The world is experiencing a renewed space age, fueled by new technologies, rapidly falling costs, and de-regulation that has given rise to a new private space economy. Entrepreneurial and investment activity to date reflects launches and satellite operations but, as the ecosystem has matured, downstream opportunities have emerged in communications, data analytics and research. Over the last five years, hundreds of space technology (“SpaceTech”) startups have been launched, and the number of venture capital firms investing in SpaceTech has doubled to 190. Also, over the past decade, venture capital investment in SpaceTech has compounded at nearly 30% annually, topping $10 billion in 2019. Research and data generated by SpaceTech companies will have many tangential applications, and limited partners with a deeper understanding of the industry will be better positioned to assess the evolving opportunity set.
Since SpaceTech is a nuanced industry, one helpful way to visualize the market is to disaggregate the layers. SpaceTech involves a significant infrastructure layer, comprised of launch and satellite operations. Launch companies are responsible for rocket construction, payload integration, and ultimately conducting the launch. The manufacturing, designing, and operating of satellites is the complement to launch technology that completes the infrastructure layer of the SpaceTech ecosystem. These companies serve as the foundation of the SpaceTech market.
Infrastructure Market Map
Technological advancements within the infrastructure layer have led to a growing number of applications, particularly next generation communication and data analytics. These companies use machine learning techniques to effectively analyze and communicate data from space and aerial platforms, and serve as one of the core venture capital opportunities in the near term. The infrastructure layer also provides a foundation for frontier SpaceTech businesses such as space tourism and space mining. Space tourism is human space travel for recreational purposes, while space mining can be defined as the activities related to extracting raw materials from space.
Application Market Map
Launch companies are reinventing the space business through rocket reusability and shared payloads. In 2019, the launch segment was valued at $9.8 billion and is projected to reach $32 billion by 2027, with growth driven by increasing satellite and test probe launches. The launch market is also becoming increasingly reliable. In 2019, approximately 95% of the 102 total launches attempted were successful (launch attempts are considered successful if the rocket reaches at least low Earth orbit and completes its intended mission). Led by SpaceX, which transported NASA astronauts to the International Space Station in 2020, launch companies are increasingly employing reusable rockets, reducing launch costs significantly. SpaceX’s milestone marks the first time a commercially built and operated rocket has launched NASA pilots above low Earth orbit, and demonstrates the agency’s commitment to investing and building relationships with commercial companies.
New launch companies have also incorporated new ride-share models, providing an inexpensive solution to launch small satellites. Examples of emerging launch companies in Fairview’s portfolio include:
Rocket Lab, founded in 2006 and backed by a number of venture capital firms including Bessemer Venture Partners and Khosla Ventures, provides launches for nanosatellites from Earth. Rocket Lab has launched six missions in 2019 and now plans to make their rockets reusable. The company may not need to raise capital again following a $140 million Series E round in 2018 due to strong underlying fundamentals.
Relativity Space, backed by Social Capital and Lux Capital, is developing a rocket made almost exclusively by 3D-printed parts. In 2019, Relativity Space raised $140 million through its Series C round to complete the development of its Terran 1 rocket, which is anticipated to begin commercial operations in 2021.
Satellite operations continue to develop, with many venture capital firms active in the category due to falling costs and innovation. Increasingly advanced satellites serve as tools that can be used for analytics, earth observation services, remote sensing and communications. Many satellite companies are shifting their business models and operating under a shared economy by democratizing access to space. As satellite services become cheaper and more accessible, companies are encouraging newer customers to utilize their services. Previously, they were only targeted by large customers, but now satellite companies are poised to market to small- and medium-sized businesses, and even directly to consumers.
Satellites of the past were huge, costly and time-intensive to test and build. Now, smaller satellites are significantly less expensive, and models can be rapidly updated. Nanosatellites, in particular, have transformed the industry. The small satellite market is expected to reach $18.3 billion by 2026, exhibiting a 20% compound annual growth rate from 2019 to 2026. Emergent players in the satellite category within Fairview’s portfolio include:
Spire uses satellite data to inform weather predictions and forecasts and currently operates at least 40 multi-sensor nanosatellites that collect global weather data. Backed by Bessemer Venture Partners and RRE Ventures amongst others, Spire raised $40 million of Series D funding in 2019 to expand the company’s footprint into the Asia-Pacific region.
Swarm Technologies uses analytical modeling, simulation, GPS, and multi-disciplinary optimization to enable clients to receive global connectivity through a cost-effective satellite network. Backed by Social Capital and Craft Ventures, Swarm Technologies raised $25 million of Series A funding in 2019 to deploy its constellation of 150 satellites, and to accelerate hardware and software integrations for customer deployments.
Next Generation Communication and Data Analytics
The satellite market has opened up new possibilities for next generation communication and data analytics. Companies leverage existing satellite infrastructure and technology, negating the need to build their own satellite networks, and allowing for new innovative applications. Communication networks, weather, agriculture, mining, logistics, and intelligence are beneficiaries. As an example, remote sensing satellites allow for more accurate and sophisticated forecasts for weather and crop conditions. Now, contemporary businesses are exploring more innovative applications of satellite technology. Examples in Fairview’s portfolio include:
CesiumAstro provides customizable, phased array communication payloads for launch vehicles, satellites, unmanned aerial vehicles, and other space platforms. Backed by Airbus Ventures and Kleiner Perkins, CesiumAstro raised $12 million of Series A funding in 2019 to expand its frequency offerings and system configurations.
Data generated by satellite and SpaceTech companies is likely to serve new AI applications. Further, new adjacent opportunities may emerge as the market grows. Space commercialization has amplified cybersecurity concerns whereby market incentives to lower costs and quickly innovate are often at the expense of software and hardware security. Protecting SpaceTech activities necessitates an understanding of cyber vulnerabilities that arise in various operations – requiring specialized companies.
Reusability has renewed interest in space tourism with companies such as Blue Origin, Virgin Galactic, and SpaceX leading the way. As the market evolves, a broader ecosystem may emerge around space tourism. Space mining, as far-fetched as it may seem, is plausible with today’s technology and can be significantly valuable due to the abundant supply of water and metals available on asteroids. Water can be converted into rocket fuel, significantly boosting the range of space travel, and asteroids contain astronomical amounts of valuable materials (e.g., platinum) that can be mined. It is likely that commercial companies will develop strategies to take advantage of these opportunities.
Venture’s Role in SpaceTech
Innovation and technological advancements in SpaceTech have been propelled by venture capital. Since 2009, cumulative venture investment in SpaceTech has totaled $10.3 billion across 757 deals. Total investments and deal count have grown at a 29% and 21% compound annual growth rate, respectively. Due to the industry’s capital intensity at the infrastructure layer, which comprises the bulk of early investment, average deal sizes are larger relative to the broader venture capital market in both early and later-stage rounds. We expect the averages will decline as investment increases in companies developing downstream applications versus those developing launch or satellite technology. Venture capital investment outside of the launch and satellite segments is difficult to measure as most companies are broadly categorized and in the early stages.
Though SpaceTech is still an emerging industry, generalist technology-focused venture capital firms across various stages have made investments, and continue to build on their SpaceTech theses. Several firms have raised space-focused venture funds, albeit none have attracted significant institutional investment and remain niche players in the market. The SpaceTech industry has experienced a fair share of both highly valued companies that have achieved significant market recognition and startups that are gaining market traction. The year 2019 was a record setting year for venture investment as 152 deals received $2.4 billion in financing. Deal activity favored the early-stage, which accounted for more than 60% of total deals. As the launch and satellite segments continue to mature, startups are capitalizing on their advancements, creating downstream funding opportunities in earth observation, data analytics, telecommunications, and IoT tracking, not all of which may be captured in industry data. Exit opportunities could accelerate in the near future as mature companies seek to continue to grow through strategic acquisition activity.
Fairview’s SpaceTech Exposure
Fairview has built exposure to SpaceTech companies through venture capital firms that have participated in nearly 40 SpaceTech deals. Funds within our portfolio have opportunistically sought SpaceTech investments as part of an investment thesis in their technology category. We find that the exposure is balanced across the early and later stages. Some of Fairview’s earliest exposure to the category came through SpaceX, in the launch category, but has since evolved to include satellite companies and a growing set of downstream companies. Since 2015, Fairview’s SpaceTech portfolio value has grown at a compound annual growth rate of over 40%. Value has been primarily driven by maturity in the launch and satellite segments. In 2019, SpaceTech companies collectively generated over a 3.0x gross MOIC, up from a 1.6x gross MOIC in 2015.
We find that general partners in the SpaceTech category are experienced early-stage technology investors that have developed their expertise internally through research and relationship building. Many have deep engineering or technology operating backgrounds, but very few have formal training or education in aerospace. Successful firms investing in SpaceTech have committed to immersing themselves in the industry. For example, one firm has advocated for and built a brand in the industry through various podcasts, conferences, and literary pieces highlighting the advancements and venture opportunities within SpaceTech. Some firms also have consulting relationships with aerospace experts to better understand the market and assess the plausibility of start-ups before investing. As SpaceTech matures into a prominent category, internal expertise may be needed to adequately invest in the sector. We expect firms to strategically hire talent that has aerospace, engineering, government contracting, and SpaceTech operating backgrounds and networks.
Recent space technologies including rocket reusability and nanosatellites have made the SpaceTech industry more accessible and lucrative, as these technologies have decreased the cost of rocket production, launches and satellite deployment. The influx of satellite data has resulted in a new category of downstream companies built on this new SpaceTech infrastructure, which is expected to grow significantly. Investors should take a measured approach and build a diversified portfolio of SpaceTech companies with a focus on investing in downstream applications. Fairview has steadily developed exposure over time and will continue to do so through best in class generalist firms with proven practices in the industry. As companies in the category scale, we have also found more co-investment opportunities emerge, particularly with companies that have proven their technology. Remaining informed and building strategic exposure to the category will be vital for limited partners with sophisticated venture capital portfolios.
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 Allied Market Research
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