Generation Space Index 2022: Investing in the Future of Space
February 22, 2023
It’s hard to succinctly summarize the year 2022 for the space industry. Cheap and easy money dried up, killing the funding megarounds that were so common in 2021. But space also entered the public consciousness in a way arguably not seen since the space race and the Moon landings. After the James Webb Space Telescope launch, we all became armchair astronomers. And Russia’s invasion of Ukraine has provided daily reminders that space is critical for every aspect of our lives: intelligence, communications, and location.
We rounded out the year with space starting to feature in another arms race: this time in the battle of the cell phone manufacturers. Apple will now rescue you when stranded and no other provider can afford to fall behind. All of these developments have shaped the investment landscape we investigated in Generation Space’s Space Index.
What’s up, What’s Down?
First, the bad news. In terms of dollars, private investment fell 25 percent to $8.9 billion, down from the record-breaking high of $12.2 billion in 2021. Why is this lower than the 58 percent quoted in Space Capital’s great report? Primarily, we only consider venture capital and private equity investments, excluding special purpose acquisition companies (SPACs) as going public transactions. Given the almost complete absence of SPACs compared to 2021 much of the difference could be attributed to SPACs. But while 2022 is down, it’s still higher than all years preceding 2021, so investment appetite remains strong.
The fall in investment was not spread evenly internationally. Asia had a pretty good year: investment was flat. But North America fell 30 percent and Europe was down 40 percent. The challenging fundraising environment seems not to have deterred founders though. Seed deals are up 50 percent compared to 2021, demonstrating that more and more investment-grade space companies are being founded every day. Those seed investments are larger too and Series A deal size is flat.
So the large drop in investment has been felt most strongly at the growth stage (B+). That’s not surprising. The heady days of 2021 meant that some growth investors had loosened their investment criteria. The new “flight to quality” means a return to higher revenue expectations at the growth stage. Yes, even for space startups. That has led to the collapse of the megaround. Whereas you can probably name several $1 billion-plus rounds from 2021, in 2022 only SpaceX could inspire that kind of investor largesse.
Where Did the Money Go?
That $2 billion SpaceX round made constellations the largest sub sector for investment, once again at $2.7 billion. Interestingly, two categories at opposite ends of the space supply chain saw hefty growth. Space hardware is up by one-third and products built around space data by even more: 57 percent. Investors have always been hesitant about space hardware: too small a market, too low margins. It seems that the explosion in satellites in orbit (we’re on an exponential curve), has altered the investment thesis. And those satellites are producing data. Lots of it.
Space’s collision with the star sector of 2022 —climate — is fueling a lot of those product companies in everything from carbon credits to wildfire monitoring. These trends drove some notable investments this year. Synthetic aperture radar (SAR) companies Iceye and Capella both raised around $100 million each, Pachama and BeZero raised over $50 million each for carbon credits and monitoring. We saw some large Series A investments in Hadrian, Albedo, Slingshot Aerospace, and 4M Analytics.
Investors seeking “out of this world” returns, led to Beyond Earth (space stations, space planes, lunar, and asteroids) raising five times more than in 2020. The U.S. remains by far the world’s largest space economy and where you should raise your growth round. In 2021 and 2022 about 60 percent of all space investment went to U.S. companies.
What Will 2023 Bring?
The $1 billion question: will 2023 be easier for founders than 2022? While 2022 overall exceeded 2020 investment, quarterly investment in the third quarter and fourth quarter was so low that if that trend continues into 2023, 2023’s total investment would approach that of 2019. To push total investment back up we need to see a return of larger growth rounds – the $1 billion-plus rounds that were missing in 2022. The companies are likely to need the cash too. After raising in late 2021 on the expectation of raising again in 18 to 24 months, we can expect these companies to return to market in 2023. Who will invest?
Private investors are sitting on huge amounts of dry powder (cash to invest). But sovereign wealth funds look promising, too. They have national space ambitions and so much cash to deploy, they need to do it in very large chunks. Sovereign wealth funds and cash hungry growth stage companies could be the perfect match in 2023. But in reality, it is the new companies formed in 2022 that will shape the conversation around space over the next decade. Asia and Europe have shown they can fund space startups. But with most growth investment still found in the U.S.; how will they fund them to scale? VS
Dr. Maureen Haverty is the vice president of Investment for Seraphim Space