Space investments rebound, but more selectively

WASHINGTON After a recent downturn, there are signs of a recovery in space investments, but analysts and investors see a new focus on smaller and more selective rounds.

Investments in the space sector have decreased in recent quarters due to factors such as rising interest rates and the poor performance of some companies in the sector. A recent report from Space Capital calculated that $2.2 billion was invested in space companies in the first quarter of 2023, the lowest quarterly total since 2015.

However, speakers at the Financial Times’ recent Investing in Space event said there were signs of a recovery. It looks like the tide may have turned, said Chad Anderson, founder and managing partner of Space Capital.

We definitely see a recovery in the space technology market in terms of financing, said Thomas Felix Baden, managing partner and co-founder of Neventa Capital. He noted that his data showed that there was more investment in Europe so far in 2023 than in all of 2022.

Vaibhav Lohiya, managing director and global head of space banking at Deutsche Bank Securities, agreed that there is now more funding available for space companies following a pullout early last year. But, he added, that investment was changing.

Investors are starting to get more selective, he said, with more interest in backing category leaders who can offer short-term returns rather than opportunities for success. Shifts are getting smaller, she added.

I think the big change that you’ve seen in the last couple of years is that we’ve moved from an environment where people thought we had plenty of capital, said Christian Lesueur, managing director and global head of TMT investment banking at UBS. This has allowed companies to undertake capital intensive projects with the expectation that they can raise more money quickly.

Today, I think we’re in a very different environment, he said, with companies expected to show a better path to profitability. If you are going to raise capital and you say you have to raise capital again in 12 months, today is a very difficult task.

Related to this selectivity is greater scrutiny of companies seeking funding. Sentiment has really changed from what investors were investing with very little diligence 12 or 24 months ago to really digging, said Marc Robbins, director of Barclays Corporate and Investment Bank.

There’s a crop of companies invested in during the recent hype cycle that aren’t meeting expectations, said Steve Jacobs, venture partner and chief product officer at Lakestar, a European venture fund.

Anderson said this reflects some venture funds’ early investments in space companies, particularly at the peak of investment in 2021. A lot of irrational dollars have been received and not much due diligence has been done, and many questionable companies have been funded.

This reaction is also related to companies that have gone public in the last couple of years through mergers with special purpose acquisition companies, or SPACs. This has provided companies in space and other industries with a new source of capital. However, many of the companies that have used SPACs have fared poorly in public markets, including the bankruptcy of Virgin Orbit.

Anderson argued that many of the companies that went public through SPACs weren’t ready to do so. These companies were not pre-profits, she said. Many of them weren’t even pre-revenue. Most of them were pre-produced. So, we’ve seen many of them fail in the open, in the public eye.

Steve Jurvetson, co-founder of Future Ventures and an early investor in Planet and SpaceX, said many SPAC deals were what traditionally would have been private venture rounds. Those don’t necessarily end so well.

Some companies were better off listing in more traditional ways, such as an initial public offering (IPO) by Japanese lunar lander company ispace on the Tokyo Stock Exchange in April. The company’s shares rebounded after a sharp decline when its first landing mission crashed on the moon weeks after it went public.

That was the first IPO of a space company in Japan, said Atsushi Mizushima, a partner at Nishimura & Asahi. People are starting to believe the space industry is growing, he said of the Japanese market. He had a very good influence on the capital market.

Anderson said he expects a shake-up in the industry to continue for some time, with more bankruptcies by companies or even investment funds. It’s causing some short-term pain for some companies, but it’s probably going to be really healthy in the long-term.

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