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Amid the economic crisis, space investment plummeted in 2022

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VSS Unity flight footage.
Extend / Sir Richard Branson took to the skies in the summer of 2021. But since then, with no additional spaceflights, Virgin Galactic’s stock has plummeted.

Private investment in the space sector is down 58% in the year 2022, according to a new quarterly space investment report from Space Capital.

The $20.1 billion investment in private market equities last year is the lowest annual total since 2015, said Chad Anderson, founder and managing partner of Space Capital. While early-stage investments were largely unchanged, the biggest decline was in late-stage and growth-stage companies.

The report cites several factors for the downturn, including the fastest interest rate hike cycle since 1988, a challenging investment environment and a continuing economic recovery from the COVID-19 pandemic.

However, Anderson told Ars that another factor was the relatively poor returns of space companies that went public through the Special Purpose Acquisition Company (SPAC) process, dating back to 2019, when Virgin Galactic did so. According to an analysis by SpaceWorks, $100 invested in a “new space” stock index in January 2021 would be worth about $15 today, compared to $127 for a traditional space stock index.

SPACs destroyed

“The poor performance of SPAC companies has certainly influenced investor attitudes,” Anderson said. “This is just one of several factors influencing investor sentiment, but it is definitely significant. Amid the general downturn in technology investment, space companies are often seen as a higher risk category, and underperforming companies in the SPAC, like Virgin Galactic, are clearly driving these perceptions.”

Anderson said it typically takes about six to eight years for a company to progress from its initial round of seed funding to an initial public offering of stock. By that yardstick, many of the space companies that went public through the SPAC process did so prematurely—not just before revenue, but in some cases before product.

Some of these companies, like Virgin Galactic, Virgin Orbit and Momentus, still lack a viable commercial product years after going public. While these companies may have needed public funding to survive the first few years of development, this added scrutiny made innovation that much more challenging.

“It’s hard to build a flagship product, fail, pivot and innovate as a public company,” Anderson said. “Public markets prefer operational stability and predictable revenues. It’s no wonder so many of these companies have disappointed.”

Focus on the fundamentals

That said, Anderson believes that some SPAC companies are starting to demonstrate their viability. Also, he said, some “amazing” space companies have been working in the background for several years. These companies will be ready to go public through a traditional initial public offering within a few years.

As for other notable tidbits in the report, Anderson drew attention to SpaceX’s $2 billion capital increase in 2022, the company’s second-biggest annual increase. SpaceX sought this additional funding as it worked to bring two major development projects – the Starlink Internet constellation and the Starship launch system – online.

Investment in the space economy, based on the origin of investments.
Extend / Investment in the space economy, based on the origin of investments.

Space Investment Quarterly

China also appears to be closing its gap with the United States in private investment in the space economy, Anderson said. Chinese companies attracted 35% of all investment in space applications, for example, compared to 41% for US companies. This is being driven by China’s boom in location-based services and e-commerce.

Looking ahead to 2023, Anderson sees another tough year for space startups due to a lack of available investment capital for small companies to take advantage of. However, he sees a shift from “impulse investing” to a greater focus on fundamentals as a positive trend, one that will benefit quality space companies in the long run.