15 Years of Early-Stage Space Finance
This week marks the 15th anniversary of Space Angels Network, so I thought it would be instructive to reflect on the evolution of "NewSpace" venture finance.
An Historic Moment at the Podium
I remember being extremely nervous as I took the stage at the 2006 International Space Development Conference in Los Angeles. I had just been introduced by George Whitesides, who was the Executive Director of the National Space Society and still a few years away from becoming CEO of Virgin Galactic. I scanned the crowd of several hundred attendees, knowing that they were not there to see me but rather the guy scheduled to follow me onstage, Elon Musk. Before I started my talk, I glanced down at the front row and saw Buzz Aldrin sitting right in front of me. He was *definitely* not there to see me!
At the time, I was three years into the founding of the International Association of Space Entrepreneurs, a global community of entrepreneurs, technologists, and a wide variety of space industry professionals. Our group was focused on fostering a growing ecosystem of what had recently been labeled "NewSpace" startups. It did not take us long to identify one of the most pressing obstacles facing space entrepreneurs, namely, lack of early-stage capital. A small group of us decided to do something about it, so we made plans to launch a new specialized community of accredited individual investors willing to fund space ventures.
From that podium on that fateful day 15 years ago, I publicly unveiled our plans for "Space Angels Network".
4 Major Trends ... and Many Significant Milestones
So much has changed in the space industry since 2006!
Humanity is now clearly well into the transition from space being the exclusive purview of a handful of national space programs to a global private space economy. The two most often cited drivers for this transition are the significant reduction in launch costs and the rapid miniaturization of satellite technology. While this is certainly true (and there are several other secondary drivers), I am mostly in awe of the seismic change in the financing of space ventures.
Here are the major trends I have seen during my time in the field of early-stage space finance:
Trend 1 - NASA Changes Its Approach
For several decades following the success of NASA's Apollo program, the agency continued taking the lead on space exploration. Unfortunately, it also effectively stifled competition (and, in many ways, innovation) by insisting on being the sole funder, owner, and operator of every asset in its various programs. In a world where technology innovation and entrepreneurship was disrupting every major industry, it was only a matter of time before the agency had to change its approach to space exploration.
Over the course of the past 15+ years, NASA has shifted course to embrace a more collaborative approach with the private sector, easing into what many consider a more sustainable long-term approach of funding early innovation and then becoming an "anchor customer" for the resulting commercial ventures. This allows the agency to accomplish much more with its limited budget while also focusing on what it does best, namely, science and exploration.
As we watched SpaceX launch its first commercial resupply mission to the ISS or even its first crew rotation mission, we were not witnessing the success of Elon Musk or the engineers at SpaceX (although that was certainly important) so much as the success of a change in business approach by NASA. This shift has been widely praised (even by long-time NASA critics) and was the result of many visionary courageous leaders who sustained the effort through several Presidential Administrations and Congressional budget reviews.
NASA's new approach has been emulated by national space agencies around the world, and it has helped fuel the influx of space entrepreneurs, technologists, and investors.
Trend 2 - Flood of Private Equity
In 2006, we launched Space Angels Network because there were no readily available sources of early stage capital for "NewSpace" ventures. Since there was not sufficient industry knowledge within the membership of most mainstream angel investor groups, these ventures rarely even made it through the initial screening process. Likewise, generalist venture capital firms did not feel comfortable risking their investors' money when their fund managers barely knew how to evaluate a space deal. Even SpaceVest, the only VC firm originally founded as a space specialist fund, had virtually eliminated the space components of the portfolios by the time of its second and third funds.
Fast forward 15 years, and globally billions of dollars of private investment capital is being poured into hundreds of space ventures around the world each year. Just about every mainstream angel investor group and every generalist VC fund has at least one space investment in their portfolios. Even Angelist and other "investment crowdfunding" platforms have done space deals. Also, we have a plethora of space specialist investors, from angel investor groups (Space Angels Network is still going strong, after it was re-launched and re-branded as "Space Angels") to accelerators to VC firms to PE firms to SPACs. In other words, an entrepreneur starting a new space venture today has access to all of the financing tools that have always been available to entrepreneurs in other industries.
What caused this shift? Well, certainly the "Elon/SpaceX Effect" cannot be overstated. The rivalry--real or contrived--with other "Space Billionaires" like Jeff Bezos and Richard Branson has captured the imagination of the general public. However, for investors, it has been the company's financial success that has prompted interest (along with the investments by Steve Jurvetson's DFJ VC firm and Peter Thiel's Founders Fund). That said, investors are all about liquidity, so if I had to pick an exact moment for the inflection point, it would have to be Google's 2014 acquisition of SkyBox Imaging. It was not a huge transaction and it likely did little for the newest investors (details were not disclosed), but ... IT WAS AN EXIT! As the saying goes, the rest is history.
Trend 3 - Global Expansion of "NewSpace"
Even though we publicly launched Space Angels Network at the International Space Development Conference, at the time there was nothing "international" about "NewSpace", since virtually all of the ventures (and prospective investors) were in the US. This made sense, since the general Technology Revolution had started in Silicon Valley and NASA was one of the premier (if not THE premier) space agencies in the world. The US was the perfect incubator for the "NewSpace" movement, with a critical mass of entrepreneurs, technologists, and investors.
However, even back then we knew that humanity would never fully transition to a true spacefaring species unless we first transitioned to a GLOBAL private space economy. We had to truly "democratize" space. The US would certainly need to take the lead, but it could not be a monopoly. Instead, we would act as trailblazers and role models.
Again, fast forward 15 years, and just about every country on the planet has space ambitions, either with their government programs following NASA's new "anchor customer" approach or with their own private entrepreneur communities.
What caused this shift? Again, if I had to pick a single moment for this inflection point, it would be Luxembourg's 2016 public announcement of their space resources initiative. The fact that a tiny country (albeit a quite wealthy one) would dare to jump into a leadership position on something as audacious as lunar and asteroid mining caused every other nation to reflect on the benefits of launching similar efforts for their own people. This led to a number of copycat state-sponsored vehicles to provide funding for early-stage space ventures.
Today, space entrepreneurs in dozens of countries have launched new ventures, finding investment capital and/or paying customers within their own borders or willing to cross borders for the opportunity.
Trend 4 - China Opens Its Space Industry
If the US was the ideal incubator for the global NewSpace movement, then China has been the ideal accelerator. Their economy competes head-to-head with the US, and their national space program is rapidly gaining on the US (and Russia). On top of that, they have 1.4 billion people, including many talented entrepreneurs and technologists, along with a growing class of wealthy individuals and some of the top universities in the world. In 2006, there was NO private space activity allowed in China, but today it has an incredibly vibrant private space economy.
The seminal moment for this shift is easy to spot: in 2014, China's government officially declared its space industry open to private investment. Almost immediately, there was a massive proliferation of new private (or semi-private or public-private) space ventures, primarily focused on launch services, Earth Observation, and satellite communications. Even though they were off to a late start, relatively speaking, they wasted little time making up ground. Their progress over the past 6+ years has been jaw-dropping. Of course, it has helped that many other countries (especially the US) had already paved the way so they could emulate before innovating. Regardless, the rate of growth and development has been incredible to watch. Whenever I reflect on this, I remember that Rick Tumlinson likes to point out that the creators of Firefly and Serenity may have been on to something when they envisioned a future where spacefaring humans spoke two official languages, English and Mandarin.
Today, Chinese space entrepreneurs have seemingly unlimited capital reserves, drawing from private investors, as well as public-private sources. This makes them a formidable force in the global NewSpace ecosystem.
So ... What's Next?
People ask me this question A LOT. Here is my answer:
I have absolutely no idea what the next 15 years will bring. However, I'm excited to see what 2036 will look like. After all, I'm so amazed at everything humanity has accomplished in the last 15 years, when we were spending most of our collective effort merely busting our way out of the eggshell that was "government space program monopolies". Right now, we are still merely hatchlings wavering on unsteady legs. However, we will soon stretch our wings and eventually take flight. And then? Well, I think we will quickly (and finally!) start seeing "science fiction" turn into reality. I can't wait!