Rocket Lab CFO Interview with Deutsche Bank: Key Takeaways

This article was originally posted on X as a thread on September 24, 2024.

I recently posted a detailed article about the end-to-end space ecosystem Rocket Lab is building. Yesterday, its CFO Adam Spice gave a brilliant interview with Deutsche Bank.

Here's everything you need to know.

First, he explained how he got involved with Rocket Lab:

"I got an out-of-the-blue call from a recruiter, and I usually don't take calls from recruiters. But he said, 'Hey, there's this unicorn startup aiming to become one of the big players in the new space economy. You should really talk to them.' I was like, 'Hm, I don't think so.' But they convinced me to talk with Peter. I quickly realized Peter was really onto something with his vision for the size of the opportunity and had a very pragmatic approach to getting there. He invited me to New Zealand to see things on the ground, and I was absolutely amazed by their capital efficiency and practicality. (...) When I saw what they built with just $100M in such a capital-intensive industry, I was blown away."

According to Adam Spice, Rocket Lab is the most vertically integrated rocket manufacturer in the world:

"One of the things we've done very consciously is eliminate many choke points to make us more self-reliant. On the rocket side, out of necessity, when Peter started the company in New Zealand, he faced restrictions. When he tried to buy subsystems from the traditional aerospace industry, they said, 'Sorry, you're not a U.S. company, so we can't sell you that technology.' So Peter said, 'Ok, I'll make it myself.' As a result, we became very independent and vertically integrated. We're likely the most vertically integrated rocket manufacturer out there, which reduces our dependency on others who could let us down and cause trouble. Peter has been very disciplined in identifying where others could harm us and has essentially taken those risks off the table."

Rocket Lab’s secret to being so capital efficient:

"We're always afraid that the last money we raised will be the last money we raise, so we treat it like it's the most precious thing on earth. One thing we can never do is run out of money, and that's always top of mind. As a culture, we've grown into a very frugal organization. Everyone knows what everyone else does — there's no place to hide. People work day and night on Herculean tasks, so there's no room for freeloaders, as we identify them quickly. If you need something, you stand up and ask who can help. We don't even have like traditional offices to ensure open communication, which is key for us.

Peter comes from a very scrappy background. We've always known we can't outspend Elon, Jeff, or large governments, so we have to do things differently. We don't build something and then figure out how to make it profitable later. We start by asking, 'What does this need to look like in the endgame? Given what's going to happen with pricing, how do we ensure we make money from this product or service?' I hate spending money, but Peter is even tighter, which makes my job easier.

If you want to spend more than $40k, you need to write a formal business case, present it to Peter and me, and get formal approval. Of course, we also have to balance controls and frugality with the ability to move quickly."

Why is it so hard to do what Rocket Lab does, and why have so many companies failed?

"We forget that going to the moon in 1969 required the collective resources of an entire nation. The money involved, even by today’s standards, was staggering — far beyond Elon and Jeff’s investments.

Back in 2015-2017, there were over 100 small launch vehicle startups. Many were founded by entrepreneurs who weren't engineering- or physics-minded. A lot of hype surrounded how much money could be raised to start a rocket company, but very few people on the planet can actually execute a real rocket development program. You can count on your hands how many entities, including governments, have done it. There was a promotional opportunity to raise money, but we all saw what happened.

If you’ve watched Wild Wild Space on HBO, there's a great example of one of those companies."

Also, a mind-blowing fact: "The Electron rocket consists of roughly 66,000 parts. Sometimes, just one part failing can mean losing the entire mission. There's no room for error in quality control."

Why the launch business will NOT become commoditized, despite what many claim:

"Building your fifth rocket is actually harder than building your first. In the beginning, engineers like Peter are involved in every detail — they know exactly how it should look when assembled. But by the fifth rocket, assembly techs are following work instructions, and they might not realize the impact of small differences.

It's not just about designing the rocket, it's about building it reliably, consistently, and profitably. Once you figure that out, you have a fairly protected space. This market hasn't been commoditized, and we don't believe it will. There are very few people who can pull this off, and the window to raise the capital needed to try has closed.

The launch companies you see today are likely the ones you'll see in the future, at most.”

Why Rocket Lab is developing a larger rocket (Neutron):

"The basic reason is the larger TAM compared to Electron, driven by the need for constellation deployments.

The second reason aligns with Rocket Lab's broader vision. Peter never aimed to create the most dominant small launch company — he wants to build an end-to-end space company. That means designing, building, launching, and operating satellites, with our own constellation assets generating recurring revenue.

SpaceX got there first because they’re 10 years older than us, but I think our models will look similar. Are we going for a Starlink-sized constellation? Probably not, at least not anytime soon. It'll likely be a more targeted application with dozens or hundreds of satellites, not tens of thousands. For that, we need Neutron — we don’t want to rely on launch providers with conflicting interests."

The genesis of Rocket Lab’s Space Systems segment:

"After a few successful Electron launches, Peter was like, 'Alright, now we'll work on Space Systems'. When we tried to order reaction wheels to start building satellites, the supplier said it would take 12 months, and Peter was like, 'Are you kidding me?' That set us on a path to evaluate every critical subsystem that could become a bottleneck and either acquire their manufacturers or develop those parts ourselves. What’s the point of building a satellite if you have to wait 12-18 months for a separation system? Along the way, we developed everything from radios to propulsion systems, consistently eliminating choke points to scale faster.

We still need some components. Right now, we have a great bus solution, but we stop at the payload side. It's likely we’ll look to acquire payload capabilities, as developing them from scratch takes time and capital. There are a few more bus BOM pieces we want to secure, but we're increasingly focused on payloads. We're also considering inorganic ways to enter the applications market."

Adam Spice on the orbit services market and the company’s approach:

"The applications market is highly fragmented, with many different verticals and successful business models in each. For example, earth observation has various layers.

The biggest target is communications, the largest market. Even within communications, there are numerous opportunities for new services for consumers, enterprises, and governments.

We won’t be focusing on just one area. We’ll engage in multiple parts of the market, making several strategic bets. We plan to avoid the issues faced by constellation operators today by designing and manufacturing our own spacecraft, launching them with our rockets, and operating them in orbit. This integrated approach allows us to concentrate on maximizing data management for our customers.

Ultimately, we'll choose applications with substantial scale. We’re not interested in small business applications, we’re targeting opportunities that can generate hundreds of millions of dollars in revenue, or hopefully even much more than that."

That's it!

While this summary captures the essence of the interview, I highly recommend listening to the full podcast episode.

Adam Spice did a brilliant job explaining Rocket Lab’s advantages and future prospects. I feel like I don’t own enough shares.