Special Feature: Private capital continues to flow

Venture capitalists have been outnumbering private equity financiers in commercial space investments this year, yet there are concerns VC could slow unless we see some high-profile exits. SatelliteFinance explores the private capital activity in the sector and the startup culture that has recently come to the fore.

Capital continues to flow into the commercial space sector as the trend of venture capitalists entering the industry and private equity players exiting continues to play out.

With this in mind it comes as no surprise that the biggest private deal of the year to date was a PE house leaving the sector. ABRY Partners sold its satcoms provider Emerging Market Communications to Nasdaq-listed inflight communications firm Global Eagle Entertainment in a deal that gave the asset an enterprise value of US$550m.

The disposal came less than four years after ABRY acquired the business in a leveraged buyout from Maranon Capital and The Riverside Company, according to data from Pitchbook. In the intervening period ABRY guided EMC through the transformational acquisition of MTN Communications , boosting EMC’s presence in maritime, which now generates 75% of its revenue.

The largest private equity deal of the year could be yet to come with Permira once again shopping Asia Broadcast Satellite having now owned the FSS operator for almost six years. In 2015 Permira was reportedly floating a US$2bn price tag but reached resistance at US$1.5bn.

ABS has put plans to order its next satellite on hold after the first round in the sale process attracted more than 10 bidders and strategics have been touted as favourites this time around. Still, with over-capacity concerns gripping the industry the asset may prove difficult to shift.

While private equity investors remain interested in the sector there is more caution, as demonstrated by Paris-based infrastructure-focused investor InfraMed taking a 21% position in Eutelsat’s satellite broadband venture Broadband for Africa in June. They cannot match the bullishness of the venture capital investors that have been piling into the industry of late.

Silicon Valley firms traditionally focused on tech are now increasingly branching into space. VCs such as Bessemer , Draper Fisher Jurvetson , First Round Capital , Founders Fund , Khosla and RRE Ventures are all playing an increasingly important and enabling role for many space startups.

Tauri Group analysts note more than 50 VC firms invested in space deals last year, the most in any year since 2000. It recorded US$1.8bn in venture capital being invested in space in 2015, nearly twice as much as in the prior 15 years combined.

Source: Tauri Group

Skybox’s high-profile sale, which came when it was just five years old with only one satellite in orbit, is credited for waking up a lot of Silicon Valley investors to the opportunities in space.

However, some have warned that unless we see some more headline-grabbing exits the influx of VC could slow. The reliance of smallsat ventures on as-yet-unproven launchers is also a concern said to be giving some investors pause for thought.

US startups including asteroid mining aspirant Planetary Resources , high-altitude balloon pioneer World View , and antenna innovator Kymeta have all completed financing rounds this year, with Kymeta’s particularly eye-catching.

The Redmond, Washington-based metamaterials specialist secured US$62m from existing investors – Lux Capital , Kresge Foundation , Osage University Partners , and board member Bill Gates – and new undisclosed strategic partners to fund the commercial launch of its satcoms antenna in 2017.

Another antenna specialist, Israel’s Skyfi , secured a more modest US$3m this spring. The round was noteworthy as it drew capital from Jerusalem Venture Partners, which became one of the first Israeli VCs to commit money to newspace, and sparked talk that Israeli VCs could follow their Silicon Valley counterparts in catching the space bug.

Meanwhile, in Europe, London-based Seraphim Capital had plans for an £80m (US$115m) newspace venture fund, although Brexit is understood to have stalled the initiative.

Outside of the US, economic development funding is playing a key role with less VC willing to take a chance on space. In Luxembourg a €200m (US$227m) space mining technology fund was launched as the Grand Duchy moved to position itself as a hub for the nascent sector.

Planetary Resources and its contemporary Deep Space Industries have both set up subsidiaries in the country and signed MoUs that could see state-owned bank SNCI take stakes in the local units.

Luxembourg-based operator SES has committed €3m (US$3.4m) into a new public- private venture capital fund in its own backyard, again backed by Luxembourg’s government.

In Denmark local development fund IFU has committed US$4m to ADS-B and AIS nanosat tracking constellation being developed by GomSpace . IFU, which typically invests for between five and eight years, has received a 42% stake in the venture.

Further afield Singapore-based space debris removal startup Astroscale secured US$35m, of which US$30m came from venture capital public-private partnership Innovation Network Corporation of Japan (INCJ). Existing investor JAFCO , a Japanese VC fund, led the other US$5m injection.

More risk-taking private capital investors will need to step forward if startups in the rest of the world hope to keep pace with their US contemporaries.

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