Underweight Deal: Renewable Space Travel

Key Stats:

Summary

Prime Lightworks has been selected as an “Underweight Deal” by KingsCrowd. This distinction is reserved for deals not selected into the top 10%-20% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology, please reach out to hello@kingscrowd.com.

Space travel is the ultimate fate of humankind. We are explorers, always pushing to discover new territory and see new wonders. As with every major exploratory push embarked upon by our species, space travel will test our greatest strengths and challenge our weaknesses. At the end of the day, though, the move in that direction is necessary. Many individuals and groups have sought to prepare us for the challenge. In the past century, major governments (the US, Soviet Union (today Russia), China, etc…) have been responsible for setting the groundwork for space travel. In our current time, things have evolved. Increasingly, private companies are entering the space industry, both in partnership with governments and on their own fully-funded endeavors. This paradigm shift will likely continue as businesses make big strides in reducing costs and improving operational performance.

Problem

The problem with space travel is twofold: it’s difficult and it’s expensive. The size and nature of space makes it hostile to humankind, and there is an additional challenge when you consider the scarcity of resources on Earth. Companies like SpaceX have done well to address some of these concerns. SpaceX’s main success has been in redesigning rockets so that they can be used for multiple launches. This advance has been instrumental in driving the costs of space travel down. However, there’s still a lot of progress that’s needed in order to make the endeavor economical.

Solution

Addressing the issues of space travel requires ingenuity, intellect, and the willingness to test ideas, including ideas that are on the edge of what’s considered normal. One company trying to do just that is Prime Lightworks. Recognizing that fuel alone can take up to half the weight of a ship, the founders of Prime Lightworks set out to make a change. Their goal is to not only mitigate this problem, but to enrich themselves in the process.

According to management, they are currently working on creating an electric spacecraft propulsion system. If they are successful, their technology will eliminate the need for most, if not all, conventional mass propellant. The science behind their project is complex for those unfamiliar with the intricacies of physics, particularly quantum. The general idea is that they are building a solar-powered radio amplifier and microwave cavity system. The system, they believe, will replace fuel-based propulsion systems. The end result will be a fully-renewable energy source that will reduce space travel costs by between 20% and 50%.

Although the company’s technology uses solar power, the underlying mechanics are more complicated. Using solar as the basis for initial energy, the company then creates what’s called a radio frequency (RF) resonant cavity thruster. In management’s own words, their, “electric propulsion systems would work by concentrating electromagnetic field strength and radiation pressure on the large end surface of our radio frequency (RF) cavity resonator.” The goal is to create a device that can exert thrust in a vacuum without propellant, but this is a highly controversial idea in physics. For one, it would violate the Law of Conservation of Momentum. Significant studies have been conducted over decades on different iterations of this concept, and conclusions largely support the idea that this technology is not viable.

If Prime Lightworks is successful in its endeavor, the end result would be a major change in physics. In all probability, their technology will not work, but the beautiful thing about science is that new ideas are always being explored. In the remote chance this technology does succeed, it’s highly probable that the company would be incredibly valuable. Having said that, even the road to that value is paved with challenges. As an example, consider financial performance reported by the company over the past two years. Revenue reported by the firm has been non-existent. In 2017, the company saw a net loss of $469,843, while in 2018 its net loss was $590,786. Operating cash flows in those years were -$402,855 and -$482,693, respectively. No financial performance has been reported for 2019 as of this writing.

By management’s own admission, Prime Lightworks is still in the exploratory stage. The company intends to use proceeds from its current raise to engage in prototype refinement and vacuum testing. This development will occur at its current facility, as well as at a third-party facility too. To bolster its validity, the company claims to have a patent pending, but only time will tell if that patent is ultimately awarded.

A Niche but Growing Market

Space and space travel should be considered the ultimate frontier for our species. The opportunities, it appears, are virtually limitless. Getting there on a large scale, though, will be both costly and time-consuming. Fortunately, such high hurdles create vast market opportunities for the players involved. As an example, we need only consider the outlook for global space propulsion systems over time.

According to one source, the estimated market here, globally, in 2018 was $5.73 billion. This is expected to grow at an annual rate of about 15.1% through 2027. By that point, the market should be about $20.25 billion in size. Another source estimates a similar size of $4.55 billion in 2017, but its relevant timeframe ends in 2023. By that year, the market for space propulsion systems should be about $10.4 billion, implying an annualized growth rate of 14.8%. A third source suggested a 13.1% annualized growth rate through 2023, with an end target of $10.4 billion as well.

Prime Lightworks’s own estimates from what we discovered vary considerably. They looked specifically at satellite propulsion systems for providers that utilize a high delta-velocity propulsion system. This sector should be viewed as a niche piece of the broader space-oriented market. It is unlikely that the company, if successful, would confine itself to there. Even if they do, though, that would still represent a market opportunity worth $1 billion, representing 1/15th of the capital spent on the global satellite propulsion market. It becomes immediately apparent that coming out with an innovative, cost-saving solution could result in significant upside.

Terms of the Deal

For its capital raise, the management team at Prime Lightworks is trying to keep things as simple as possible. The company has decided to issue common stock to its shareholders at a price of $2.06 per unit. The minimum investment required per participant is $199.82, and the company is seeking to raise between $10,000 and $1.07 million. The firm said that for testing purposes, with its current burn rate, $300,000 would be enough to last it six months. They are hoping, though, for at least $600,000 so that they can afford to test for a full year. As of this writing, the company has $87,810 committed to its raise. The pre-money valuation assigned to Prime Lightworks by management was $10.2 million. This amount appears to be an awful lot for a company with no revenue and significant losses, but it’s a small price if the firm’s vision should come to fruition.

An Eye on Management

At the core of Prime Lightworks stand two individuals: Founder and CEO Kyle Flanagan, and VP of Engineering Peter Dohm. Flanagan worked as an Electromagnetic Interference (EMI) & Survivability Engineer at SpaceX from 2013 to 2015. During that time, his responsibilities included power systems compatibility and related functions for the Falcon launch vehicle and Dragon spacecraft. His prior research includes an internship with Harvard University for CERN ATRAP Antihydrogen Research and a fellowship with CalTech for the NASA JPL Frequency & Timing Advanced Instrument Development Group. He was also named a Forbes 30 Under 30 for the Class of 2020 in Science. Similarly, Dohm previously worked as an Avionics RF Systems/Integration Engineer at SpaceX from 2009 to 2012. During that time, he was an engineer for RF systems hardware for the Falcon launch vehicle and Dragon spacecraft. His recent work includes being a Senior RF Engineer at Millennium Space Systems from 2013 to 2016.

The Rating: Underweight

After careful consideration and evaluation, Prime Lightworks has been rated an “Underweight Deal”. The company is fascinating because of what it is trying to achieve. If successful, the firm will likely go on to achieve remarkable success in an industry that, while still small, is growing rapidly. Shareholders who get in early, especially at its current valuation, stand to see significant upside. In addition to this, the firm’s top brass, particularly its founder, boast impressive resumes that most startups wish they had. That said, there are numerous problems of which investors should be aware.

Chief among these is the nature of the firm’s project. Anything highly-controversial in physics should be suspect, particularly for something that would require a well-tested law in it to be upturned in order to be viable. Even if the team is right, this current raise gives them a year or so of testing ability, during which time they may not succeed in proving their model. With no revenue to back the company up, and none on the horizon, it survives solely on the cash it receives from investors. That’s a big weakness most startups don’t have, and it is further emphasized by the high valuation Prime Lightworks is seeking. In conclusion, investors should not view this as a viable, robust enterprise. Instead, they should view it as a lottery ticket with a binary outcome. On the one hand, it could succeed and generate tremendous upside, the kind an investor would be lucky to be part of even once in their life. On the other hand, there is a significant probability that the company will not succeed. In that case, the end result will inevitably be a complete loss of capital for current shareholders.