Historically, satellite and space tech have been driven by government and defence projects, with communications – and more recently GPS – the only real commercial applications. As such, innovation and investment were secondary to necessity and there was little in the way of a business case for smaller, private players.
But thanks to a combination of market factors, a new generation of start-ups have quite literally set their sights on the stars.
Over the last decade there were around 230 satellites launched every year, but over the coming decade this will increase to a forecasted 990 launches a year, according to figures from Euroconsult.
The pace is already picking up: the World Economic Forum (WEF) counted 8,950 satellites in orbit at the start of 2019 and SpaceX alone has regulatory approval to launch 12,000 more for a single project over the coming years.
Elon Musk isn’t the only billionaire with a stake in the sector. Richard Branson and Jeff Bezos have also put their names behind a series of projects, but it’s the arrival of venture capital (VC) that gives the sector its true seal of approval.
In its January quarter Global Space Index, Seraphim Capital says the sector as a whole raised US$4.1 billion last year from global VCs, up 21% on the previous calendar year. The launch and constellation categories of Seraphim’s index led the way, attracting 75% of total investment. Khosla Ventures, Founders Fund, Promus Ventures, Draper Fisher Jurvetson, and the CIA’s In-Q-Tel are just some of the names that have backed at least four start-ups.
“Venture funds like to be at the beginning of any sector, and this is a sector that will provide a decade or more of growth,” says Seraphim Capital managing director, Mark Boggett. “They are, like investors do, taking it on trust that the growth will be delivered, but there are some good fundamental reasons to justify that,” he adds.
The thrill of disruption
The reason space has piqued the interest of such backers is because it sits at the nexus of several communications-dependent mega trends offering multi-decade growth opportunities: AI, smart cities, IoT, remote broadband connectivity, and GPS, which alone is used in hundreds of sectors.
As such, while these investments were niche five years ago, the last 18 months has seen every VC with a cheque book arrive to the party.
“Virtually every venture fund portfolio now has at least one space tech investment in it. That has really been the major change over the last few years where space has become a much more accepted sector across the entire venture community,” he adds.
These investments aren’t exclusively channelled into start-ups and corporates remain highly active, but thanks to the increased availability in funding overall, the market is on course to reach values of $292 billion by 2028 – a decade-on-decade increase of 28% according to Euroconsult.
The power of disruption adds further value and with the start-ups’ rollcall of niche specialisms covering super-yacht mobile broadband and quantum communication powered by quantum-enhanced satellites, the lure remains clear.
“The incumbent market is going through a period of disruption and that is very attractive to the venture community,” says Boggett adding that, although the global Covid-19 recession will undoubtedly mute growth in the short-term, it will be an anomaly rather than a downwards trend. “The market will undoubtedly recover because of the disruption that has already started.”
The benefits are mutual. Because VC dollars remove dependency on debt-based funding, satellites are no longer required to be operational for 10 years or more.
Despite the initial risks in using unproven technology, advances like 3D printed components and miniaturisation have brought down manufacturing costs meaning today, some miniaturised satellites can be produced three hundred times cheaper that their larger predecessors. In turn, this drives the ability to launch thousand-sat constellations over a few short years.
“That is really disrupting the market. The promise of those satellites will be game changing and if you think about it the reason is pretty obvious: their services are will be much closer to real time than those with smaller constellations in orbit,” says Boggett.
Risk and reward
As strong as the sector appears, threats do remain. The regulation of orbit and space is based on maritime law and has been since the 1960s. Updating this will require global collaboration to prevent driving companies into less regulated jurisdictions.
One suggestion is to reassign regulatory responsibility by sector, rather than geography, to avoid market saturation in such areas as weather monitoring and GPS tracking.
How that would play out for connectivity remains to be seen but with thousands of satellites planned for launch, some are already active in this area, including the World Economic Forum. It says we are “on the cusp of a potentially significant increase in space clutter”.
Of the 8,950 satellites it counted in orbit at the start of last year, 5,000 were still there at the end of the year, but only 1,950 were functioning. The orbiting satellites were joined by about 34,000 pieces of debris bigger than 10 centimetres.
Tackling the problem, The International Astronomical Union – the body that demoted Pluto from planet status – has been tasked with ensuring SpaceX in particular, does not “threaten the dark and radio-diet sky essential for scientists to advance our understanding of the universe.”
For VCs, some of these risks pose further investment opportunity. Take space debris for example: LEOLABS can detect debris smaller than two centimetres – the US Airforce only measures larger than 10cm – and map hazards to avoid collisions. It has raised $17 million in funding over four rounds.
Outlook
When it comes to business, 2020 has already seen OneWeb voluntarily file for relief under Chapter 11 of the Bankruptcy Code. The company successfully launched 74 satellites as part of its constellation, secured global spectrum and had half of its 44 ground stations completed or in development.
While Boggett expects current economic headwinds to set the sector back around 12 months, his outlook remains positive and, for start-ups, the coming 24 months could even bring the first round of IPOs.
With six times the VC capacity of Europe, In-Q-Tel, and a government that is also a major customer to its space tech start-ups, the US in on track to retain its leading position in the current space race, trailed by Asia and Europe respectively.
Boggett says: “In the satcoms market we have big investments particularly around broadband from space.
“If you look at the companies that are the driving force behind that you can see they are very well financed to continue with those plans.”
