Private investment in the space sector is down 58% in 2022, according to a new quarterly space investment report from Space Capital.
The $20.1 billion in private market investment last year is the lowest annual total since 2015, said Chad Anderson, founder and managing partner of Space Capital. While early-stage investments were broadly unchanged, the sharp decline was in early-stage and growth companies.
The report cites several factors explaining the pullback, including the fastest interest rate hike cycle since 1988, a challenging investment environment and continued economic recovery from the COVID-19 pandemic.
However, Anderson told Ars that another factor was the relatively low returns for space companies that went public through the Special Purpose Acquisition Company, or SPAC, a process that dates back to 2019 when Virgin Galactic did so. According to SpaceWorks analysis, $100 invested in a “new space” stock index in January 2021 would be worth about $15 today, compared to $127 for a traditional space stock index.
“The poor performance of the SPAC companies has certainly influenced investor attitudes,” Anderson said. “This is just one of many factors that influence investor sentiment, but it is certainly an important one. Amidst the general decline in technology investment, space companies are often seen as a higher risk category, and underperforming SPACs such as Virgin Galactic are clearly driving these perceptions.”
Anderson said it typically takes about six to eight years for a company to go from its first round of seed funding to an initial public offering of stock. By that yardstick, many space companies that went public through the SPAC process did so prematurely—not just before revenue, but in some cases before product.
Some of these companies, like Virgin Galactic, Virgin Orbit and Momentus, still don’t have a viable commercial product years after their IPO. While these companies may have needed public funding to survive their early years of development, this added scrutiny has made innovation much more difficult.
“It’s hard to build a flagship product, fail, pivot and innovate as a public company,” Anderson said. “Public markets prefer operational stability and predictable revenues. No wonder so many of these companies have disappointed.”
Focus on the fundamentals
That said, Anderson thinks some SPAC companies are starting to demonstrate their viability. Also, he said, there are “amazing” space companies that have been working in the background for several years. These companies will be ready to go public, through a traditional IPO, within a few years.
As for the report’s other notable insights, Anderson drew attention to SpaceX’s $2 billion capital increase in 2022, the company’s second-biggest annual increase. SpaceX has requested the additional funding as it works to bring two major development projects, the Starlink Internet Constellation and Starship Launch System, online.
China also appears to be closing the gap with the United States when it comes to private investment in the space economy, Anderson said. Chinese companies attracted 35% of all investment in space applications, for example, versus 41% for US companies. This is due to the boom in e-commerce and location-based services in China.
Looking ahead to 2023, Anderson sees another difficult year for space startups due to a lack of available investment capital for small businesses. However, he sees the shift from “dynamic investing” to a greater focus on fundamentals as a positive trend that will benefit quality space companies in the long run.