MILAN – Many institutional investors and private equity firms aren’t looking to invest in the space sector. To attract funding, it may help to stop talking about space and explain businesses in terms investors understand.
“We’ll be successful when the capability can be talked about without the space component,” Mike French, Space Policy Group founder, said Oct. 14 at the International Astronautical Congress here. “We’re not space communication, we’re communications. We’re not space transportation, we’re transportation.”
When investment in space-related capabilities can be understood in terms of well-established terrestrial markets, institutional investors are more likely to show interest, French said.
Since 2000, about $60 billion in investment has flowed into space sector startups. Venture capital provided some 70 percent of the money. Private equity contributed another 5 percent, said French, former space systems vice president at the Aerospace Industries Association.
In the space sector, private equity firms have performed their traditional roles by combining or splitting up space companies. OHB, for example, announced a deal in 2023 with investment company KKR to become a private company. Also in 2023, Advent International and British Columbia Investment Management Corp. acquired Maxar Technologies.
More recently, U.S. private equity firms have contributed to $100 million-plus investment rounds for space companies. They are “acting like venture capital partners,” French said.
Risk Aversion
It’s different in Europe, where space companies have sometimes struggled to find investors for later stage rounds.
“For seed and early-stage investments, there is enough public and private money from institutions like the European Investment Bank and the European Commission,” said Alessandro Izzo, European Investment Bank director.
Beyond Series B and C, some European companies are sometimes forced to look for funding in the United States. “We do not have the depth of deep-pocket funds that are capable of funding these mega-rounds,” Izzo said.
Efforts are underway, to create larger funds. Izzo noted, though, that European investors tend to have “a risk aversion to high technology risk combined with demand and market risk and long investment timelines.”
Space Real Estate
In South Korea, Jay Kim, Boryung CEO and chairman, has talked to private equity firms about commercial space stations. Boryung, a Korean pharmaceutical company, invested $50 million in Axiom Space in 2022. Early this year, Boryung and Axiom established a joint venture in Korea.
Private equity firms “don’t know how to categorize the space station as a business,” Kim said. “We need to change people’s perspective in looking at these assets.”
Boryung executives are helping investors by explaining that Axiom is building a large research and development laboratory “that will host most of the space agencies around the world as anchor tenants,” Kim said.
Predictable Revenue
French agreed that reframing the conversation by “talking about customers not technology,” was helpful. “But then there actually have to be customers,” he added.
In the energy sector, for instance, investors are backing firms developing small nuclear reactors. Like the space sector, small nuclear reactors are costly and time-consuming to produce.
Still, people are investing in those businesses “because the sector is energy,” French said. “It’s a new way of selling energy.”
To attract more investment, space companies “need to be customer-focused, but we also need revenue,” French said.
Investors for space-related ventures will look for “a relatively predictable user base and returns,” said BryceTech CEO Carissa Christensen.