed-cycle increase complexity significantly. If done incorrectly, the waste (exhaust) can cause problems like soot in the engine. As a result, most companies will just settle for an open-cycle engine (like SpaceX) because it gets the job done. It may not be the best option, but developing a closed-cycle engine takes more time & resources.
Well, Ursa Major has done that with their staged combustion cycle engines.
The efficiency extends beyond fuel & thrust. It extends to reusability. SpaceX has popularized the notion of reusability by landing rockets back on launchpads. Reusing rockets has huge implications on:
Reduced launch costs - Savings on materials & development time
Increased frequency - no new build times in between
Environmental - Removing the implications of rockets land & fuels landing in the ocean
We are already seeing these impacts on reducing launch costs & frequency, but these rockets are not truly reusable yet. What do I mean by this?
A current SpaceX rocket cannot land and immediately relaunch. They need to refurbish it, including dissembling & cleaning all nine Merlin engines, which Musk admitted was "difficult."
Ursa Major, however, is cracking that code. They have already demonstrated ~80 hot-fire tests on engines without disassembly!!
And these tests lead to the third way that Ursa Major leads the market: hypersonic test beds. We discussed the potential national security implications of hypersonic missiles. Russia & China have a significant edge. And this is very concerning. Are we prepared for this?
Well, Stratolaunch is building the Talon A hypersonic test bed using Ursa Major engines. This development should dramatically improve hypersonic innovation, and it will hopefully catch the US National Government up to global counterparts.
And this is all part of the Ursa Major ethos & solution. Push the boundaries. They do not want to test propulsion just to accomplish a mission. They want to innovate within propulsion to build the most powerful set of engines in the world, unlocking completely new use cases, application vectors, etc. while re-establishing the United States (and potentially allies) as the pioneers of space and the superpower in defense!
Capitalize on scale
As the primary market-facing propulsion option, Ursa Major will not only have a focus advantage (discussed earlier), but they will also have a scale advantage. In 2022, Ursa Major expects to deliver 30 engines (at least 50 in 2023), and engine versatility, engine performance, and market development will continue to grow this. Scale will benefit in two distinct ways: A) R&D synergies and B) production cost efficiencies
As we mentioned in The Problem section, the space industry has consistently had individual companies testing and research in relatively distinct siloes.
For example, let's say you are a defense contractor, and you are testing hypersonic missiles. In the process, you dramatically improve a component of the open-cycle engine. Ideally, you share with colleagues, but likely, that breakthrough is only applied to the missile you are developing. Meanwhile, open-cycle engine applications across the market continue to use the previous method.
For Ursa Major, breakthroughs in research for an application of the Hadley engine can positively impact all other use cases (e.g., Blue Origin launch). It is much more efficient.
In addition, Ursa Major can invest heavily in long-term research & development. Whether it is through government fund or internal allocations, Ursa Major has incentive to continue pushing the boundaries (see previous section). R&D is not a one-off cost of a project. It is a long-term competitive advantage. As a result, Ursa Major has constructed a world-class, 90-acre facility in Colorado. Talk about scale!
The scale of the facility and production also has serious production cost efficiencies.
High-volume & production repetition allows Ursa Major to invest in and leverage additive manufacturing. In the image above, Ursa Major is able to mass produce 3D-printed valve bodies.
Likely, if you are only going to produce a handful of these, you would not purchase the 3D-printer. But if you are producing hundreds, thousands, etc., then it makes increasing sense. Purchasing the 3D-printer will actually lower the cost of production per unit as the volume increases. This is commonly referred to as economies of scale. Long-term, this will improve cost-effectiveness tremendously, giving Ursa Major an advantage.
Conclusion
I believe we are at a turning point for Ursa Major. After years of building, their performance is finally being acknowledged, and it is occurring at the same time as the geopolitical banishment of Russia (via sanctions). Their strategy is paying off, but this is only the beginning.
Ursa Major's innovation will continue to build their market. It will reduce the barrier to entry in the market, which will ultimately help grow the overall size of market. In addition, Ursa Major innovation will continue to expand into all things propulsion, including potentially accelerating innovation in jet engines.
Finally, and this cannot be understated, but Ursa Major will be a key behind-the-scenes play in United States national security. Innovation in space propulsion will reduce any reliance on Russian engines. Hypersonic testing capabilities will help reduce the technical gap between the US and potential adversaries. For both, we should be extremely grateful.
Appendix
One pager
Market factors
Tailwinds
Geopolitics - The Russian invasion of Ukraine shocked many global leaders, and the economic sanctions brought to the forefront dependencies we had Russia. Rocket engines are one of the top concerns. This is likely just one of the potential national security dependencies out there (think semiconductors and China). The emphasis on solving these dependencies & subsequent investment will be strong tailwinds for Ursa Major
Space exploration - Decrease launch costs has dramatically increased the inflow of capital to space. It is the modern day gold rush. More investment, more companies, etc. will drive continued market growth for Ursa Major
Uncertain factors
Regulation - The space market is extremely nascent. It is very unclear how regulation will play out. For example, if there is a huge international crackdown or agreement on # of launches, space debris, etc., this could dramatically slow or reduce the market
Headwinds
Brand bias - Governments tend to be… low risk & slow. For this reason, they may default to legacy players (e.g., established defense contractors) to mitigate risk (“I chose the safe option), which will consolidate players & reduce investment in frontier-tech. Similarly, slow moving could reduce the CAGR of the overall industry
Investment score
