Space startups worldwide garnered a record $15.4 billion in 2021 as the number of investment deals increased to 241, up 48% from 2020. However, 2022 may bring a change in that trajectory, as SPAC performance declines alongside the economic conditions that fostered earlier growth.
The average deal size in 2021 rose to $64 million, up 35% year over year, according to the “Start-up Space 2022 ” report recently released by consulting firm BryceTech.
Increased investment means more competition. “Who has the best launch offerings, who has the best remote sensor offerings,” Rich Leshner, vice president of the consulting practice for BryceTech, told Connectivity Business News. “And why are they more likely to succeed in the market than others?”
The report defines a startup as “a space firm that has received and reported seed funding or venture capital.” The greatest source of funds for startups since 2015, venture capital companies delivered $9 billion to startups in 2021 compared with $5 billion in 2020.
Capital is flowing to space from new sources. In 2021, 63% of investors tracked in the report were first-time startup space investors.
Several experienced investors, however, are prolific. Since 2000, Seraphim Capital, Techstars and Khosla Ventures have participated in 20 or more deals, according to the report. Both Techstars and Seraphim Capital have their own startup accelerators, and the latter incubated thermal Earth observation specialist Satellite Vu, as one example.
Last year was a record one for deals worth $100 million or more, which BryceTech calls “mega” deals — with 16 total — up from 10 in 2020 and five in 2018. Whether 2022 will continue the upward trajectory with even more such deals is yet to be seen, Leshner noted.
“Do you go to 20 or 30, because if you go to 20, then … there’s a measured progression, but if it skips to something above 30, then you’re looking at a more rapid [exponential] progression for [mega] deals,” he said.
The decline of SPACs
With macroeconomic conditions changing and interest rates rising, “we tried, in areas of the report, to set the expectation that a lot of the growth that we were seeing in 2021 may not continue at the same level in 2022,” Nickolas Boensch, BryceTech lead for the “Start-Up Space” project, told Connectivity Business News.
Space companies that completed special purpose acquisition company (SPAC) transactions are trading well below their $10 initial public offering (IPO) price. Earth observation company BlackSky (NYSE: BKSY) opened today at $1.88, Earth observation company Planet Labs (NYSE: PL) at $5.05, launcher Rocket Lab (NASDAQ: RKLB) at $8.28, and air launch specialist Virgin Orbit (NASDAQ: VORB), which last month announced plans to raise more capital, at $6.52.
The decline of SPACs is global across all industries, according to market data firm PitchBook Data, which reports that its global deSPAC index has declined 30.1% since the start of 2022, compared with a decline of 10.6% by the S&P 500 index.
“The ability to include future projections in prospectus documentation was billed as a feature to persuade companies to consider a reverse merger with a SPAC; however, shifting sentiment in public markets may have caused this strategy to backfire on many deSPACed companies,” according to the PitchBook Data analyst note “Q1 2022 SPAC Update and Performance.”
“Rising interest rates in response to inflationary pressure and other economic stimuli may reduce the value of those projected cash flows — not to mention recent macroeconomic developments that might dampen growth prospects for some companies,” the note stated.
In response, SPAC issuance as of March 15 for Q1 had declined to its lowest since Q2 2020, according to the report.
However, these companies are delivering real change and real technology. “I do think, in general, if you’ve got a long-term view, you’re going to be just fine,” Leshner said.
Connectivity Business Summit, taking place June 14-15 in New York City, will explore the critical strategic and financial issues impacting the global satellite and terrestrial connectivity infrastructure and services industry. In addition to hearing top leaders share their experiences, attendees will take away new insights and invaluable connections. Learn more about the event.
