Space Capital has released its analysis of the latest quarter in the space industry. The report, Space Investment Quarterly: Q4 2023, also included some information on cumulative space investment, as well as a breakdown of the various segments of the industry and how much investment they’ve attracted.
The key takeaway? Much like with all tech firms, 2023 was a tough year for space companies looking for investment, which may have led to a significant amount of M&A activity. But Q4 did show some gains compared to previous 2023 quarters, and Space Capital said that they were “resilient” in the face of the tough investment environment. The report also highlighted significant changes in the types of investments being made; away from space data applications and towards infrastructure and capabilities, especially those that can attract government interest.
Rising quarter, falling year
In 2023’s fourth quarter, there was $4.6B USD invested in 108 companies in the space sector, a rise of 31% quarter-over-quarter. While this was a significant increase over the previous quarter, total investment in 2023 had also significantly decreased year over year: $17.9B, down 25% from 2022. Q4 was also significantly down from 2023 Q2, which featured over $6B in investment.
Space Capital noted the emphasis on early-stage investments over later-stage ones in the 416 funding rounds that happened in 2023. 38% of investment rounds—the largest single type—were seed investments in early startups, followed closely by Series A investments at 23%. Between the two, that means that 62%, or 256 rounds, were focused on early-stage investments. Growth-stage rounds (Series B and C) rounds made up 24% of overall investments, with about 15% being late-stage or “other” funding rounds. Space Capital noted that there was a 15% decline in late-stage rounds, and a 44% decrease in “other” rounds.
Cumulatively, there has been $298B in private market equity investment in space since 2014, across 1,832 unique companies. Nearly 50% was in the United States, and 27% in China, with all other countries in the single digits. The lion’s share of cumulative private money has gone to satellites, at $258.2B, with $32.9B invested in launch and $3.8B in “emerging industries.”
“Chasing government dollars”
With the decline of investment in 2023, Space Capital said that more companies were “chasing government dollars” to stay afloat. Investors seem to be paying attention, putting more money into firms that can attract government interest. This may have contributed to what was identified as a significant shift in the kinds of companies getting investment in 2023, as companies that Space Capital described as “infrastructure” companies were attracting quite a bit more investment compared to “distribution” or “application” companies. These infrastructure companies were primarily launch companies like SpaceX and RocketLab, but also satellite companies like HawkEye360 and Planet, and emerging space logistics-related companies like Impulse Space and LeoLabs.
In terms of launch companies, the appeal to governments is reasonably straightforward. Space Capital said that logistics companies are becoming increasingly appealing to governments, however, as “Earth orbits are becoming increasingly crowded, and Space Traffic Management will continue to be a key focus area in the year ahead.” These issues will only get worse as the constellations for Starlink, Kuiper, and Guowang (China’s answer to Starlink) keep growing, with tens of thousands of satellites in low earth orbit at any given time.
Pointing to the FCC issuing its first-ever fine for “space junk” in 2023, Space Capital said that it’s likely that dealing with debris and other issues in orbit will likely attract government funding, and that investors (in turn) will want to be part of the companies attracting this government funding. This helps to explain the interest in companies like Impulse Space and LeoLabs, whose technology may be critical for space debris and traffic management.
Defence may also be a key driver of these investments. Space Capital noted that the US Department of Defense is “rearchitecting its approach to space to rely on commercial space activities,” much like NASA is for LEO and (eventually) cislunar activities. “Rising geopolitical tensions, particularly with China, are driving an increase in US government funding,” Space Capital said, and they “will continue to be a driver of growth in the space economy going forward.”
As the DOD budget is “around $1 trillion,”,and as its space investments have grown “at an annual rate of 20% over the past 3 years,” there is a huge market for space companies providing support for defence applications.
In total, the report said, investments in these “infrastructure” companies accounted for 70% of total 2023 investment.
Other types (those focused on distributing or utilizing data from space-based assets) had severe difficulties attracting investment, with companies focused on application of space-based data being particularly hard-hit.That said, these companies had attracted a significant amount of investment in the past—Space Capital said that they’ve received 73% of all space economy investment—so this may be both a regression to the mean and has likely had “an outsized impact” on the overall year-over-year decline.
(These “application” companies include broader tech companies like Uber, so this may also reflect the general difficulties faced in the non-space tech sector more than anything specific to space.)
Nevertheless, Space Capital said that the companies “remained resilient” in the face of the tough year for tech. With interest rates likely to decline over 2024, that may ease the pressure and reinvigorate firms looking outside of the public and defence sectors to build their businesses.
Record number of both launches and acquisitions
Finally, Space Capital noted that 2023 was a record year for launches and for acquisitions.
For launches, Space Capital pointed to the 212 successful global launches as a bright point, emphasizing that “SpaceX accounts for nearly half of the total at 96, topping its previous annual record of 61 in 2022.” SpaceX is aiming to launch 144 missions in 2024, potentially including operational flights of its Starship heavy launch vehicle. Space Capital said that if Starship development is actually finished in 2024, it could “dramatically increase launch activity and make the current records look miniscule.”
The report also pointed to both Blue Origin and ULA as real factors, as Blue Origin has just demonstrated the viability of its BE-4 engine, and did it as part of the successful launch of ULA’s own Vulcan Centaur vehicle. Blue Origin continues to work on its New Glenn orbital vehicle, and Space Capital said that it is “confident” that the New Glenn will reach orbit in 2024. Nevertheless, Space Capital also suggests that it’s very much possible that Blue Origin acquires ULA. If it does, the combination will provide Jeff Bezos’ company with an already-proven launcher in the Vulcan Centaur, and SpaceX with “long-awaited competition.”
These kinds of mergers and acquisitions were a key part of what Space Capital called “a year of consolidation in the Space Economy.” It’s expected to continue, as “the prospect of declining interest rates is boosting equity valuations and improving LBO math, making M&A more likely in 2024.” It may also “finally crack open the IPO window this year,” giving venture capital a viable path to exit.
In terms of acquirers in the space sector, Space Capital points to AE Industrial Partners, Rocket Lab, ViaSat, Speedcast International Ltd., Uber, Comtech Communications, Planet Labs, and Verizon as the top acquirers by count in 2023. AE Industrial Partners stands out particularly strongly, with their investments in Redwire and Firefly. The company said that GPS companies “are the most sought-after acquisition targets”, followed by “GEOINT, SatCom, and Satellite Manufacturing companies.”