Enlarge / Sir Richard Branson took to the skies in the summer of 2021. But since then, with no additional spaceflights, Virgin Galactic stock has taken a nosedive.
According to a new Space Investment Quarterly Report by Space Capital, private investment in the space sector fell by 58 percent in 2022.
The $20.1 billion in private market equity investments last year is the lowest annual total since 2015, said Chad Anderson, founder and managing partner of Space Capital. While early-stage investment remained broadly flat, late-stage and growth-stage companies saw a sharp decline.
The report cites multiple factors for the pullback, including the fastest rate hike cycle since 1988, a challenging investment environment and an ongoing economic recovery from the COVID-19 pandemic.
But Anderson told Ars that another factor is the relatively poor returns from space-based companies that went public through the 2019 Special Purpose Acquisition Company, or SPAC, process 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.
SPAC’s beaten
“The poor performance of SPAC companies has certainly affected investor attitudes,” Anderson said. “This is just one of several factors affecting investor sentiment, but it definitely matters. Amid the overall slowdown in technology investment, space companies are often viewed as a higher-risk category, and SPAC underperformers like Virgin Galactic are clearly driving that perception.”
Anderson said it typically takes about six to eight years for a company to progress from its initial round of seed funding to a stock public offering. By that yardstick, many of the space companies that have gone public through the SPAC process have done so prematurely — not just before sales, but in some cases before product.
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Years after going public, some of these companies, like Virgin Galactic, Virgin Orbit, and Momentus, still don’t have a viable commercial product. While these companies may have needed public funding to survive their early developmental years, this additional scrutiny has made innovation much more difficult.
“It’s difficult as a public company to build a core product, fail, turn around and innovate,” Anderson said. “Public markets favor operational stability and predictable revenues. No wonder many of these companies have disappointed.”
Focus on the basics
With this in mind, Anderson believes some SPAC companies are beginning to demonstrate profitability. Also, he said, there are some “incredible” space companies that have been working in the background for several years. These companies will be ready to go public via a traditional IPO within a few years.
As for other notable tidbits in the report, Anderson drew attention to SpaceX’s $2 billion capital raise in 2022, the company’s second-largest annual raise. SpaceX has requested this additional funding as it has been working to bring two major development projects – the Starlink internet constellation and the Starship launch system – online.
Scale up / invest in the space economy based on where the investments come from.
Space investments quarterly
China also appears to be closing the gap with the United States in private investment in the space economy, Anderson said. Chinese companies, for example, have attracted 35 percent of all investments in space applications, compared to 41 percent for US companies. This is being driven by China’s e-commerce and location-based services boom.
Looking ahead to 2023, Anderson sees another difficult year for space startups due to a lack of investment capital for small businesses to draw on. However, he sees a shift from momentum investing to a greater focus on fundamentals as a positive trend that will benefit quality space companies over the long term.