How Do Space Investors See the Outlook for Space Sustainability?

Alison Perez, a venture capitalist, is always on the hunt for the next transformational technology solution. And lately, it’s the solutions that address sustainability in space that are piquing the interest of Perez and her colleagues at Lockheed Martin Ventures, the VC arm of Lockheed Martin.

Case in point: Lockheed Martin Ventures’ participation in a Series A funding round in Slingshot Aerospace in late 2022. The Colorado Springs-based company founded in 2017 offers a global tracking network so that operators can keep their assets safe and secure while in orbit.

“Debris is probably the number one threat, and Slingshot does a really great job of cataloging items and debris and out-of-commission assets,” says Perez.

Lockheed Martin Ventures doubled its VC fund from $200 million to $400 million in 2022. Its other sustainability-geared investments include spacecraft refueling startup Orbit Fab.

“There is so much going up into space, we want to make sure that every asset that is up there is working efficiently,” she says. “Some of the technologies that enable that extended lifespan, like the orbital refueling capability, or the rendezvous and proximity operations or active cleanup, are [of interest].”

Perez isn’t the only investor that sees the long-term return on investment in a more sustainable outer space.

Nick Boensch, a program manager for Bryce Tech and a lead author of the Satellite Industry Association’s (SIA) "State of the Satellite Industry Report," says that while sustainability companies receive less investment compared to the companies within the launch and satellite value chain segments, sustainability solutions “are attracting more investment across a greater number of deals.”

Boensch offers a few numbers to back this up: Nearly $1 billion, or 13 percent, of the $7.5 billion investment in space startups in 2023 was earmarked for space sustainability specific investment. And between 2019 and 2023, space sustainability companies in aggregate received an average of $470 million in investment per year, more than triple the average $129 million they received between 2014 and 2018.

The number of space sustainability investment deals is also on the rise. The number of deals grew from 32 deals in 2021 and 19 deals in 2022, to 52 deals in 2023, Boesnsch adds.

“This investment has enabled companies to hire necessary workforce, develop and expand production facilities, conduct demonstrations, and field operational capabilities,” he says.

Yet the ramp up in space sustainability investments raises a few important questions: What are the riskiest — and safest — bests for space sustainability? How will geopolitical uncertainties impact investments? And how will governments support the growth of the space sustainability sector?

Via Satellite spoke with multiple investors and space-sustainability experts to get their take on the factors influencing investment in space sustainability.

Driving Sustainable Growth

Multiple factors are fueling the recent global surge in sustainability investments — from the increasing risk of collisions in Low-Earth Orbit (LEO), to the broader recognition that sustainability at every level, from fuel-efficient reusable rockets to satellites that can maneuver themselves to avoid collision, is tied to a strong global economy.

According to a July 2024 report published by the European Space Agency (ESA), more satellites were launched in 2023 than in any year before. The agency also noted that while space debris mitigation measures are slowly improving, stakeholders need to do more to ensure the commercial space economy can sustain itself.

“The threat from space debris and increased space activity is a serious issue that, left unaddressed, could significantly hinder global markets,” says Boensch. “Given the growth in numbers of satellites in orbit — about an 8-times increase from 2014 to 2023 — these enhanced safety and security solutions are increasingly relevant. Space sustainability activities are currently mitigating or planning to help mitigate risk to satellite operators, deliver new risk management approaches for key assets, and support emerging regulatory and legal compliance.”

To that end, the space sustainability activities market generated more than $300 million revenue in 2023, with approximately 75 percent of revenues stemming from space situational awareness/domain awareness markets, Boensch adds.

“Investors are very interested in businesses that can serve — and get multi-year contracts with — the national security enterprise,” he says.

Also, the dual-use aspect of many space sustainability capabilities is attractive to many investors, he adds. Space sustainability activities like space situational awareness support commercial satellite operators and civil space missions, while also appealing to national security customers.

“Current geopolitical unrest is shaping defense budgets and national security space spending. Space sustainability companies see numerous opportunities as the U.S. Space Force looks to increasingly integrate commercial products and services into its operations,” Boensch says. “Investors appreciate these well-funded defense customers that can often be key early revenue drivers and market entrants as commercial markets materialize on slower timelines.

The Space Force, for example, is investing in in-space refueling missions, and has awarded various contracts to Astroscale, Starfish Space, and others. The upcoming Tetra 5 Space Force refueling mission will use an Orbit Fab refueling depot.

Also, while the regulatory business case “is somewhat less clear,” it is nevertheless generating investor interest as capabilities needed to enforce or meet regulatory requirements create ongoing funded demand, says Boensch.

“Increased attention on updating space sustainability regulations, best practices, standards, norms, and rules of behavior from governments to meet new challenges in the current space environment could drive greater demand for space sustainability services,” says Boensch.

At the same time, the space sustainability market doesn’t have the same entrenched competition as satellite services, manufacturing, and launch. “Investors may also view space sustainability as markets ripe for disruption,” he adds.

Another driver for sustainability investments is the general interest in anything related to the green economy, Agnieszka Łukaszczyk, CEO of hiALtitude Consulting, specializing in space policy.

For example, the rollout of international standards, such as the Space Safety Coalition’s best practices for space sustainability, and/or national laws, has pushed organizations to upgrade their less-sustainable technology, says Łukaszczyk.

“The next generation of satellites is going to have to use propulsion, which is going to mean that those satellites are going to have to be a little bigger, a little heavier, therefore a little bit more expensive,” she adds.

Navigating Unknowns

While enthusiasm for sustainability is high, investment decisions hinge on a lot of unknowns. There are concerns about whether overcrowding in LEO will reach a tipping point, particularly if nations generate more debris from anti-satellite (ASAT) tests.

“Ideally, there would be an international body that could come up with either a treaty or best practices or norms of behavior on a global level, but if you cannot negotiate with Russia and China, it’s [challenging],” says Łukaszczyk, who admits this is unlikely. “With wars and sanctions, harmonizing regulations is happening slowly.”

Even among cooperative nations, there are technological challenges.

As NASA’s 2024 Space Sustainability Strategy report notes, “a framework for space sustainability has not been accepted by the space community” — which has led to “confusion” when trying to identify space sustainability problems and solutions.

“Existing models do not holistically account for connections among tracked and untracked orbital debris, the growing number and diversity of active spacecraft, how and when such spacecraft maneuver, other hazards posed by the highly variable space environment, and methods to reduce the risks of space operations,” the document notes.

Also, NASA notes that the U.S. government is still in the early stages of coordinating unified policies and guidance that support space sustainability. There are still gaps in the policies and guidance.

Then, there are the normal challenges of investing at just the right moment — before a market becomes overcrowded.

“As with any emerging sector, the initial wave of companies offering various solutions eventually gives way to a clearer picture of which approaches are most effective,” says Gustav Fridell, vice president at GP Bullhound's late-stage venture capital funds, based in Stockholm. The firm recently led a $29 million funding round in LeoLabs to deliver enhanced AI-powered insights for space operations.

“Space sustainability is no exception, and we are likely to see many companies fail. However, their efforts and research often contribute to the development of the winning solutions in the space, and these successful solutions will undoubtedly see increased demand as the space ecosystem continues to expand,” he says.

Writing a Check

While the sustainability buzz is louder than ever, identifying and investing in the emerging leaders now allows investors to benefit from the market’s fastest-growing years, which typically correlate with strong returns, says Fridell.

He is impressed by LeoLabs market penetration, with customers representing 75 percent of the operational satellites in LEO.

“LeoLabs has become a core component of the infrastructure supporting the entire space ecosystem,” Fridell says. “For investors like ourselves, companies like LeoLabs are particularly attractive because they enable us to participate in the upside of a rapidly rising market while minimizing the risk of failure.”

Timur Davis, investment director of Munich Re Ventures, also sees the long-term potential —and necessity — of investing in sustainability-specific approaches over other space and satellite solutions.

Munich Re Ventures has invested in three space sustainability companies to date: Okapi Orbits, a space domain awareness software company, Orbit Fab, an in-space refueling company, and Starfish Space, a mission extension and debris deorbiting company.

“Our investments are ‘thesis driven.’ When we first decided that we wanted to invest in space, we spent a significant amount of time looking through the various segments to understand where we felt held the most potential,” Davis says.

Also, while some parts of the market such as launch, are too capital intensive for venture investing, and others like Earth Observation are becoming quickly commoditized, Davis believes that space sustainability will offer long-term benefits.

“We like space sustainability because it is the ‘picks and shovels’ of the space economy. For example, we can't be sure which space communications company is going to succeed, but we can be certain that their spacecraft would benefit from an extended lifetime,” says Davis.

But while the venture ecosystem has slowed down in recent years, Davis says that because space is supported by government, civil space, and defense spending, the market may be more resilient.

And while the space domain is getting crowded, investors are actively seeking investments that are scalable and make space safer by addressing emerging issues.

Perez points to several recent Lockheed Martin Ventures’ investments along 14 different technology domains, including Helicity Space, a six-year-old California startup developing fusion engines for spaceflight, and Orbit Fab, which focuses on space-based refueling.

“We tend to invest in a lot of disparate technologies that are all interesting in their own right, but together have compounding effects to address whatever problem that we're trying to address — space sustainability, situational awareness in space, operational transparency on orbit servicing,” says Perez. “

“When we invest in companies, of course, we want to make sure that they are a venture capital business model and they’re scalable. But more important for us is the strategic return,” she adds. “How can we work with these companies to make sure that we are providing the best offering available with the latest and greatest technology to serve the national security needs? For us, it's really that integration of how can we best partner with these companies.” VS