Access to capital remains tough for space companies

TAMPA, Fla. — Lower interest rates should fuel more space investments but many companies will still struggle to raise funds, according to an Oct. 21 Satellite Innovation panel of investors.

“Despite all the dry powder that’s out there on the private side, it’s remaining a pretty challenging environment for folks to raise money,” said B. Riley Securities senior managing director John Stack, particularly for funding rounds larger than Series A.

The public market also continues to be volatile for space companies, although the panelists pointed to signs of bifurcation as stocks such as Rocket Lab rise above a broadly underperforming sector.

“You’re also seeing just an incredible dearth of companies out there that … are growing at a place where they can really get the valuations they need,” said Mike Collett, managing partner at Promus Ventures.

The sector is in “a painful place where boards and companies that haven’t reset valuations that are so far out of whack are resetting them now,” he added.

Still, AE Industrial Partners principal Tyler Letarte said the U.S. Federal Reserve’s recent decision to lower a key overnight borrowing rate by half a percentage point to a range of 4.75-5% — the first reduction since the early days of the Covid-19 — will help facilitate deals.

“Whether they stay there is a question mark, of course, but as they remain at that level, you have people willing to give you dollars and that can help facilitate a transaction,” Letarte said.

AE Industrial Partners sees funding opportunities across Series A, B and C rounds.

Lower your expectations

“I can echo the fact that valuations do remain high,” he added.

“We are somewhat scratching our heads every once in a while from some of the asks that we’re seeing.

“Nonetheless, we’re trying to get deals done where they make sense, and there are more … realistic companies out there that want to partner and see the benefit of kind of resetting that base value, because that means your next round has the opportunity to be even more successful.”

Ronald Epstein, a managing director at Bank of America Securities, attributed much of the current market uncertainty to a lingering hangover from the economic disruption caused by COVID-19.

“We went through this global economic situation where literally just mountains of stimulus were stuck into the global economy,” Epstein said, “and it had all kinds of disruptive effects that I would argue most economists didn’t understand.

“And we’re just kind of getting through that, and the farther along we go, the more that gets behind us, the more normal things get. And it does seem like we’re getting in a more normal environment now, but there’s still a lot of economic uncertainty floating around.”

Ultimately, the panelists agreed that space companies most likely to succeed in raising capital will be those that prioritize strong execution of their business strategies and consistently meet financial targets.

A well-developed sales team has proven critical for successful space companies, noted S. Sita Sonty, a partner and managing director at AlixPartners, who said this has historically been a weakness for the space industry.

“Another thing that I think really sets them apart is, if you have a good sales engine you also still need to have diverse engineering skills,” Sonty said.

“And that is what makes SpaceX special. You have the same engineer working on mechanical, electrical systems. You have the same people working on Starlink, Starship, Crew Dragon, Cargo Dragon.”

She said cross-functional capabilities reduce headcount costs and help companies achieve milestones faster by streamlining collaboration across different areas.