Virgin Orbit Nasdaq
Virgin Orbit celebrating going public through a SPAC merger at the end of 2021, but filed for bankruptcy by April 2023. Credit: Virgin Orbit

WASHINGTON — After a recent downturn, there are signs of a rebound in space investment, but analysts and investors see a new focus on smaller, more selective rounds.

Investment in the space sector has fallen in recent quarters due to factors such as the rise in interest rates and the poor performance of some companies in the sector. A recent report by Space Capital calculated that $2.2 billion was invested in space companies in the first quarter of 2023, the lowest quarterly total by its metrics since 2015.

However, speakers at the recent Financial Times’ “Investing in Space” event said there are signs of a rebound. “It seems like the tide may have turned,” said Chad Anderson, founder and managing partner of Space Capital.

“We see definitely a recovery in the space technology market in terms of funding,” said Thomas Felix Baden, managing partner and co-founder of Neventa Capital.  He noted his data showed that, in Europe, there has been more investment so far in 2023 than in all of 2022.

Vaibhav Lohiya, managing director and global head of space banking at Deutsche Bank Securities, agreed that there was more funding available for space companies now after a pullback early last year. But, he added, that investment was changing.

“Investors are starting to get more selective,” he said, with more interest in backing “category leaders” that can offer near-term returns rather than “moonshot opportunities.” Rounds are getting smaller, he added.

“I think the big change that you’ve seen in the last two years is that we went from an environment where people thought we had plenty of capital,” said Christian Lesueur, managing director and global head of TMT investment banking at UBS. That allowed businesses to embark on capital-intensive projects with the expectation they could raise more money quickly.

“Today, I think we’re in a very different environment,” he said, with companies expected to show a better path to profitability. “If you’re going to raise capital and say that you need to raise capital again in 12 months, that is a very hard task today.”

Tied to that selectivity is more scrutiny of the companies seeking funding. “The sentiment has really changed from one where investors were investing with very little diligence 12 or 24 months ago to really digging in,” said Marc Robbins, director at Barclays Corporate and Investment Bank.

“There is a crop of companies that were invested in during the recent hype cycle that are not performing to expectations,” said Steve Jacobs, venture partner and chief product officer at Lakestar, a European venture fund.

Anderson said that reflects first-time investments by some venture funds into space companies, particularly at the peak of investment in 2021. “There was a lot of irrational dollars coming in and not a lot of diligence being done, and a lot of questionable companies being funded.”

That reaction is also linked to companies that went public in the last two years through mergers with special purpose acquisition companies, or SPACs. That provided companies in space and other sectors a new source of capital. However, many of the companies that used SPACs have performed poorly in public markets, including the bankruptcy of Virgin Orbit.

Anderson argued many of the companies that went public through SPACs were not ready to do so. “These companies weren’t pre-profit,” he said. “A lot of them weren’t even pre-revenue. Many of them were pre-product. So, we saw many of them fail out in the open, in the public eye.”

Steve Jurvetson, co-founder of Future Ventures and an early investor in Planet and SpaceX, said many SPAC deals were what traditionally would have been private venture rounds. “Those don’t necessarily end so well.”

Some companies have done better going public in more traditional ways, such as an initial public offering (IPO) by Japanese lunar lander company ispace on the Tokyo Stock Exchange in April. The company’s stock has rebounded after a sharp drop when its first lander mission crashed on the moon weeks after going public.

That was the first IPO of a space company in Japan, said Atsushi Mizushima, partner at Nishimura & Asahi. “People start to believe that the space industry is growing,” he said of the Japanese market. “It had a very good influence on the capital market.”

Anderson said he expected a shakeout in the industry to continue for “some time,” with more failures by companies or even investment funds. “It’s causing some short-term pain for some companies, but in the long run it’s probably going to be really healthy.”

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...