As the tough 2020—with its tragic loss of human life to COVID-19 and economic disruptions during the fight with the virus—comes to a close, we are entering 2021 on a brighter note following recent positive vaccine news. The year certainly has been volatile for the NewSpace industry, but there have been wins despite challenges. The broader secular trends of rapidly increasing data processing capabilities; progress in robotics, autonomy, artificial intelligence, and machine learning; advancements in materials and energy tech; and obviously frequency and cost of access to space are all continuing to provide tailwinds for innovation in the space sector.
While it is too early to discount macro factors such as the pace of vaccine production and distribution and the resulting impact on broader economic recovery, as well as policy and budgetary impacts from the incoming U.S. administration under still evolving power balance in legislature, here are a few observations from our recently attended investor-oriented industry discussions as we enter 2021.
Geospatial Industry Sees More Use Cases and Capability Development
Under the conditions of the global pandemic, where mobility and physical access are limited but information and intelligence are still needed, we have seen increased reporting on the utility and use of Earth observation data and analytics. In addition, the increasing need to measure ESG (Environmental, Social, and Corporate Governance) impact by various enterprises and organizations looks to be adding additional demand for geospatial data and analytics—whether via emissions and asset monitoring or weather and climate data to optimize logistics, operations, and carbon footprint.
That all being said, the overall market opportunity in geospatial intelligence is remaining heavily government- and defense-dependent with continued growth in demand from these customers, while commercial sector adoption in recent years has expanded at modest rates. Startups and investors in the sector continue to see opportunities to improve capabilities in various parts of the value stack from availability (coverage, revisit rates, resolution), processing, and delivery of data to more analytically advanced, timely, and insight-driven solutions with market-fitting pricing and subscription models.
Defense Remains Focused on Commercial Innovation in Space
With space being increasingly recognized as a contested domain, we are continuing to see increased engagement of commercial-sector innovation to accelerate defense capabilities. There are continued discussions on the need for capabilities in various areas, for example, space domain awareness, PNT (positioning, navigation, and timing), sensing, resilient and redundant systems, communications, autonomous systems, proximity operations, in-orbit servicing, energy technologies, etc. Initiatives across AFWERX (AFVentures, Prime, and Spark), with its pitch days and challenges, are already increasingly on space entrepreneurs’ horizon, and the recently announced launch of SpaceWERX will support engagement further. DIU, In-Q-Tel, NavalX, and others are actively engaged as well.
Demand for space capabilities is likely to increase across all warfighting domains, supporting the broader demand for relevant innovation. While the mechanisms to grant initial pilots and seed funding are well established and create enthusiasm and traction with commercial startups, startup and investor commentary indicates a lengthy and challenging path to transition to follow-on contracts and programs of record.
Impressive Progress by Starlink, Key Announcements From Project Kuiper
Starlink’s rapid fleet deployment during 2020 (955 satellites launched since May 2019) has been impressive, with continued strong cadence into 2021, and the current active customer beta trial of services is a positive for validating the potential of low Earth orbit (LEO)-based communications constellation capabilities. However, for many in the industry, questions remain on the cost trajectory of the company’s “UFO on a stick” antennae technology, with implications to customer economics. While post the teardown, some industry participants have estimated the cost to manufacture here at a prohibitive $2,000+ per unit, more is likely to be revealed during 2021.
Meanwhile, we have seen Amazon’s project Kuiper gain the Federal Communications Commission approvals for its 3,236-satellite constellation deployment, and to retain the license, the company must now launch half of this constellation by 2026. Importantly, Kuiper just announced completion of its initial development for a 12-inch diameter phased array antenna for its targeted low-cost customer terminal to serve unserved and underserved markets, reaching tens of millions of potential customers.
In both Starlink and Project Kuiper, we are seeing just how capital-intensive such buildouts are to drive sufficient market reach and scale. Meanwhile, from legacy space-based broadband providers, we are seeing commentary on the merits of combining capabilities from multiple orbits to address the economics of high data throughput while also addressing specific latency needs with an outlook of needing to deliver rapidly increasing amounts of bandwidth at relatively stable revenue per end-user.
More Small Launch Vehicles Aiming for the Orbit in 2021
During 2020, we saw see several small launch vehicles complete significant funding rounds, with announcements of contract wins and pre-sold capacity, continued defense complex interest, as well as recent NASA Venture Class Launch Services Demonstration 2 awards. Per published statements, 2021 is likely to bring several launch attempts to reach orbit for the first time from several emerging providers, allowing them to validate their respective capabilities and solidify market presence as well as books of business.
While investor questions around the emerging supply-demand balance for the small launch sector have been around for some time and continue to linger, performance validation (or lack of it) in the near term will like lead to increasing select-down in actual ability to secure high-quality backlog. We would expect the market and pricing rationalization here to have material impact to the emerging business models of rideshare, coupled with orbital transfer vehicle services as well. Meanwhile, we have seen the recent test flight of SpaceX’s Starship SN8 capture public and investor attention, with SN9 lined up next. This platform targets the addition of massive launch capacity, with a potential path to a magnitude reduction in $/kg cost to get to LEO.
Funding Environment Rebounds and Evolves
While the overall access to funding has recovered from a sharp COVID-19-driven contraction in Q2 of 2020, with the full year 2020 now positioned to exceed 2019 levels for the NewSpace sector, and we are seeing more new investors enter the sector as we go into 2021, the commentary from investors with an extensive track record in the space industry has become more selective. From some, we have heard increased interest in the applications strata of the value stack, such as in geospatial intelligence, as well as in communications-driven applications. This is relative to the infrastructure investments such as launch vehicles or satellite constellation assets, where many of the well-known venture firms have already made their targeted investments. Others have highlighted questions to more recently funded startups on the strength of moats in addressing valuable market needs versus just delivering incremental competitive advantages that could be eroded as technologies progress.
Investor questions are also resurfacing on the level of vertical integration needed in this industry, similar to Rocket Lab’s Photon, to truly unlock and accelerate value capture in these still, in many cases, emerging commercial markets. Finally, relative to years past, we are seeing increased interest in in-space traffic management and debris mitigation, proximity operations, and in-space servicing, as well as some early signs of interest in the area of in-space manufacturing.
“All Systems Go for SPAC?”
Going into 2021, investor expectations appear to be for higher activity levels for space companies entering public equity markets. SPACs (special purpose acquisition companies) as vehicles for such funding are expected to be part of the financing mix. Under current investor appetite and market conditions, the overall SPAC equity issuance (IPOs) has reached $70 billion in 2020, which is more than five times the levels of 2019. SPACs have been funding numerous early-stage technologies and companies across industries, showing that venture capital-type risk could be attractively priced in the current public equity markets. Given the sheer volume of activity this year, there is bound to be volatility in the eventual outcomes.
In the space sector, we have seen a few recent SPAC transactions announced recently in addition to the earlier Virgin Galactic deal, such as a $1.2 billion combination between space transportation and service company Momentus Inc. and Stable Road Acquisition Corp., and a $1.4 billion combination between space-based cellular communications service provider AST & Science LLC and New Providence Acquisition Corp. These acquired companies report currently minimal to no revenue and must deliver very strong operational and business execution to scale up to the 2024 and 2025 financial performance targets underlying the acquisition valuations. Both transactions are scheduled to close in Q1 of 2021.
R&D and Manufacturing Innovation in LEO Continues
We expect a continued healthy pace of microgravity and LEO research and development (R&D), particularly as terrestrial research labs increasingly resume their work and continue to execute on their prior study plans, and as budgetary conditions improve. In the startup community, we are seeing continued interest in leveraging LEO-based technology development and TRL increase capabilities to drive their solutions toward commercialization. In addition, the in-space manufacturing sector has seen some early signs of investor interest via M&A and startup investment, although broader partnerships with public funding sources are still needed in several areas to drive technology de-risking and maturation to commercially viable levels.
From the related infrastructure perspective, we continue to follow the progress of Axiom Space, which in early 2020 won a contract with NASA to provide a habitable commercial module to be attached to the International Space Station and has subsequently announced its plans and target timelines to build and launch a commercial space station. We will look for updates on NASA’s plans toward free-flying platform solicitations as well (previously planned under NextSTEP Appendix K).
Continued Focus at CASIS on Fostering the LEO economy and Building Capital Engagement
Looking into 2021, we at the Center for the Advancement of Science in Space (CASIS) are continuing to see opportunities to leverage the truly unique asset of the ISS U.S. National Laboratory in allowing entrepreneurs and scientists to execute their technology development, product R&D, and in-space production roadmaps to propel their early-stage businesses toward future growth and capital access.
For innovators looking to leverage the ISS-based technologies toward research and technology development, we expect several solicitations to be announced in 2021. Our most recent ISS National Lab Research Announcements can be found at www.issnationallab.org/research-on-the-iss/solicitations.
We are also encouraged by capital raising activity by startups in our ecosystem, which to us shows both third-party validation as well as continued progress in our clients’ business execution. Looking at the combined data across the ISS National Lab startup ecosystem, based on our estimates and publicly available data, we have seen these companies raise approximately $220 million (combined) of private and public funding post flight project award announcement, including close to $140 million post the actual flight to the ISS. On that front, we look to follow a solid FY20 (despite all its challenges) with even stronger FY21 in building the volume of dialogue and capital introductions between startups and investors our expanding ecosystem.
We wish you happy holidays and a successful start to 2021!
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