One year ago yesterday, many of us watched Richard Branson blast off into space and then return safely. Not only had he beaten Jeff Bezos to sub-orbit, but he seemed to be kicking off a new commercial space race.
Flash forward: Space is again in the news, thanks to this breathtaking photo from NASA's James Webb telescope, but the industry is at risk of losing last summer's private capital momentum.
By the numbers: Space startups raised nearly $47 billion in 2021, including $14.5 billion in the fourth quarter, per Space Capital. They only secured $7.2 billion in Q1 2022, with expectations that the second quarter figure will be significantly lower (despite another $1.7 billion for SpaceX).
Big picture: Part of the decrease relates to overall venture declines, but space has some specific challenges.
- One is that the Branson vs. Bezos flights, while technologically remarkable and initially dramatic, became viewed primarily as billionaire ego trips. It also hasn't helped that Branson's company, Virgin Galactic, has pushed its commercial service launch into early 2023 — driving down its post-SPAC stock price.
- Another issue is that lots of space startups are designed to either sell to the small handful of big players (Lockheed, SpaceX, etc.) or to the large group of other space startups. That last part becomes problematic when startups are trying to conserve cash, and could create a cascading effect that venture capitalist Anton Brevde argues will result in a space bubble burst.
- Finally, space startups can have a particularly difficult time controlling burn rates, no matter the funding environment, given the high hardware and R&D costs. That's a big problem when VCs are holding their wallets tighter, particularly for speculative portfolio companies that aren't near monetization.
What they're saying: Axios Space's Miriam Kramer writes: "The parts of the industry that are expected to be hardest hit include those focused on far-future concepts like asteroid mining and startups working to innovate new rocket concepts."
- Payload Space's Mo Islam adds: "The companies that can generate real paying customers today are the ones that have the best chance of navigating the fundraising vacuum we're in. If you fall into the 2nd or 3rd order business model and you don't have 12-18 months of runway, government contracts to bridge the gap to commercial orders will be critical."
The bottom line: Venture capitalists aren't abandoning the space race. But they're walking instead of running.
