WASHINGTON — Despite the near-term shakeup caused by a bank failure and broader economic pressures, investors expect funding of space companies to rebound in 2023.
Speaking on a panel at the Satellite 2023 conference here March 13, Mark Boggett, chief executive of Seraphim Space, said that his fund estimated investment in the industry dropped by 25% in 2022 over 2021, but that funding would return to 2021 levels this year.
“Despite where we are with the macroeconomic environment, my expectation is that we will be back up to 2021 levels this year,” he said. Seraphim found that $12.1 billion was invested in the space sector in 2021 — a record — versus $8.9 billion in 2022.
Boggett said that resurgence came from several factors including growing military spending that creates more demand for space-related capabilities as well as climate and sustainability initiatives. He also cited sovereign wealth funds that have increased investment in space.
“I think you’re going to see some huge projects, really ambitious projects, that will be announced over the course of this year that will take that total sum invested up to that high from 2021,” he predicted.
The industry, though, is dealing with near-term fallout from the March 10 closure of Silicon Valley Bank, which was used by many space startups. While companies were able to restore access to their accounts there March 13 after the federal government stepped in, investors said it will have somewhat longer-term effects on industry financing.
Some of the effects are what Boggett and others on the panel described as tactical. “Speaking to our portfolio companies, each of them are now looking to build at least two other banking relationships so their money is spread across three banks,” he said. “I don’t think we’ll ever see that focus around a single bank and that level of risk again.”
Matt O’Connell, operating partner at Data Collective Venture Capital, predicted a “flight to quality” as a lingering impact of SVB’s closure. “Even though people have access to their deposits, it sent a chill through the community,” he said, predicting more consolidation among space companies. “Not every company is going to be able to raise money.”
“Any kind of dislocation makes people more conservative,” he said. “That will last for a while, but quality companies will still raise capital.”
Like Boggett, he expected defense spending to support the business cases for many companies, spurring investment in them. “If you’re doing defense or intel, global unhappiness is probably good for business, in a sad sort of way.”
Panelists agreed that the industry’s use of special purpose acquisition corporations (SPACs) to go public in the last two years had run its course, at least for the foreseeable future. “They served their purpose. They proved that space companies could have exits,” said Celeste Ford, managing director of Stellar Ventures.
Boggett said that the SPAC market was “frozen,” but was encouraged by funding that companies that had gone public through them had subsequently raised through private investment rounds called PIPEs. “That’s a trend that we’re going to continue to see.”
He predicted that, should SPACs return, it will not be used by early-stage companies like those that went public through them in the last two years. “The companies are going to be much more mature than the types of space companies that were SPACing two years ago.”
“SPACs will happen again in a smarter, better way,” Ford predicted. “You may not see it soon.”