The space industry's bubble is at risk of bursting
The space industry could be facing a shake-up as venture capital money threatens to dry up amid fears of a looming recession.
Why it matters: Startups in the space industry tend to push innovation forward and keep established companies — like Lockheed Martin, Northrop Grumman and even SpaceX — on their toes.
- Governments and companies also rely on the space economy — which was estimated at about $370 billion globally in 2021 — for communications, agricultural information, national security and other parts of everyday life.
What's happening: The economic downturn could precipitate the long-predicted bursting of a bubble that could affect some parts of the space industry.
- Space-focused startups have been on a mostly upward trajectory for years, bolstered in part by venture capital funding that keeps young companies afloat as they build their businesses.
- If that money dries up in a downturn, it could mean that companies that are still trying to get their businesses off the ground will fail before they can get started.
- "Emerging industries are heavily reliant on venture capital due to the fact that these are nascent markets and there are very few customers outside small government tech dev programs," says Chad Anderson, managing partner at Space Capital.
- These companies also have added risk due to the fact that their business plans can often rely on other technologies that are still in the development phase, Anderson added. "It will take real grit, determination, and probably a bit of luck for companies in these industries to make it through this market correction."
Between the lines: The parts of the industry that are expected to be hardest hit include those focused on far-future concepts like asteroid mining and startups working to innovate new rocket concepts that take a large amount of upfront funding.
- Those two parts of the industry — launch and emerging industries — only make up about 10% of total investments made in the space economy, Anderson says.
- "The upcoming financial winter will not sustain a meaningful portion of New Space startups that are pursuing nascent markets and selling primarily to other New Space startups," Anton Brevde, a partner at Prime Movers Lab, wrote in a Medium post.
- "You'll certainly end up with fewer companies with marginal business cases or marginal business operations," Carissa Christensen, founder and CEO of BryceTech, said. The industry will also probably "end up with less innovation in some quarters."
Yes, but: That doesn't mean the entire space industry is heading for major problems.
- While relatively small portions of the industry may end up most hurt by a down market, the rest of the industry is larger and more diverse — encompassing communications satellites, well-established space companies, software applications using space data and more.
- The space industry as a whole also relies on government funding — through NASA and other sources — which should help large portions of it stay afloat through a general market downturn.
What to watch: If the space bubble does pop, it's not clear whether it will be a slow leak or a rapid burst.
- But either way, the space industry on the other side of it will be leaner and more focused — if perhaps slightly less innovative — than the one that came before.
The bottom line: "The truth is that many marginal companies were funded during the market mania of the last few years and most of those companies will get washed out in this market correction," Anderson says, adding that this is true across tech, not just in space.