Investors have poured a record $2.8 billion into reaching outer space, and they may not be done yet




Investment in space start-ups continues to soar, buoyed by the exploits of highly visible space concerns, like SpaceX and Jeff Bezos' Blue Origin . But it's the terabytes of data streaming to Earth daily from a new generation of smaller, less-expensive satellites - thousands of which are slated to join the roughly 1,500 satellites already in orbit over the next several years - that have piqued investors' interest in everything from satellites themselves to software used to analyze their data and new rockets designed to loft them into orbit.

Newly compiled data from space industry consulting shop Bryce Space and Technology released Wednesday demonstrates the trend.

In 2016 space start-ups received a record-setting $2.8 billion in investment, $400 million more than in the year prior. With roughly 25 venture deals already reported in 2017 - including a $351 million investment in Elon Musk's SpaceX that pushed that company's valuation to more than $20 billion last month - these so-called "new space" ventures are once again on pace to raise billions in seed, venture and private-equity cash.

"Fundamentally, investors go after opportunity, and the way I would sum it up is, this is one of the last frontiers, to be a little cliché," says Tom Barton, chief operating officer at Planet, whose 190 imaging satellites generate some 7 terabytes of fresh overhead imagery of Earth each day. "It's still old-school; it hasn't really been touched by Moore's Law."

But while cash continues to flow toward space start-ups at an unprecedented rate, the industry is also hurtling toward a kind of reckoning, industry sources say. For every new space start-up like Planet and Spire Global (which also operates a small and growing constellation of data-gathering satellites), there are several more that are developing satellite hardware or new launch vehicles that have yet to make it to orbit.

"Over the next couple of years, there's a real series of systems that are poised to come online," says Raphael Perrino, the lead aerospace analyst on the Bryce report. But while investors see huge potential in space start-ups, the race is now on to see which companies can successfully convert vision to space-based revenue streams.

A day of reckoning is coming

"As much as I say that we're at the start of consolidation in the new space sector, I think we're probably at the start of some of these companies going bankrupt," Planet's Barton says. "I would guess that over the next two years we see five or 10 significant bankruptcies or acquisitions for pennies on the dollar for people that just aren't going to make it on their own."

According to Bryce's report, 114 investors poured more than $2.8 billion into space start-ups last year. What's more interesting than raw dollar values is exactly who is piling in and how they are doing so, Bryce Space and Technology founder and CEO Carissa Christensen says.

In 2016 the biggest VC deal came from Softbank, an atypical venture investor (some have characterized the deal as private equity, though Bryce analysts have defined it as venture-based on its nature and purpose). The most active conventional VC funds in the space start-up ecosystem have been and continue to be Draper Fisher Jurvetson and Founders Fund (both early backers of SpaceX) as well as In-Q-Tel, the venture arm of the Central Intelligence Agency.

Though there were roughly half as many venture deals in 2016 than in 2015, the average deal value rose by more than $20 million, to $80.7 million, per deal. Moreover, of the 62 venture investors that funded space start-ups in 2016, fewer than a third had put money into the commercial space industry previously, Christensen says. Both points suggest that investor perceptions about the long-term viability and nearer-term profitability of space start-ups is changing.

The influx of new investors send a strong signal that perceptions of the commercial space industry and its ability to create viable business models are shifting among mainstream investors, Christensen says. "There are strategic investors that are investing in space because it aligns with their business," she says. "But the most interesting investors, and the ones that have really entered the arena in the last few years, are the financial investors - the ones that are entering the space market because they see the potential for outsized returns."

"The cost structure is coming down, and I think that's fundamentally what investors are interested in," Planet's Barton says, and as those costs go down, the path to profitability becomes easier to navigate than it was just a few years ago. "What's different today versus five years ago is, we now have these data sets, and the cost to apply machine learning and analytics has probably come down by a factor of 10 in the last five years."

Teeing up a new space race

While we haven't see a blockbuster deal like Softbank's $1.2 billion investment in satellite communications start-up OneWeb last December, it's possible we will see something like it before year's end.

In terms of performance, the commercial space industry is arguably enjoying its best year ever. SpaceX, the industry darling, is on pace to launch more rockets this year than it ever has before by quite a wide margin (the company also plans to fly its much more powerful Falcon Heavy rocket for the first time later this year). Bezos' Blue Origin continues to test critical technologies and construct new rocket-building facilities. Small satellite constellations continue to grow, bringing the industry closer to the Holy Grail of on-demand real-time satellite coverage of the entire planet.

For the investor who can stomach a little risk, it's an industry that can suddenly look very attractive, says Marco Caceres, a senior analyst and director of space studies at aerospace consultancy Teal Group. "If you look at the traditional market, nothing exciting is really happening," he says. "The Boeings and Lockheeds of the world, in terms of launch services or manufacturing satellites - there's no big boom in the market. But if you look at what's proposed, it looks like the market in five to 10 years is going to look a lot different."

The trick is, of course, transitioning from proposed satellite constellations to real, revenue-producing data sets and insights - and doing so before investor enthusiasm runs out. There's nowhere near enough launch capacity in the world to put all these proposed satellites into orbit in the near term, Caceres says, creating risk for satellite companies and opportunity for new launch providers. But at some point in the next year or two, the entire space start-up ecosystem will have to start delivering in a major way.

"We're not yet seeing the outcome of investment in a lot of funded companies," Bryce's Christensen says. "We're seeing their ability to raise money, we're seeing their ability to design and deploy their systems, but we're not seeing their ability to return profits."

Starting as soon as next year, that will have to change.

- By Clay Dillow, special to CNBC.com

COMMENTS

More Related News

SpaceX successfully delivers 20 mice to the International Space Station
SpaceX successfully delivers 20 mice to the International Space Station

A SpaceX capsule rocketed to the International Space Station from the Kennedy Space Centre in Florida on Monday, carrying tons of science experiments, plus ice cream. As has become customary on these cargo flights, SpaceX landed its leftover booster back at Cape Canaveral shortly after lift-off, a key to its long-term effort to recycle rockets and reduce costs. It was the 14th successful booster landing for SpaceX and the sixth on the giant X at the company's designated touchdown spot at Cape Canaveral Air Force Station, just a few miles from its NASA-leased launch pad at Kennedy Space Centre. Falcon 9 rocket bound for the International Space Station being launched from Cape...

SpaceX just landed a rocket back on Earth after flying it to space. How's your Monday?
SpaceX just landed a rocket back on Earth after flying it to space. How's your Monday?

This isn't getting old yet. The first stage of a Falcon 9 rocket built by Elon Musk's SpaceX came in for a dusty and impressive landing at the company's landing zone in Cape Canaveral, Florida on Monday. The landing occurred about 10 minutes after the rocket launched a Dragon cargo craft carrying supplies to the International Space Station. SEE ALSO: Elon Musk's SpaceX starts off its week with an impressive rocket launch and landing This marks the company's 14th successful landing and its 6th successful one on land, with the rest of them taking place on drone ships in the ocean. SpaceX founder Elon Musk has long said that he hopes this kind of feat can become...

SpaceX launches super-computer to space station
SpaceX launches super-computer to space station

SpaceX on Monday blasted off its unmanned Dragon cargo ship toward the International Space Station, carrying a host of science experiments and the most powerful computer ever sent into orbit. Three minutes after launch, the rocket separated as planned, with the long, tall portion -- known as the first stage -- arcing back toward Earth and the second stage continuing to propel the cargo ship to space. The first stage of the rocket then powered its thrusters and operated its grid fins to set itself down on solid ground at Cape Canaveral for a controlled, upright landing at Landing Zone 1.

Watch today
Watch today's SpaceX launch live right here at 12:30 PM

SpaceX might have some seriously grand plans for the near future of its rocket program, but until the "world's most powerful rocket" is ready to head skyward, it's business as usual at the commercial spaceflight firm. Today, SpaceX will launch its Dragon cargo spacecraft on an unmanned supply run to the International Space Station, and you can watch the launch and recovery live right here, thanks to SpaceX's always fantastic live stream. The launch is scheduled to take place at 12:31 pm ET, and the SpaceX craft will be taking off from NASA's Kennedy Space Center in Florida. Once the first stage of the rocket separates, it will head back to Earth where, if everything goes...

Is North Korea a Threat? Not as Much as Artifical Intelligence, According to Elon Musk
Is North Korea a Threat? Not as Much as Artifical Intelligence, According to Elon Musk

Elon Musk, CEO of SpaceX and Tesla, speaks during the International Space Station Research and Development Conference at the Omni Shoreham Hotel in Washington, DC, on July 19. The Tesla and SpaceX chief executive has long warned of the dangers of AI and issued his latest warning after a bot from OpenAI defeated some of the world's best players in in a professional gaming competition.

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Economy

facebook
Hit "Like"
Don't miss any important news
Thanks, you don't need to show me this anymore.