In recent years, the space tech industry has experienced a remarkable transformation, driven by a surge in investment and innovation in 'New Space' technologies, with the global space sector forecast to be worth around USD 1.1 trillion by 2030, implying an annual growth rate of approximately 11% per annum.
Understanding 'New Space'
'New space' refers to the emerging sector within the space industry characterised by private companies and startups driving innovation and exploration by developing new technologies and business models beyond traditional government-led endeavours.
While the rapid technological advancements in the sector make it difficult to provide a comprehensive overview, the New Space sector is underpinned by the deployment of scalable and cost-efficient satellites and reusable rocket technology. This advancement of technology has been a catalyst for innovation in sub-sectors such as global communication networks and the provision of services and data analytics capabilities to an array of industries which see value in the vast quantity of data gathered from the satellites. Growth areas include:
Micro launchers
Micro launchers are characterised by their compact size, cost-effectiveness, and ability to provide dedicated launches for small satellites, cube-satellites, and other miniaturised payloads. In relation to heavy-lift launchers, such as Ariane 5, which provides for carry payloads weighing more than 10 tons to geostationary transfer orbit (GTO) and over 20 tons into low-Earth orbit (LEO), the carry payloads of micro launchers typically range from 150 to 1,000 kilograms. The cost per kilogram payload varies but micro launchers compared with larger rideshare missions benefit in terms of on-demand flexibility, specific orbits, and in some cases, shorter time from contracting to orbit.
Small Satellites
Small satellites are considered to be one of the main drivers of the dynamic space market of the future. 90% of the satellites launched in the coming years will be small satellites, weighing less than 500 kilograms (including cube-satellites which can be as small as approximately 40 kilograms). As these small satellites can be produced in larger quantities and therefore more economically and faster than conventional satellites, they open up completely new opportunities for scientific research and commercial services.
Space data
Space data refers to any information collected or generated through observations, measurements, or experiments conducted in space or utilising space-based assets. New Space companies are increasingly leveraging space data as a fundamental component of their business models and operations. With the increase of small satellites, cube-satellites and other miniaturised spacecraft, the amount of space data being collected has skyrocketed.
Smart materials
Smart materials hold great potential in the new space sector due to their unique functionalities that can enhance spacecraft performance, reduce costs, and enable new capabilities. These materials are engineered to respond to changes in their environment, such as temperature, pressure, or stress, by altering their properties in a controlled and predictable manner.
Advanced communication technologies
Advanced communication technologies are fundamental to the growth and success of the New Space sector. The exponentially growing market for satellite-generated information requires advanced satellite communication methods for transmitting tremendous amounts of information. These technologies enable reliable and high-speed data transmission between spacecraft, ground stations and other space-based assets facilitating various applications such as Earth observation, satellite internet services, space exploration and scientific research.
Global funding landscape
With all this opportunity, various funding avenues are available.
VC funding
Venture capital remains the predominant type of external capital in the sector, comprising 80% of all private invested capital in 2022, with the UK being the leading destination for space investments in Europe, and second globally behind the United States, receiving 17% of all globally deployed capital. At high level, investments are split across "downwards" and "upwards" space tech – downwards referring to technology in space for use back down on Earth (such as satellites that provide telecommunications infrastructure and data transmission) and upwards meaning technologies that are sent up into orbit for use in space (such as mining the moon). It is the former that is attracting a significant majority of the investment. As expected, there were a number of new entrants during the investment peak in 2021, with 63% of investors new to the sector. Today, the investor base is more diversified with deeptech, climatetech, and software focussed funds now participating in this once niche sector. This bodes well for businesses looking to raise funds in 2024 as a wider pool of investors are increasingly familiar and active in the sector.
Consistent with the broader market, invested capital in space tech crashed back to Earth in 2022 as rising interest rates and other macroeconomic headwinds slashed valuations and slowed deployment across almost all industries, particularly those with higher cash burn and longer, riskier paths to profitability. While lower levels of investment persisted over the course of 2023, the future looks brighter for the sector with a noticeable pick-up in activity, corroborated by Space Capital, a VC space-tech focussed firm, reporting that equity investment in Q1 of 2024 totalled USD 6.5 billion, up 33% since Q4 2023.
Private Equity firms
Despite a market wide slowdown in M&A over the last 18-24 months, the definite trend is that private equity deal volumes have increased in the sector since 2015. PE firms are getting classic buy-out transactions done but more than ever are participating in later stage rounds (series C onwards) and taking minority stakes, with 44 global PE deals being completed in 2022, representing 4.8 x the number of PE deals completed in 2015. The largest ever PE backed M&A deal in the space tech sector completed in 2023, with Maxar Technologies being acquired by private-equity house Advent International for USD 6.4 billion. The uptick in volume and size of transactions is an indication of the increasing maturity of the industry and its broadening appeal beyond niche fund investors.
Public markets
The European Commission announced in January 2023 the opening of the Euronext Helios Space Index, the first stock index for Europe's space industry. The Index, announced in collaboration with the European Space Agency and Promus Ventures, already has 30 securities currently lined up, including world renowned companies Rolls-Royce and Airbus. This is likely to expand in forthcoming years particularly as VC and PE funds continue to invest heavily in the market, and may look to the public markets to enable a full or partial exit from their portfolio companies when the markets open up.
Market development, growth drivers and risks
Lower barriers to entry, thanks to the advancements in small satellite technology and reusable launch vehicles, have reduced investment risks and expanded market opportunities in both downwards and upwards space tech for startups. Additionally, the sector's diversification across various market segments, including satellite manufacturing, launch services, space tourism, and satellite-based services, offers investors a range of revenue streams and the potential for substantial returns on investment. While precise market volume figures can vary widely depending on the specific segments, estimates suggest a significant and growing market size overall.
The sector continues to see significant government spending from agencies such as the US Department of Defence, NASA and the European Space Agency, with public body spending on space technologies expected to increase over the coming years and continuing to support the sector.
The UK government published its National Space Strategy in Action policy paper in July 2023, setting out a range of plans and spending commitments, many of which are intended to promote investment and fund development, In March 2024, the government published a policy paper: Space Industrial Plan: from ambition to action – advancing UK space strategy. This builds on the National Space Strategy and aims at helping target investment, particularly in the Connectivity in Low Earth Orbit R&D programme, and at focusing on bilateral partnerships with like-minded space-faring nations.
Given the minimal exposure to consumer and discretionary spending risk, the sector should be well insulated from the broader economic headwinds in the short to medium term.
A challenge for the sector is the increasing risk of collisions in space due to the exponential rise in number of satellites in orbit, and the increase in space debris (discussed in more detail here) – which forces considerations around ESG reporting on pollution within space and availability of insurance for the assets in orbit (discussed here). The risk is heightened by the lack of international rules governing the area and the uneven patchwork of national regulations which has led some insurers to exit the space market, leading to a majority of satellites in congested low Earth orbit not being insured. Investors will need to mitigate collision risk in other ways, i.e. through technological solutions. There is also an increasing focus on precisely identifying and recording location and velocity of debris and other objects to address questions of liability and damages from events occurring in space.
Outlook
Despite growing investment, the full potential for businesses operating in the space ecosystem is yet to be realised. Although supported by significant and growing government investment, private capital investment in New Space technologies dropped off in 2021 and 2022 mirroring the wider market hesitancy. However, significant VC investments and PE exits were achieved in 2023, demonstrating the resilience of the sector and the more recent interest in the once niche sector to a wider ecosystem of investors. The rising demand for space data and related products and services is sure to attract interest in 2024 and beyond, with an expected increase in private investment setting a solid foundation for expansion of the New Space sector.
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