Investors are sky high over space startups
When Lisa Rich held a call with investors in March to raise money for Aurvandil Acquisition, a company that buys startups focused on space technology, her goal was to bring in several million dollars.
Rich, a member of Aurvandil’s board, almost reached her goal within an hour.
“That just doesn’t happen,” she said, laughing.
Richard Branson flew into space Sunday on a ship built by his Virgin Galactic company. Jeff Bezos, who stepped down as Amazon’s CEO last Monday, is set to take a spaceflight this week in a spacecraft built by his company Blue Origin. And Elon Musk’s Spacex company has a deal with NASA to land Americans on the moon.
But moguls are far from the only people with their eyes on the skies.
Investors are putting more money than ever into space technology. Space startups raised more than $7 billion in 2020, double the amount from just two years earlier, according to space analytics company Brycetech. That trend is continuing this year, said Carissa Christensen, Brycetech’s CEO.
The largest deals are going to companies that launch rockets into space, such as Spacex and Relativity Space, which announced $650 million in new money last month, a day after Bezos declared that he would fly to space.
But startups in every sector of the space industry — including launch and satellite communications, human life support, supply chains and energy — have investors’ attention. Astranis, a satellite internet company, closed a $280 million deal in April. Axiom Space, which aims to build the first commercial space station, raised $130 million in February.
“I’ve never seen a market like this, ever,” said Gabe Dominocielo, a cofounder of Umbra, a startup that develops satellites designed to take pictures regardless of weather or light conditions. “Since last year, the amount of phone calls I’ve received. … The startup is typically making a phone call to an investor. Now it’s completely the reverse.”
The boom, many executives, analysts and investors say, is fueled partly by advancements that have made it affordable for private companies — not just nations — to develop space technology and launch products into space.
Astra, a startup founded in 2016, wants to make it even easier to go to space by offering smaller, more frequent launches — positioning itself as a building block of the space industry similar to cloud computing’s role in enabling web startups. The company is competing in the small launch market with more established startups such as Rocket Lab but hopes to stand out by aiming for even smaller and cheaper launches.
Astra has scheduled its first launch with a payload for this summer and has 50 launches under contract, including for Planet and NASA.
“Astra is there filling in this gap in the market where you have hundreds of these companies, they all have new technologies they’re developing, and you don’t want to wait until next year when Spacex can get you there,” said Chris Kemp, Astra’s CEO. “Even if it’s free, even if Spacex paid me money to wait a year, the value of being able to get to space next month is incredibly valuable to a startup that’s burning millions of dollars a month.”
Spacex is also working on another milestone: rockets such as Falcon 9, which has a reusable booster, and Starship, which is designed to be fully reusable. In May, Spacex successfully launched and landed its latest Starship prototype for the first time.
“The ability to reuse something and make it consistent and reliable is transformative in the space industry,” said Rich, who is also a founder of Hemisphere Ventures, which has invested in space companies since 2014, and a founder and the chief operating officer of Xplore, a company designing orbital missions.
The latest wave of deals has also been driven in part by a spate of special purpose acquisition companies such as Rich’s Aurvandil. The sole purpose of these publicly traded shell companies, known as SPACS, is to buy one or more private companies. They have been one of the financial world’s hottest trends over the past year.
From the startup’s perspective, merging with a SPAC is an efficient way to raise large sums at an earlier stage. It also changes the calculus for investors.
Some investors shied away from space startups in the past because the technology often takes much longer than software, such as a social media service or an app, to develop and generate revenue.
“If you’re in a software company and you deploy an app and it doesn’t work, you just spin up a new app. That failure maybe cost a month or two months of time,” Dominocielo of Umbra said. “If you have a satellite, you’re spending just millions of dollars, and if that satellite fails, you’ve lost years.”
But SPACS allow companies to go public earlier than a traditional initial public offering, giving investors an opportunity to cash out much earlier. The value of the public company is often based in part on growth projections rather than actual revenue.
Ten companies in the space industry have announced plans for a SPAC merger, including seven in 2021. Planet and Astra are among the seven. On Wednesday, Planet announced a merger with DMY Technology Group IV that is expected to raise $434 million. A merger with Holicity will infuse Astra with about $489 million in cash, allowing it to expand fast enough to keep up with what Kemp calls “absolutely insatiable” demand.
“When you get to the point where you need half a billion dollars of capital to build a rocket factory, then you have to go public because you’re beyond the venture stage of financing,” he said. “That’s where the SPACS really play well.”
Astra began the merger process in December and recently went public on Nasdaq.
In total, $3.9 billion has been raised through the nine SPAC deals, and the companies have a combined enterprise value of $20 billion, according to Christensen of Brycetech.
Investors, founders and analysts expect the space industry to continue to expand rapidly. Morgan Stanley estimated that space will be a $1 trillion industry by 2040, up from $350 billion in 2020.