Why Kepler is building its full-stack satellite business in Canada

Toronto-based telecommunications startup Kepler Communications surprised many recently when it revealed plans to establish its own satellite assembly and base the operation in its own hometown instead of contracting the work to an existing manufacturer.

It might seem a perplexing and unnecessarily costly choice at first, but I spoke to Kepler CEO and co-founder Mina Mitry about what his startup stands to gain by being based in Canada while the small-satellite industry heats up in the U.S.

“We’ve been running a global survey of available supply chain for this particular type of small satellite for the past two years or so and conducting some pretty extensive experiments, like buying parts, seeing where they end up, etc.,” Mitry told me. “The output of that global survey is really that the supply chain is immature, that it doesn’t exist in a way that’s robust enough to meet our price, performance and timeline expectations. Historically, the type of business that is now delivering on small satellites has been built on selling one-off government contracts or a small component of the satellite, and now they’re transitioning upmarket to try and sell complete satellites and try to do that at scale, which is a totally different problem that they haven’t yet addressed.”

After figuring this out through multiple years of investigation and inquiry, Mitry says it eventually resulted in the realization that meeting the startup’s goals of getting its 140 satellites in orbit in a timely manner would be best served by building them in-house. That’s not unlike the conclusion reached by Elon Musk and SpaceX for many of the components used in developing their own launch vehicles.

“We started to evaluate what countries and where and how that would all get done,” Mitry said. “It ended up that Toronto would make a lot of sense because of the surrounding technical talents we get from the key universities in the area, and then above and beyond that, we’re not doing a whole lot of manual labor in this process. Most of that is outsourced labor to a variety of different locations where they’re building circuit boards, or they’re building like metal machine parts, etc. And then in-house, we’re doing mostly assembly integration and testing, and a lot of that kind of stuff gets automated. So there was no material overhead costs that gets incurred because we’re in Toronto as opposed to any other location.”

That talent pipeline that Mitry mentioned isn’t aerospace-specific — that’s not something that Toronto is particularly known for, relative to other programs that do have that reputation, most of which are located south of the Canadian border. Instead, Kepler and other space startups in the region seek a range of diverse engineering skills that cross disciplines but are available in abundance locally.

“We’re not looking for aerospace-specific talent,” Mitry said. “We’re looking for software engineers, mechanical engineers, hardware engineers, electrical engineers. And those are all bred at really high caliber from the universities in the surrounding area. Whether that’s the University of Toronto, Waterloo, McMaster University — those schools are all producing really high-quality talent.”

Talent is an advantage to building a satellite company in Toronto as opposed to other locales, but there are additional benefits. Mitry told me that one key factor is the availability of public funding and publicly funded incentives, for instance. But it’s also not without its challenges, especially as the company looks forward to later stages of growth.

“Predominantly, I’d say it’s provided advantages in the early-stage part of the business, whether it’s the support of SR&ED [Scientific Research and Experimental Development], which is a local Canadian government cash rebate for research and development initiative, or access to talent that’s been pretty fluid in light of some of the challenges in the U.S.,” he said. “The addition of the Global Talent Stream program in Canada has been pretty supportive as well […] We start to see more challenges in later stages, just being able to access senior leadership. In Canada we don’t have a whole lot of companies that have seen that massive or hyper growth. And so finding the set of peers or mentors that can help coach you to getting to that larger stage is probably more challenging.”

This is not a complaint unique to Canada’s aerospace industry, however — it’s a problem I’ve heard from tech companies and startups in the country time and time again. Initiatives like the Global Talent Stream program Mitry referenced can help fast-track visas for foreign workers who have the kind of leadership experience and expertise that would make them perfect for the kinds of senior roles he’s talking about, but it’s still a gap felt by many companies once they mature to a certain level.

In fact, Mitry says building an aerospace startup in Canada actually means you can skip some of the barriers that would be in the way in the U.S., particularly in an industry where security and defense considerations can impose onerous restrictions.

“The aerospace side gets even easier by being in Canada, because we’re not subject to the same regulatory regime as, for example, the U.S., where a lot of pure aerospace activities are governed by ITAR [International Traffic in Arms Regulations],” he said. “In Canada, we don’t have anything that’s comparable. We have the controlled goods program, but that doesn’t put the same kind of burden on who we can hire and how they can do work in this industry.”

Kepler’s aim is to launch and operate a constellation of 440 small satellites to provide communication for shipping, logistics, natural resource industries, science, defense and more. The company is aiming to undergird a network of interconnected IoT devices with a reach never before possible, and it’s doing all of that from Toronto, with a focus on modernizing the supply chain and manufacturing capabilities of the industry first to make its goal feasible.

It’s an ambitious roadmap, but for all the reasons listed above, it’s not quite as wild an idea as it first appears.