Space companies face difficult investment environment

Rising interest rates are making it more difficult for space startups to raise money, some warn, forcing them to seek alternative sources of funding. A series of rate hikes by the Federal Reserve, intended to halt the post-pandemic spike in inflation, could have the side effect of driving funding out of risky venture investments, such as space, because of the higher rates offered elsewhere. “We’ve just come off 15 years of a near-zero interest rate environment that encouraged risk taking,” said Jared Isaacman, the billionaire founder of payments company Shift4, during a Washington Post webinar Oct. 3. Isaacman is best known in the space industry for leading the Inspiration4 private astronaut mission on a Crew Dragon last year and backing the Polaris Program of private missions with SpaceX. “A lot of industries and a lot of companies were formed that, in more challenging times, would never have been able to survive. That’s not exclusive to space,” he said. “The space industry received a lot of capital, and I am definitely concerned they don’t continue to receive it.” He predicted that many space startups, as well as those in other technology sectors, will struggle to raise money. “A lot will go away, just like I think across tech and other industries. You’re going to see a lot of business failures as interest rates are now essentially going through the roof,” he said. “In that environment, you have to pick your battles as to where you deploy your capital from an investor’s perspective.”

While the SPAC market has cooled sharply, Intuitive Machines says it still represents the best way for it to access the capital it needs for its lunar landers and related projects. Credit: Intuitive Machines

In its latest quarterly report in July, Space Capital warned that the “macro environment” of higher interest rates and potential recession were having an impact on space investment. The number of deals and overall investment in the industry dropped by more than a third over the previous quarter, according to its assessment.

“While we believe the macro environment will continue to cause headwinds for some space companies, we do not believe that the space economy is at existential risk,” the report noted. However, “we expect the macro environment will disproportionately affect funding for capital-intensive Launch and Emerging Industries companies for the foreseeable future (1-3 years).”

Companies had, starting about two years ago, turned to mergers with special purpose acquisition corporations, or SPACs, as a means of raising money and going public. However, many of those deals failed to raise the expected funding as SPAC investors sought redemptions of their shares, and the companies themselves fared poorly on the market after going public.

Astra, a space launch company that went public through a SPAC merger in mid-2021, announced Oct. 7 it received a delisting warning from the Nasdaq exchange because its shares had traded at a price of below $1 for more than 30 days. Astra has 180 days to get the share price above $1 for at least 10 consecutive days. Astra shares closed at $0.52 Oct. 10, after trading as high as $13.58 in the last year.

Not every company is deterred from SPACs, though. Intuitive Machines, a company developing lunar landers and related technologies, announced Sept. 16 it would go public through a merger with Inflection Point Acquisition Corp., a SPAC on the Nasdaq.

“A SPAC is simply a mechanism to get into the public markets and we have a fantastic opportunity for retail investors, for the first time in history, to invest in space exploration,” argued Steve Altemus, chief executive of Intuitive Machines, during an Oct. 6 webinar by IPO-Edge. “Now, with going public, we have access to the capital we need to essentially fund our business plan moving forward and continue our growth.”

He acknowledged “some variability” in SPAC transactions, which depend on how much of the capital raised by the SPAC is redeemed by shareholders rather than retained in the merged company. Inflection Point has $330 million in cash in trust, plus $105 million in separate lines of capital from other investors. Altemus didn’t explain how the company’s plans would change depending on how much they raise.

“SPACs are still very much an option, but we have to recognize that the complexion of SPAC deals and the SPAC market has changed,” said Nick S. Dhesi, a partner at Latham & Watkins LLP, during the IPO-Edge webinar. “There’s a focus on real revenues and contracts, fully funded business models and paths to profitability.”

He predicted it would be difficult for companies to go public through a more traditional initial public offering through the rest of the year. For private funding, “you’re seeing structured products — preferred equity, convertible debt — and well as strategic investors starting to step in to look for more vertical integration in their business.”

There has been increasing use of debt alongside, or in place of, equity investment in businesses. SpinLaunch’s $71 million Series B round, announced Sept. 20, included a mix of debt and equity, but the company did not disclose the ratio of the two. Astroscale, a Tokyo-based in-space servicing and debris removal company, announced Sept. 30 it raised 5 billion yen ($34.3 million) through a three-year term loan agreement with MUFG Bank, Ltd., leveraging a credit guarantee program by the Japanese government.

Isaacman, despite his concerns about overall funding, said he felt some companies were in good shape. “That’s not to say that the world will just be SpaceX,” he said. “I think there’s a couple really good space companies that have been smart on their capital allocation, they bought other businesses, they diversified their revenue streams, they’re more vertically integrated. I think they’ll succeed.” He didn’t give any examples of such companies.

But, he warned, “A lot of the space industry won’t be able to cut it.”

Australia can pick up its game and land a Moon mission

Now all the celebrations of the 50th anniversary of the Moon landing have died down it's worth considering where we are with future lunar missions half a century on. Australia has long played a role in space exploration beyond helping to bring those historic images of the first moonwalk to our television screens back in 1969. Labor MP Peter Khalil has already called for Australia to be involved in a mission to the Moon, and later to Mars. He is co-chair of the recently reformed Parliamentary Friends of Space, along with the National's MP Kevin Hogan. But there is plenty of interest from others in going to the Moon. Only last month, India launched its Chandrayaan 2 mission that's already orbited the Moon and due to land there on September 7. China recently landed Chang'e-4 on the far side of the Moon while Israel almost succeeded in landing its Beresheet probe. NASA has committed to sending people to the Moon again by 2024, and to significant lunar infrastructure such as the lunar Gateway, lunar landers and companies to deliver payloads to the Moon. There is no doubt the Moon has once more captured the world's interest. One of the reasons for this is human exploration, and that a Moon presence is now recognised as being essential to any future mission to Mars. Another is the presence of water on the Moon, and the usefulness of water for all sorts of reasons in space. By the time we hosted the second Off-Earth Mining Forum in 2015, it was clear water was the space resource of most immediate interest.

But the companies that existed at that time were mainly looking to source that water from asteroids. It has only been in the past two years that companies like iSpace have come to the fore, aiming at extracting water from the Moon.

Australia has reacted quite quickly to this evolving environment. Only last month, the first workshop met to establish a Remote Operations Institute in Western Australia to look at operating automated machines at a distance - remote mines and space.

The CSIRO identified nine potential "nation-building" flagship space missions, of which four relate to the Moon. One (disclosure, championed by me) is an orbiter and lander aimed at extracting water, but the other three could all support such a mission. Of those nine, four (including mine) have been selected for further examination at a workshop in mid-August in Brisbane.

Since January, we have been working on the Wilde project, where we have re-focussed our space resources research towards the permanently shadowed craters at the Moon's poles, where water is highly likely to occur in acceptable concentrations.

We are also looking to reduce the risk of investing in a water extraction venture, including the design of orbiter and lander missions.

Explosion of Aussie interest

These Australian initiatives are all being driven in part by the explosion of the Australian space sector. One symptom of this is the establishment of the Australian Space Agency. The agency's very existence and its promise have further emboldened space businesses and researchers.

But more than a year after its founding we still await any real missions, or commitment to upstream projects (upstream in space projects means those that are actually in space - those great Australian contributions to Apollo were all on the ground - downstream).

The other important driver for the new space projects mentioned above is that Australia has such a strong mining industry, and that so much mining innovation is created in Australia. As disciplines, space and mining have a lot in common: both involve complex engineering systems, work in hostile environments, and human control is increasingly handed over to autonomous robotics. Exploiting resources in space represents a genuine opportunity for Australia to establish a niche around which a sustainable space industry can be built.

So now is a perfect time for Australia to consider a new Moon mission. The industry is growing rapidly and a flagship mission would give it something around which to build.

Our special expertise in resource extraction offers a unique opportunity, which others have only just started to pursue. And a community of companies and researchers has been gathered for the task.

Hopefully it won't be another 50 years before Australia has its own presence on the Moon.