With all the news and challenges of the past year, I wanted to first take some time to review the most important events within the space industry of 2020, dig into them a bit in terms of what they mean going forward, and highlight some events and trends we see happening in 2021 and beyond.
US Return to Human Spaceflight
Out of everything that happened in the space industry last year, from our perspective, the United States returning to human spaceflight May 2020 was by far the most significant event of the year due to the follow-on effects it will have across both NASA missions and commercial space activities going forward. It also has a psychological component in expanding the perception of what is now possible in the very near future in space-related activities and is one of the factors behind the increase in investor interest in space that we’ve seen accelerating in the past year.
For those who don’t recall, NASA astronauts Doug Hurley and Bob Behnken flew to the International Space station on a test flight of SpaceX’s ‘Crew’ Dragon capsule out of Kennedy Space Center, Florida on May 30th 2020. This launch marked the first time since the cancellation of the Space Shuttle program over a decade ago that NASA astronauts launched from US soil and was followed by another successful crewed launch of NASA’s SpaceX Crew-1 on November 15, 2020.
This was also the first commercially crewed spacecraft where NASA was simply the first of many customers and the launch of humans to space became a business, not just a one-off mission. This is a pretty important distinction from Starbridge's perspective, and we see it enabling many other activities that are in the pipeline from a host of other companies and organizations. If you watched the Superbowl ad for Inspiration4, you saw one of the first examples of this.
Axiom Space Contract Win
Another example we were very pleased to see last year came from Axiom Space, which is a Starbridge Fund I portfolio company. Axiom kicked off 2020 with a big contract announcement back in January valued at over $100 million that makes them the exclusive provider for the expansion of the International Space Station (ISS).
This will involve Axiom’s building and launch of several new state-of-the-art workspace/habitation modules that will be flying up on existing launch providers to attach to the ISS in a series of stages over the next few years (video here). The plan being, upon retirement of the ISS sometime in between 2028-2030 timeframe, these newer Axiom modules will detach and form their own fully functional space station.
Or, to put it another way, the first fully functional COMMERCIAL space station. This will be an ideal place to conduct complex research and manufacturing activities that will greatly benefit or require having a human to manage it.
Axiom has also announced several very attractive revenue generating collaborations for astronaut training services, and near-term research and manufacturing projects on the existing ISS. They’ll also be managing several civilian astronaut missions to the ISS, including a high profile mission with actor Tom Cruise that is scheduled to launch next year. Check out this video by Scott Manley for a deeper dive into what this contract win means to Axiom and the future of space.
Starbridge has been invested in Axiom since their Seed round and we’ve been able to bring in a number of co-investors along the way, including their recently closed $130M Series B. See our more detailed updates on Axiom and others, along with new Starbridge portfolio companies such as Carbice, Xplore, and Orbital Sidekick in the Portfolio discussion section below.
Made In Space Acquired
Speaking of in-space research and manufacturing, another Starbridge Fund I portfolio company, Made In Space, was acquired by private equity firm AE Industrial Partners and their subsidiary Redwire in April 2020. This happened three to five years ahead of schedule (from our perspective), but it proved to be a precursor to the growing number and pace of acquisitions in the space sector. Other exits in 2020 include: Aerojet Rocketdyne acquired by Lockheed Martin, Blue Canyon acquired by Raytheon, and Nanoracks acquired by our friends at Voyager Holdings. In total, there were 24 M&A events in the space sector in 2020.
Big Tech Steps Up
We also saw some big players enter or expand their presence on the stage in 2020. Amazon announced a dedicated unit called ‘Aerospace and Satellite Solutions’ that will expand on their efforts with the Amazon Web Services and Project Kuiper satellite constellation they have planned. Microsoft also announced their own cloud-based satellite data services platform, which has partnered with Starbridge portfolio company Kubos to expand their service offerings.
Constellations
In the same vein of communications and data services, in November 2020 customers began connecting to SpaceX’s ‘Starlink’ internet broadband satellite network. This is significant for the space industry due to the ever growing number of satellites in LEO. In perspective, there were about 2,000 active satellites in space from ALL sources only about two years ago. Starlink has already surpassed 1,000 satellites in orbit with dozens more launched almost every month; current plans are to add a minimum 11,000 more satellites over the next 3-4 years.
This is not without controversy however, and Amazon, in particular, is pushing back on SpaceX’s FCC licenses claiming that SpaceX is taking up too much ‘real estate’ in LEO leading to communications spectrum allocation challenges to competitors. LEO-based satellite internet broadband is likely a $30 billion a year business opportunity; waiting to be realized though, so it’s something we will be monitoring closely.
The Moon
Going a bit further out in space, NASA awarded multiple contracts to companies last year to prepare for crew and cargo missions to the Moon with actual missions starting within the next year and ramping up from there. The largest is the contract for human-capable landers which requires not just landing, but being able to return to Lunar orbit and rendezvous with the Lunar Gateway. The companies that responded are Dynetics, SpaceX, and a team led by Blue Origin. Down select to two providers is expected in March 2021.
NASA also selected several smaller landers for reconnaissance missions to scout for water, landing sites, and explore lava tubes. These were all awarded as commercial contracts under the Commercial Lunar Payload Services (CLPS) program. Awardees include Masten Space Systems, Astrobotic, Intuitive Machines, and Firefly.
This is of special note to my fellow General Partner, Michael Mealling, since prior to joining Starbridge he was one of the co-Founders of Masten Space Systems; which was one of these NASA contract award winners to land cargo on the Moon in the 2022 timeframe.
Starship
We also saw an amazingly fast development of SpaceX’s very large, fully reusable new rocket, Starship. We highly encourage you to view some of the test launch videos for this rocket. Starship is absolutely enormous relative to any other rocket currently out there, and combined with it’s reusability, it’s going to be another space industry game-changer, if and when it enters regular service. Starship has an anticipated width of 30 feet, an eventual height of almost 400 feet (equivalent to about a 40 story building), and a cargo capacity of 100+ metric tons to orbit. But what really makes it interesting to us business-minded folks here at Starbridge, is in what it can do to lower the cost of launch through economies of scale like nothing we’ve seen before. This leads us to a whole new calculation on what is and isn’t a viable business case for anything requiring space access in the future, and what types of businesses Starbridge should be investing in now.
Covid-19 Impacts
The effects of Covid-19 on the space industry in 2020 were perhaps more muted than what we saw in other sectors of the global economy. Because much of this sector is of strategic national importance and satellites play a vital role in modern society functioning, we saw a lot of current activities proceed almost unhindered. There was admittedly an adjustment period in the 2nd quarter of 2020 as everyone moved to Zoom meetings and a lot less face-to-face interaction. This did impact the pace of deal-making around mid-year, but by the 4th quarter, most companies had adjusted to these newfound challenges leading to a flurry of year-end activity that has carried over into 2021. This isn’t to say that there were no casualties in the space industry in 2020, but outside of very early stage and underfinanced companies, or grossly over indebted companies, a majority of businesses in the space sector seem to have weathered Covid-19 remarkably well. Part of this is certainly due to the long-cycle nature of contracts in the space sector itself which allows well-managed companies to skim over many short-term economic impacts. There were also some ‘new’ elements that came into play last year that both directly and indirectly benefited the space industry as a result of Covid-19 ‘responses’ acting as a strong tail-wind.
Governments worldwide pumped an enormous amount of financial liquidity into the economic system in 2020 through both fiscal and monetary policy, and we expect to see the effects of this become even more evident in 2021, and even much of 2022 as well.
Public Investor Demand
One of these effects has been a rapid increase in investment valuations across most asset classes from stocks and bonds to even real estate and cryptocurrencies. But the high-tech innovation and new growth narratives coming out of the commercial space industry seems to have caught a lot of new investor interest. As one of the pure play space industry companies with a publicly traded stock, Virgin Galactic (ticker: SPCE), has illustrated this new investor demand for anything space related.
Virgin Galactic’s stock price has also benefited significantly from the announcement in January 2021 of a proposed Exchange Traded Fund (ETF) from the ARK Invest team led by Cathie Wood, which already has highly successful ETF’s covering most of today’s hottest tech companies and growth trends including Tesla.
SPAC SPAC SPAC
When Virgin Galactic went public through a Special Purpose Acquisition Company (SPAC) agreement in 2019, it was somewhat unusual for a rising tech company to take that path rather than a traditional IPO route. Since then, however, the number of companies going public through SPAC deals has exploded; there were over 200 market wide in 2020 alone. Within the space sector alone, we’ve seen SPAC deals in the works for Momentus ($3.5B), AST & Science ($3.5B), Astra ($5B), and BlackSky ($2B), with dozens more in the works. Nearly every company we talk to (including our own portfolio companies) has been approached by SPAC sponsors and/or is seriously talking with investment bankers to analyze if this is an appropriate option for their company.
This alone is an enormous sea change in the space industry, which has been notoriously slow to find quick exit opportunities for early investors. The space industry seems to have undergone a 180 degree turn where companies are now scheduled to go public at an astonishing rate. If this current investment environment holds course for at least another 12 months, we are likely to see ARK Invest’s new space ETF filled with 15-20 newly public space companies; several of which Starbridge is likely to have been an early investor in.
This will certainly drive more investors to take a deeper look at these companies earlier in their business life cycle to get ahead of the large valuation increases now associated with these SPAC deals. But that’s where it gets tricky. The earlier you invest in a company, the more savvy you need to be about the actual company, its technologies, and its actual market prospects. This is where we expect Starbridge investors will continue to have a leg up on others looking to deploy capital into the space sector given our existing early-stage focus and experience.
Already, we’re seeing what we would describe as a huge disconnect between hype and reality for several space companies being rushed through the SPAC process. As long as supply is limited and investor demand is high, these companies will likely trade up and short-term investors will get rewarded. But as the supply of space-related companies being publicly traded inevitably grows, we suspect the markets will become increasingly discerning and start to better differentiate the true growth companies with good tech and fundamentals from those with only a good marketing story.
Starbridge views the new SPAC phenomena largely as a positive for the commercial space industry. This new exit strategy has accelerated the natural trajectory we expected for exits in the space industry by the 2023/2024 timeframe. Frontloading this with more capital sooner will certainly accelerate business plans and the pace of returns for companies and investors in the near future. The ‘lack of exits’ argument we had heard for many years has quickly been retired.
As always though, we’re looking for companies that have a solid business path with or without this new variable of financial engineering. In other words, if this new influx of capital into a company will aid in speeding up what was already a solid team with a solid go-to-market strategy and revenue picture, then everyone wins. If, however, the new cash influx is more of a hail-mary play to rescue a company with high competitive pressures, no revenue, and a lot of high technical hurdles remaining…well, that’s not going to be a good place for any investor to be once valuations become more rational again (jump on a call with us if you want our specific opinions on which-is-which!)
Other Notable Events Over the Past Year and Onward Into 2021
3 major Mars missions launched separately by the U.S., China, and United Arab Emirates, with all three successfully reaching Mars in February of 2021.
Continuation of big financing raises for small launch providers like Relativity Space and Firefly
Chinese lunar sample return mission highlights the growing Chinese technical proficiency in space
SpaceX Starship development continues at a record-setting pace
Virgin Galactic is set to fly its first suborbital paying customers in early 2021
Challenges are mounting for NASA’s SLS rocket both technically and politically
FCC auction of satellite C-Band spectrum raises $81B, with more to go.
NASA is back in the nuclear rocket engine business for deep space missions
NASA in new partnership with Japan for lunar Gateway project
China’s primary space contractor is planning at least 40 launches this year
India’s space agency is stepping up commercial efforts with more than two dozen Indian companies
U.S. Space Force has a new space enterprise initiative (NSTXL)
Former NASA Administrator Jim Bridenstine joins private equity firm Acorn Growth.
James Webb Space Telescope to launch in late 2021 (hopefully).
ULA’s Vulcan rocket first flight in 2021, carrying Astrobotic’s Peregrine lunar lander (maybe).
China to launch their new space station’s core module in 1H 2021.
Starbridge Industry Outreach and Support
One of the side effects of the pandemic is an increasing willingness of everyone to engage via various video and audio services such as Zoom. In order to remain connected with the industry and help introduce new companies and investors to it, Michael Mealling began a weekly Zoom meeting called SpaceVC Open Office Hours. Scheduled every Tuesday from 11:00 AM to 1:00 PM EST, the meeting has regular attendees from around the world where we discuss sector developments, finance, and even hear company pitches.
Recently a new social media application called ClubHouse has enabled an even wider audience. The SpaceVC Open Office Hours Room regularly has hundreds of listeners and dozens of attendees asking questions. If you wish to attend either event simply follow @mmealling on Twitter for scheduling updates (and have an iPhone, ClubHouse is not currently available on Android).
The Starbridge team also participated in numerous industry events such as: the SpaceCom Entrepreneurs Summit (four Starbridge team members were judges); AFWERX “Engage Space” investor panels; NASA and OSTP Venture Capital Studies; Astor Perkins’ “All Things Space and Survival” conference; Satellite 2020 Venture Capital panel and Space Entrepreneurs Pitch Competition; mentored for Techstars Space and Allied Space cohorts; European Space Agency Investor Forum, Harvard Business School’s Venture Capital & Private Equity (VCPE) Conference 2021; etc.
In addition to all of the events above, Starbridge also published a paper recently on Market Readiness Levels (MRL). Meant to complement NASA’s Technology Readiness Levels, an MRL is a metric for determining where a company’s product development process is at and whether the process is learning from the customer what the actual problem is to be solved.
Concluding Thoughts
While 2020 was challenging in many different ways, it also proved to be something of a springboard for the space industry, both in new technologies and in investor capital being deployed. It saw the return of human spaceflight in the U.S., and the full embrace of the SPAC phenomenon as a viable option for many commercial space companies to accelerate both business plans and value creation for early investors like us.
Starbridge has and will likely continue to benefit from these trends in 2021 as our investment thesis is particularly competent at identifying companies that are fundamentally better positioned to create real customer value early on, are already revenue-generating, and are far closer to profitability than the early-stage norm.
This is a truly exciting time to be involved in the commercial space sector as the ‘foundational’ companies that will lead the industry over the next few decades or more are currently rising out of stealthy private market obscurity and into full public attention. As the levels of technical innovation coming out of the space industry become more evident, there will be deeper integration and interchange between it and all other sectors of the global economy. That really is the sweet spot for investing in the space sector right now - to get ahead of the broader realization of this reality.
Thanks to everyone reading this who has already decided to take this investing journey with us! We’ve already racked up some very nice performance numbers for our Fund I investors, with Fund II now launched and open to new investors. We expect to have a lot more good news to share with you this year, so we hope this letter finds you all healthy and productive in 2021!
Sincerely,
Steven Jorgenson
Founder and General Partner
Starbridge Venture Capital