Venture capital continues to be the leading source (51%) of funding for privately held space companies, but a lack of liquidity-producing exits has slowed the flow of capital to startups. Additionally, valuations remain artificially elevated by two main factors: 1) outsized AI deals and 2) delayed fundraising for companies that last raised during pandemic highs. With cash from bridge financings dwindling, companies are being forced back into raising, pushing flat and down rounds to record highs. However, the climate for US private markets may now be at its most favorable state since the Federal Reserve’s rate-hiking cycle began in early 2022. The Fed’s 50 bps cut in September had an immediate impact on public markets, sending Wall Street to all-time highs. While the impact will take longer to flow through to private markets, dealmaking is already beginning to recover following an uninspiring 2022 and 2023.
Here’s what shaped the space capital markets this quarter:
Reality check
There are currently 47 space unicorns (companies valued at over $1billion) sitting in private portfolios, but many of those valuations have not yet reset from pandemic highs. We’re now seeing record-high consolidation as companies struggle to grow into their lofty valuations and as incumbents struggle to compete with new entrants. Through three quarters, the space economy has seen more acquisitions this year than any in the past two decades, but the average value of those transactions is near the lowest on record.
Despite some predictions that the IPO market would open up this year, it’s continued to be sluggish. Some have gone out, such as debris cleanup company Astroscale ($186A), but it’s been barely a trickle. If the IPO market opens before the end of the year, the list of most valuable companies in the Path to Exit section of this report may provide clues as to who could be next.
While fed rate cuts are certainly a significant factor in driving an increase in IPO activity, what is most likely to spark an IPO revival are businesses that actually perform well. The public markets are wary of companies with flimsy fundamentals, and rightly so. Companies have much to do to regain the trust of investors after the SPAC frenzy: Astra ($ASTR) closed a deal in Q3 to take the company private after losing 99% of its value in three years; Arqit ($ARQQ) lost 99% of its value in the same period and pivoted; Lockheed Martin agreed to buy Terran Orbital ($LLAP) for $450 million, which was valued at $1.8 billion just two years ago. Several other space companies that went public in 2021 have gone bankrupt, received delisting notices, or spooked investors by wildly missing revenue targets. Our best guess: IPO activity is likely to be fairly quiet the rest of the year, with some possible exceptions.
SpaceX saves
In perhaps the biggest news of Q3, SpaceX launched a rescue mission to retrieve two NASA astronauts stranded on the International Space Station after Boeing’s Starliner was deemed unsafe for human transport. This was a triumphant moment for SpaceX, which has gone from underdog to apex player in the span of a decade.
Also in Q3, SpaceX successfully launched four astronauts to the highest orbit by humans in more than 50 years, facilitating the first commercial spacewalk. The mission was a showcase of SpaceX’s new space suits, as well as the company’s Starlink satellite network for communication in space. Back on Earth, Starlink hit 4 million subscribers, while also inking a landmark deal with United Airlines for in-flight WiFi service. Business is booming for SpaceX, which has not raised capital since 2022. With nearly $10 billion raised to-date, they’ve left an impressive gap in the investment data to be filled by new underdogs.
The year of the dragon
China accounts for 25% of global space economy investment, second only to the U.S., and the country’s space capabilities have grown at a breakneck speed over the past five years. For example, Shanghai Spacecom Satellite Technology launched the first satellites of their G60/Qianfan/Thousand Sails constellation to compete with Starlink. Soon after, the launch vehicle broke up in orbit releasing over 700 debris fragments. With Guowang and other projects likely ramping up later this year, we expect to see quite a few more Chinese launches in 2024 including GeeSpace, the space sector spinoff of automotive giant GEELY, which now has 30 satellites in orbit providing 24-hour coverage of 90% of the globe.
However, China’s economic slowdown and a crackdown on tech companies has throttled the country’s private sector. The number of startups founded in China has dropped a staggering 50x since the peak in 2018 and is on track to be even lower this year. We’ll be watching closely to see how the outflow of global investment and the massive drop in the valuation of Chinese companies impacts the country’s space ambitions.
AI & Spatial Intelligence
There’s been an exponential increase in data from orbit and more sensors are coming online all the time, such as Maxar’s WorldView Legion satellites which delivered their first high-resolution images in Q3. But, we’ve struggled to derive useful insights from that data because there is simply too much of it for humans to understand – unless it can be passed through an AI system. Three massive developments in Q3: 1) Google is partnering with leading wildfire authorities to launch FireSat, a new global satellite constellation designed specifically to detect and track wildfires the size of a classroom within 20 minutes; 2) Ansys and Rendered.ai have combined forces to bring faster simulation of large environments to remote sensing professionals using computer vision to analyze Synthetic Aperture Radar data; and 3) Founded by AI pioneer Fei Fei Li, World Labs emerged from stealth with $230 million in funding to develop spatially intelligent Large World Models (LWMs) that can understand and reason about the 3D world from images and other modalities. This is a huge area of opportunity for investors and one that we will be monitoring closely going forward.
The space sector faces financial pressures and rapid technological advances, driving a period of recalibration and growth. While venture capital remains dominant, companies like SpaceX showcase the potential of resilient models, and AI’s role in processing orbital data is expanding, opening new investment avenues. As the year closes, stakeholders must adapt to these shifts, ready to capture value in the evolving space economy. To learn more, please download the Q3 2024 Space IQ.
