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LEO Economic Development: Investor Network and Capital Connections
MEDIA CREDIT: Image courtesy of NASANational Aeronautics and Space Administration
LEO Economic Development: Investor Network and Capital Connections
In FY23, several early-stage companies that have conducted R&D through the ISSInternational Space Station National Lab delivered capital-raising successes, despite challenging capital market conditions. This year, the total funding raised postflight by startups with ISS National Lab flight projects was $230.5 million, bringing the all-time cumulative total to nearly $2.1 billion. Including companies that have been awarded a flight project that has not yet flown to the ISS, the respective totals amount to $240.9 million for FY23 and more than $2.2 billion for the all-time cumulative total.
This year, grant funding events outnumbered private capital raise announcements, and companies in the ISS National Lab ecosystem that secured funding include Orbital Sidekick, Orbit Fab, Lynk Global, Rev Bio, MicroQuin, Tympanogen, Redwire, Kall Morris Inc., GITAI, and several others.
The ISS National Lab investor network continued to expand in FY23 and now includes more than 300 financial investors, including venture capital, private equity, corporate, and angel investors. To date, CASIS(Abbreviation: CASIS™) The nonprofit organization that manages the ISS National Lab, which receives at least 50 percent of the U.S. research allocation on the International Space Station to facilitate research that benefits humanity (NASA manages the other 50% and focuses on research for space exploration purposes). has facilitated more than 1,300 capital introductions between startups and investors in the ISS National Lab investor network.
This year, the ISS National Lab hosted its eighth annual investor event, highlighting seven innovative startups across the data processing and computing, biomedical manufacturing, orbital logistics, and remote sensing sectors. These investor events continue to provide a valuable opportunity to connect investors with entrepreneurs in the ISS National Lab ecosystem.
Industry Context
The space sector has not been immune to the capital access headwinds of FY23, as evidenced by a 45 percent decline in the broader venture capital investment activity in the U.S. during the year. This constrained environment is likely to persist into 2024. However, as evidenced by data from the third quarter of 2023, funding conditions for the space sector, particularly for companies in earlier stages, appear to be stabilizing on the private markets. This is a welcome development following the declines from the 2021 levels.
“Investing in the space industry requires substantial patience and capital. Since 2021, both of these crucial elements remain in short supply, with investors pivoting toward profitability rather than investing in long-term, capital-intensive ventures. This shift compels startups to promptly demonstrate tangible progress with potential customers.
The ISS National Lab stands out as a valuable avenue for startups, providing access to space, a reputable brand endorsement, and opportunities for engaging partnerships. These factors closely align with the criteria that investors typically consider when making investment decisions.”
– Mislav Tolusic, Co-Managing Partner and Chief Investment Officer of Marlinspike Partners
While the number of deals has increased despite difficult conditions, the market remains very selective with raised performance requirements and reduced valuations. Some space infrastructure projects have seen an increased need to engage foreign capital due to the lack or reticence of domestic funding sources. Even in earlier stages, there appears to be less investor willingness to lean into proof-of-concept-level risk than there was during the recent high-liquidity years. Furthermore, conversations with several specialized venture capitalists have pointed to a lengthy process to raise their next funds, and some of the “space tourist” investors have pulled back from the space arena.
Also affecting risk capital access is the current valuation picture of the publicly traded, nascent space companies that are in various stages of finding their footing in the post-SPAC world. While there have been several follow-up financings, implying some funding access, these deals have been executed at steeply discounted valuations to the initial listing prices. Reduced valuations should not come as a surprise, given the broad inability to meet the financial targets announced during the IPO process as well as slow progress to positive cash flow generation. The good news is that these markets are starting to clear little by little, with separation emerging between those who can perform and those who cannot. This rationalization process is expected to continue well into 2024.
Overall, the space industry is expected to continue to innovate strongly but also adjust within its resource limits. Several organizations have already begun getting leaner on headcount and more targeted in their capital allocation plans, including toward R&D. Further revisions to various space infrastructure strategies are likely, which obviously has implications for business plans reliant on such yet-to-be-built infrastructure. Consolidation for both revenue base expansion and fixed cost absorption remains as topical as ever. The silver lining here is that a successful funding event is now likely to be a stronger validation of capability, performance, and opportunity than during the boom years.