MOUNTAIN VIEW, Calif. – Government funding for the space sector is helping blunt the impact of a decline in private investment.
At the Satellite Innovation conference here, industry analysts, entrepreneurs and observers agreed that investors are far more cautious than they were in 2021, “a peak capital year with $12 billion in private capital coming into sector,” said Brooke Stokes, McKinsey and Co. partner.
While private investment is no longer pouring into space companies, it “hasn’t nosedived as much as some of the talk may suggest,” Stokes said Oct. 17. For now, “it’s leveled out at about $8 billion dollars.”
Shift in Government Contracting
Meanwhile, U.S. government funding for space programs is climbing.
“There’s a 20% increase in the government funding in the U.S.” said Raghavan Alevoor, Deloitte Consulting principal. “There’s the silver lining.”
The U.S. government’s approach to buying space-related products and services also is changing.
“A decade ago, 75 percent of all space U.S. government spending was via traditional contracts,” following federal acquisition regulations, Stokes said. “That has now shifted to only 60%.”
Rather than demanding companies comply with voluminous regulations, government agencies have increased their use of other transaction authority agreements and “other more commercial acquisition models,” Stokes said.
Alevoor sees another silver lining related to the private investment climate. For companies that still have access to capital, “this is an opportunistic time for them to look for acquisitions,” he said.
The panel discussed potential impediments to space sector growth including high interest rates.
“We do see some softness in the market because people think interest rates are going to remain higher or rise,” said Don Claussen, ST Engineering iDirect CEO. “Customers outside the United States are also concerned that a strong dollar will reduce their buying power.”
Claussen also thinks rising geopolitical tensions will create supply chain disruptions.
“If we look at who’s innovating and where they’re innovating, some of our partners are in regions of the world under intense conflict right now,” Claussen said. “It’s going to slow that innovation in those smaller companies and that is going to limit some of our access to that next technology.”