Is The Commercial Space Industry Here to Stay?

“Can you really make money investing in space companies?” Only two or three years ago, this was a common question from curious investors outside the space industry—but today, you’re more likely to hear, “What is happening with space companies, and should I get in?”

To see what I mean, google “space investing.” Yes, you’ll have to dig through clickbait headlines and bad puns (5 Stocks to Watch as Space Industry is Set to Skyrocket), but interest runs deep. An example: The average exchange-traded fund (ETFs) attracts $100 million in its first three years, but Cathy Woods’ recent ARKX Space Exploration ETF racked up $500 million in its first five days.¹

It’s not the first time that investors have been abuzz about the space industry, but these periods of interest—in the 1990s, for example—haven’t lasted. Are things different this time? I believe so. In this newsletter, I’ll discuss investor interest in space in the recent past, and I’ll tell you why, this time, I believe space investing is here to stay.

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Deja Vu?

This isn’t the first time investors have been amped about space. Greg Avery, an aerospace business reporter from the Denver Business Journal, wrote in 2017, “The gush of funding and the kinds of business the startups are pursuing bring to mind the 1990s in commercial space, when new companies formed to bring new earth observation, satellite internet access and mobile communications services to life.”² 

Avery was right. In the 1990s, investors poured billions into shiny new space companies like Iridium, Globalstar, OrbComm, ICO Global, and LightSquared. But these hopes fizzled out: Many of the companies went bankrupt in the late 1900s and early 2000s. Although some restructured and survived, investors—burned by these losses—shied away from the space industry. As Avery wrote, “The boom didn’t last.”

Iridium Satellite on display at the National Air and Space Museum. Source: Eric Long, National Air and Space Museum

What’s Different, And What’s the Same?

Today, we’re seeing echoes of that ‘90s-era space-industry boom. Once again, investors are funneling billions of dollars into ambitious projects that, even if all goes according to plan, will take years to generate revenue. And some new companies, like OneWeb, have already followed the path of its unsuccessful predecessors, attracting investment, crashing, and then scrambling out of bankruptcy under the yolk of new ownership.

But I believe things are different today. Why? For the first time, investors’ investments are starting to pay off. Fundamentally, investors need to believe that the money they spend—on propping up an infant space company, for example—will be earned back (and then some). In other words, investors need to be confident that they’ll turn a profit at some point, a point called an exit event. 

In the space industry, these high-value exit events are finally happening; investors have reason to be confident.

So far, the most common event is a space company going public, particularly through SPAC mergers. The SPAC’ing process isn’t perfect (see my article on Space SPAC’s), but it does mean that—once companies are public—early-stage investors can sell their equity in public markets and get their money back.

There’s progress elsewhere, too. For example, new space companies are increasingly acquiring venture-capital-funded startups, providing more opportunities for early-stage investors to reap rewards. SpaceX and Astra just acquired venture-funded space companies Swarm Space and Apollo Fusion, respectively.

Test of Apollo Fusion’s Hall Thruster. Source: R. Conversano, Jet Propulsion Laboratory, California Institute of Technology

Perhaps these exits yielded more modest gains than venture investors hoped for, but they illustrate a viable route to success. Better still, the acquirers (like SpaceX and Astra) were themselves venture-funded startups, living proof that the “older” startups of today’s wave of space investment have become, in mere years, robust enough to buy up-and-coming space startups. There are only a handful of case studies like these, but they point to the birth of a healthy space economy.

Energized by this progress, early-stage investors seem to be outgrowing their “wait-and-see” hesitance, instead reinvesting in space companies. And the exits are also encouraging early investors to bet on the industry with more gusto.

Will It Last?

I believe this is an unprecedented time for the space industry, but it’s too early to know anything for certain. Today, companies years out from profitability can tap into capital markets as needed, but this won’t always be the case; the commercial space industry may face its ultimate litmus test during the next market downturn.

We’ve seen this before. Toward the end of the last space-investment cycle in the early 2000s, and as the dot-com bubble burst, companies struggled to raise capital. While some space companies survived (e.g., DirectTV), many more faced bankruptcy.

I spoke recently with Aerospace Corporation CEO Steve Isakowitz about this. He said:

The real test will be whether we get the necessary returns. I think many believe that not all these companies are going to survive. There will be at some point a falling out, but that’s okay, like in any area of venture investment, you’re looking for a few big hits to be the ones that transform the industry and I think we’re seeing a few transformative ones coming to the forefront.

You can read the full interview here.

So now, the big question: Does the space industry have enough momentum to survive the shock of a market downturn? The honest answer is that we’ll find out when that happens. But given the flurry of recent, successful exit events and the meteoric rise of SpaceX’s valuation, I think the industry is in a healthier position than it was in the funding wave of the 1990s. Only time will tell—but I’m optimistic.

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1. https://markets.businessinsider.com/news/stocks/cathie-woods-space-etf-arkx-on-track-to-success-trading-2021-4

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