Porteous WSBW
Will Porteous of RRE Ventures said at the World Satellite Business Week conference in 2018 that the increasing amount of capital available for space companies has enabled investment he didn't think could have been financed a year ago. Credit: SpaceNews/Brian Berger

PARIS — Venture capitalists see no sign of a slowdown in funding of space-related startups even though only a handful of those companies have provided significant returns to their investors.

Funding of space ventures has grown significantly over the last 18 months, said Mark Boggett, managing director of Seraphim Capital, during a panel discussion Sept. 12 at Euroconsult’s World Satellite Business Week here, from $500 million in the first quarter of 2017 to $1 billion in the second quarter of 2018.

While the United States continues to be the leading source of investment in space companies, Boggett noted increasing investment in the rest of the world, particularly in Europe. Both the number of companies winning venture funding, and number of venture capital (VC) firms investing in space companies, is growing.

“It’s really difficult to identify a top-tier VC that hasn’t yet made a space investment,” he said. “That’s very different to what it looked like 18 months ago.”

Other venture capitalists see little sign of investment slowing down. “It’s been a very, very good year with investment,” said Mike Collett, founder and managing partner of Promus Ventures. “I don’t see any reason why it would stop.” He said later in the panel that he expected “some very large rounds” to be announced in the next several months, but did not specify the companies or market sectors.

“This is going to be looked back on as a golden period, from my standpoint, in terms of dollars flowing into the sector,” said Will Porteous, general partner and chief operating officer of RRE Ventures. “I don’t see it slowing down. I see the flows continuing. And, frankly, it’s a pleasant surprise.”

That flow of funding into startups continues even though there have been few blockbuster exits, where venture-funded companies provide a large return to their investors. That increased availability of funding, though, has prevented what Porteous called a “flight to quality” in the field.

“We’re living in this really exceptional period right now where it is possible to get, from the ground up, a new space company funded in a relatively straightforward fashion,” he said. He credited new investors willing to fund companies that, in other eras, might struggle to raise capital, particular for later, larger rounds.

“That has enabled Series B and Series C financing that, a year ago, looked unlikely to happen,” he said. “Just this week at the conference, I learned about constellations that have been financed that I didn’t think we’re going to get financed.”

That has enabled technical development of new companies, but many have yet to demonstrate they are good businesses. “In late 2018 and 2019, these are the years when we need to bring the market a really impressive income statement and a really impressive revenue growth line to go with it,” Porteous said.

Boggett noted that the surge in funding in space ventures is needed since such companies tend to require more funding than a typical technology company at the same stage of development. An average seed round for a space company is $2 million, he said, double that of a general tech company. By Series C, the average space company is raising $30 million, versus $25 million for a tech startup.

“This is still a capital intensive industry,” he said. “There is a significant amount of additional capital that needs to be raised for each round.”

What could stop that growth? Porteous argued that current investors are better informed about space than those from two decades ago, who suffered through Chapter 11 bankruptcy protection filings from companies like Iridium.

“Most of the capital that has come into the market in the last 24 months is very well informed and very risk oriented in the approach that it’s taking,” he said. “We’re talking about investors who are really strategic and really knowledgeable about the capabilities of the companies that they’re investing in.”

Space also remains a small amount of the overall VC field. “In the absolute scale,” he said, “the relative amount of capital that is at risk here is still quite small.”

Jeff Foust writes about space policy, commercial space, and related topics for SpaceNews. He earned a Ph.D. in planetary sciences from the Massachusetts Institute of Technology and a bachelor’s degree with honors in geophysics and planetary science...