As part of International Space Station (ISS) U.S National Laboratory’s continued engagement with the capital markets community, our 2020 virtual International Space Station Research and Development Conference (ISSRDC) included insightful conversations with the leading investors across the capital spectrum.
Our investor panel session on September 17 included investor perspectives from Alex van Hoek from Apollo Global Management, Ann Kim from Silicon Valley Bank, Chad Anderson from Space Capital, and Shahin Farshchi from Lux Capital, skillfully moderated by Robert McCooey from Nasdaq. What stood out for us was the presenters’ commentary on current capital access trends and investment focus areas as well as the value added of public-private partnerships.
The investor appetite toward space sector opportunities appears to have recovered as we enter the final quarter of this volatile 2020. Affected by the broader COVID-19-driven economic contraction, space infrastructure investment largely paused in the second quarter of 2020 (application-focused companies did better) as investors reviewed their already-existing portfolio exposures and related needs. As highlighted by the panelists, the preliminary data for the third quarter appears to point to a strong quarter-over-quarter rebound in investment activity across the board for the NewSpace sector—potentially even positioning 2020 for investment levels that could exceed the volumes of 2019. Importantly, not everybody was affected to the same extent during the 1H 2020 funding downturn; the COVID-19-driven disruptions and economic volatility appear to have created competitive openings to those with stronger balance sheets. Furthermore, the demand in domains such as geospatial data and from sectors such as defense continues to strengthen. The very significant success of SpaceX’s Demo-2 mission caught investor attention as well.
While the overall access to funding now looks better, the investor commentary pointed to a shift in focus relative to the earlier years of the NewSpace investment activity. Several comments here pointed to an increased interest in the applications strata of the value stack, such as in geospatial intelligence, where a page could be taken out of the GPS playbook, 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 placed their bets. Furthermore, earlier in the 2010s, NewSpace infrastructure startup opportunities were rarer, and if built on a strong team with strong technology capabilities and value proposition, the early market entry looks to have provided these startups a potential for significant competitive runway. The recent years’ influx of capital to build multiple competing platforms appears to be resulting in often just incrementally better solutions on the technology curve that continues to still evolve. The implied question here was the sustainability of a competitive differentiation and the existence of sustainable competitive moats that would allow building of multibillion-dollar businesses out of some of these more recent entrants.
Investment opportunity in “second-degree” business models in the NewSpace ecosystem are viewed as still in early stages. This category includes businesses in the areas of debris mitigation, on-orbit and satellite servicing, and related in-space production, which depend on the success of other more end-customer-facing NewSpace enterprises. Many of these opportunities are still in earlier stages of quantifiable demand formation and market maturation. In other words, even if there are demand indications from other emerging space companies that result in letters of intent or orders of future business, this demand has likely much more risk associated with it than, for example, an order book with government or established telecommunications company customers. Seed investments are being made, but these opportunities need to mature further to access capital from later-stage investors. It remains to be seen whether the just announced $1.2-billion valuation SPAC (special purpose acquisition company) merger with Momentus, which cites material backlog of in-orbit servicing missions (alongside its other areas of focus) later in this decade, will change some of the investor perceptions here.
On the topic of government role and the importance of public-private partnerships, the panelists saw merits in government funding of earlier-stage and capital-intensive technologies, where the demand opportunity is too uncertain or immature to attract private capital. However, some of the panelists would much rather see government as a reliable buyer that reduces market risk, rather than an industry participant attempting to pick early-stage technology winners. In terms of advice to startups on whether to pursue government funding, the recommendation was to only focus on it if it supports the company’s core business strategy and product roadmap.
Finally, the discussion also touched on the prospects of commercially funded space stations. The panelist commentary pointed to several positive signals supportive of the viability of such an endeavor, including from space tourism with real customers willing to commit real dollars, as well as the established and growing demand from microgravity research and satellite launch markets. However, questions remain on the depth of the overall market demand and the level of capital investment, including upfront capital costs, that this demand could support. From the listeners’ perspective, it would be fair to assume that the previous commentary on government as a reliable buyer to de-risk the revenue and cash flow outlook would go a long way to support a business model here as well.
We thank all the panelists for the insightful discussion!
A full recording of the panel session can be found in the on-demand section of www.issconference.org. The session is free to view; however, registration is required.