Rocket Lab packed a ton of news into Monday to kick off this week: It’s going public via a SPAC merger, for one, and it’s also building a new, larger launch vehicle called Neutron to support heavier payloads. I spoke to Rocket Lab founder and CEO Peter Beck about why it’s building Neutron now, and why it’s also choosing to go public at the same time. Unsurprisingly, the two things are tightly linked.
“We have the benefit of flying Electron [Rocket Lab’s current, smaller launch vehicle] for a lot of customers. and we also have a Space Systems Division that supplies components into a number of spacecraft, including some of the mega constellations,” Beck told me. “So we have very strong relationships with a lot of different customers, and I think we get unique insight on where the industry is going, and where the where the pain points are.”
Those pain points informed Neutron, which is a two-stage reusable rocket. Rocket Lab already broke with Beck’s past thinking on what the launch market needed by developing partial reusability for Electron, and it’s going further still with Neutron, which will include a first stage that returns to Earth and lands propulsively on a platform stationed at sea, much like SpaceX’s Falcon 9. But the market has shifted since Rocket Lab built Electron — in part because of what it helped unlock.
“The creation of Neutron came from two discrete factors: One, the current need in the marketplace today. Also, if you project it forward a little bit, Neutron will deliver the vast majority — over 90% of — all the satellites that are around or in some form of planning. And if you look at those satellites, 80% of them are megaconstellations by volume. So, in talking with a bunch of different customers, it was really, really apparent that a megaconstellation-building machine is what the market really needs.”
Beck says that combining that market need with a historical analysis that showed most large launch vehicles have taken off half-full resulted in them arriving at Neutron’s eight metric ton (just over 17,600 lbs.) total cargo mass capacity. It should put it in the sweet spot where it takes off full nearly every time, but also can still meet the mass requirement needs of just about every satellite customer out there, both now and in the future.
“We’re covered in scars and battle wounds from the development of Electron. The one thing that Elon and I agree on very strongly is by far the hardest part of a rocket is actually scaling it — getting to orbit is hard, but actually scaling manufacturing is ridiculously hard. Now, the good news is that we’ve been through all of that, and manufacturing isn’t just as product on the floor; it’s ERP systems, quality systems, finance, supply chain and so on and so forth. So all that infrastructure is is built.”
In addition to the factory and manufacturing processes and infrastructure, Beck notes that Electron and Neutron will share size-agnostic elements like computing and avionics, and much of the work done to get Electron certified for launch will also apply to Neutron, realizing further cost and time savings relative to what was required to get Electron up and flying. Beck also said that the process of making Electron has just made Rocket Lab extremely attuned to costs overall, and that will definitely translate to how competitive it can be with Neutron.
“Because electron has a $7.5 million sticker price, we’ve just been forced into finding ways to do things hyperefficiently,” he said. “If you’ve got a $7.5 million sticker price, you can’t spend $2 million on flight safety analysis, payload environmental analysis, etc. — you just can’t do that. With a $60 million or $80 million vehicle you can amortize that. So we’ve kind of been forced into doing everything hyperefficiently. And it’s not just systems; it includes fundamental launch vehicle design. So when we apply all of those learnings to Nutron, we really feel like we’re gonna bring a highly competitive product to the marketplace.”
As for the SPAC merger, Beck said that the decision to go public now really boils down to two reasons: The first is to raise the capital required to build Neutron, as well as fund “other” projects. The other is to acquire the kind of “public currency” to pursue the kinds of acquisitions in terms of business that Rocket Lab is hoping to achieve. Why specifically pursue a SPAC merger instead of a traditional IPO? Efficiency and a fixed capital target, essentially.
“We were actually sort of methodically stepping toward an IPO at the time and, we were just sort of minding our own business, but it was clear we were pursued very vigorously by a tremendous number of potential SPAC partners,” Beck told me. “Ultimately, on the balance of timelines, this just really accelerated our ability to do the things we want to do. Because, yes, as you pointed out, this kind of streamlined the process but also provided certainty around proceeds.”
The SPAC transaction, once complete, will result in Rocket Lab having approximately $750 million in cash to work with. One of the advantages of the SPAC route is that how much you raise via the public listing isn’t reliant on how the stock performs on the day — Beck and company know and can plan on that figure becoming available to them, barring any unexpected and unlikely barriers to the transaction’s closing.
“Having all the capital we need, sitting there ready to go, that really sets us up for a strong execution,” he said. “If you look at Rocket Lab’s history, we’ve only raised spend a couple of hundred million dollars to date, within all the things we’ve done. So capitalizing the company with $750 million — I would expect big things at that point.”
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