Space

Space investments fell back to earth in Q2

Space startups aren’t immune to the ongoing economic slowdown.
article cover

Francis Scialabba

· 4 min read

After a record-breaking 2021, venture investment in the space industry is falling back to earth faster than a defunct satellite.

On both a quarterly and yearly basis, investment dollars dropped for space startups in Q2. Investment in space startups fell by 38% year over year, from $9.9 billion in Q2 2021 to $6.1 billion in Q2 2022, while the deal count dropped by 33%, from 141 to 93, according to Space Capital, an early-stage venture-capital firm. And between Q1 2022 and Q2 2022, investment fell by 18%, from $7.2 billion to $6.1 billion.

That’s a faster yearly decline than overall venture investment, which dropped 27% YoY from last year’s record-highs but smaller than the 26% pullback overall venture funding saw on a quarterly basis.

Joseph Ibeh, market analyst at Northern Sky Research, told Emerging Tech Brew that to understand the nature of investment in the space industry, it’s important to parse out the traditional space industries from the up-and-coming startups. The space industry is not immune to economic downturns, but the more established companies—those that have secured government contracts and other long-term investments—could hedge against its worst effects, he said.

“The commercial revenues may not be as resilient as the government revenues because government revenues are usually budgeted. Many of them are five- to 10-year programs in advance, and then paid maybe annually or on an accrual basis,” Ibeh said. “In the commercial sector, space is also very resilient and dire because most of the services target critical infrastructure for the end users, for instance, backhaul services for telecom companies, broadcasting for media broadcasters.”

As a result, Ibeh said the winners and losers in the event of a recession are likely to be those who have stable foundations and a wealth of experience in the industry.

“Traditional aerospace companies will be more insulated from a recession, [while] the new space companies will be the hardest hit, not because their revenue is going away, but because they may not be able to meet their production targets because of capital,” Ibeh said.

Stay up to date on emerging tech

Drones, automation, AI, and more. The technologies that will shape the future of business, all in one newsletter.

In the event of an extended downturn, Chris Quilty, founder of space and satellite investment research firm Quilty Analytics, told us that VCs are likely to invest less in new space companies and instead focus on shoring up their existing investments.

And even though the space industry works in the long-term and is primarily made up of private companies, he said investors will continue watching the public market and adjusting their strategies.

“If the private guys look at the public markets and they stay in the toilet for a year, then they really start to retrench and follow that trend,” Quilty said. “It tends to follow with a little bit of a lag: When the public markets crack, private markets tend to kind of motor on and continue investing. After a period of time, they start to get concerned, in part because the public markets are one of the exit paths.”

SPAC deals—one marker of public-market activity—have cooled down in 2022 after accelerating in the space industry over the past three years. There were nine SPACs in the industry last year, but only two have been announced so far this year. This is in line with overall market trends. More than halfway through 2022, just 70 SPACs have happened, per SPAC Analytics—there were over 600 SPACs across all of last year.

For his part, Shahin Farshchi, partner at Lux Capital and investor in early-stage space startups, told Emerging Tech Brew he rarely considers current market conditions for the space industry in particular.

“The beauty of venture is that it’s a long-term asset class, and therefore, you’re investing relatively independent of cycles at the early stage,” Farshchi said. He said late-stage investors tend to be “more sensitive to economic cycles, because [they] want to make sure the company can continue to be capitalized and there’s an exit opportunity in the near term.”

Stay up to date on emerging tech

Drones, automation, AI, and more. The technologies that will shape the future of business, all in one newsletter.