Credit: SpaceNews Midjourney illustration

Karthee Madasamy is the managing partner at MFV Partners, a Silicon Valley-based venture firm investing in technologies and teams shaping the future of critical industries such as transportation, manufacturing, climate, and more.

The global space industry is expected to eclipse $1 trillion over the next few decades. And while casual onlookers sometimes express skepticism of this rapid growth — often due to their disdain for the billionaires in the captain’s chair of the industry’s most prominent players — the venture industry is clearly enticed by how space technologies can power the global economy. In that sense, the Kármán line has never been more illustrious for space entrepreneurs and investors.

The space economy’s growth journey has been anything but smooth. It’s been impacted by macroeconomic conditions, causing deal activity to slow down. The third quarter of 2022 was challenging, with venture capitalist investment in space down 44% versus the broader market’s 31% decline. VCs’ risk-off preferences have seen many shy away from this type of deep tech and refocus on enterprise Software as a Service (SaaS).

But we know investors can be irrational and that markets tend to overcorrect. And truthfully, space technology’s potential — with advancements already transforming our daily lives — positions it in a stratosphere well above other tech markets disrupting industries down here on Earth.

Transformative potential will keep VCs knocking

Look no further than Apple and Globalstar, who recently partnered to provide emergency SOS communications services on the iPhone 14. This step to integrate satcom into mobile devices has significant implications. It will undoubtedly fuel the rise of more innovations in the future, just as Apple’s integration of GPS into the iPhone 3G helped spur the launch of location-based services and multi-billion-dollar companies like Lyft, Uber, and Snap.

Meanwhile, star power like Jeff Bezos and Elon Musk and entities like OneWeb also draw attention to space. They are providing new energy, engineering talent, and innovation to transform further satellite communications, Earth observation, and ultimately access to orbit. SpaceX’s launch of an Italian Earth-observation satellite last January, for example, is helping governments and commercial entities with global issues like forest and environment protection, natural resources exploration, and defense and security.

Similarly, companies like Spire and Planet are revolutionizing Earth observation through their low-Earth orbit constellations, essentially democratizing access to satellite data.

Indeed, businesses like these are directly moving the needle for Space 3.0 and ringing in a new era where stakeholders, including commercial companies, realize the enormous potential for space technology and space research on Earth.

Future advancements already driving interest

In other words, companies developing these critical and often radical innovations will be impervious to capital crises in the long run. Even as VCs become more selective, they’ll choose to invest in founders with deep technical expertise and, as I do, seek out companies transforming industries.

I expect the companies to catch VCs’ attention will operate in a few space technology areas. One is manufacturing in space. It’s back on investors’ radar roughly 50 years after NASA experiments attempted to prove the viability of large-scale manufacturing plants in space. Their experiments failed, but it was very much on the U.S. docket for some time after that. In his 1985 State of the Union speech, Ronald Reagan didn’t hide his excitement when describing how manufacturing in space could enable technological breakthroughs in supercomputers and medicine that “we never thought possible.”

Credit: SpaceNews Midjourney illustration

It still might. Space is ideally suited for manufacturing operations because it offers better gravitational control and an infinitely available vacuum, allowing several manufacturing processes to be carried out with relative ease. And the reason why there’s so much renewed interest in manufacturing in space is cheaper launch costs, smaller satellites, and reusable rockets have made space much more accessible and affordable. As a result, many companies like Varda Space and Rocket Lab are attempting to put factories into orbit. Interestingly, McKinsey found that the number of patents mentioning “microgravity” soared from 21 in 2000 to 155 in 2020.

Other areas that could drive VC interest are deep space explorations and a lunar economy. The ability to land humans and large masses on the lunar surface opens up endless possibilities for scientific exploration. It could also open up markets through the industrial utilization of the moon. The result is a massive opportunity for investors to play a part, given the various innovations needed to make a lunar economy possible, including transportation, lunar data, and in-situ resource utilization.

Investing in bits and atoms

None of the advancements we’ve seen in space were possible without deep tech. On the same note, deep tech is imperative for pushing the industry further. Yet, its role has been overshadowed by the bigger ticket news items and personalities making headlines.

This shouldn’t deter investors, however. Amidst all the hype the space sector generates, deep tech is having a real impact. Unfortunately, however, VCs with a short-term view often miss this impact. We’re seeing a similar situation in the climate space, where a lot of capital is going towards software that, let’s face it, won’t save us by itself. Just as deep tech is needed to accelerate decarbonization and renewable energy, we need deep tech to achieve our goals in space. And that means investing in deep tech at the intersection of bits and atoms.

We need the person building “picks and shovels” as much as we need the guy launching rockets into orbit. Space-based technologies need unique hardware and software. Early-stage startup Exo-Space illustrates one of those examples. It is developing space-specific edge computing for on-orbit image processing. The Edge Platform (dubbed FeatherEdge) mounts directly onto a satellite and hosts radiation-safe applications for AI, analytics, and communication, enabling complex image analysis on-orbit.

Deep tech will also need to tackle astrodynamics, or propulsion solutions, that guide the motion of satellites and other spacecraft. Kayhan Space is one emerging company in this space. Its analytics platform ingests data from sources like U.S. Space Command’s public space catalog, commercial data providers, and satellite operators’ own GPS positioning signals, and uses AI to simulate scenarios and generate maneuver plans for operators so they can avoid space collisions.

It’s also worth watching out for LeoLabs and Vyoma, both of whom use observation satellites and machine learning to help operators track missions and avoid collisions in low earth orbit. Further use cases for machine learning and neural networks in astrodynamics will include orbit predictions and spacecraft flight modeling. So while the space economy will continue to provide numerous opportunities to invest in atoms, there will also be the opportunity to invest in the bits moving atoms across our skies.

This article originally ran as a Commentary in the January 2023 issue of SpaceNews magazine.

Karthee Madasamy is the managing partner at MFV Partners, a Silicon Valley-based venture firm investing in technologies and teams shaping the future of critical industries such as transportation, manufacturing, climate, and more.