Critical Liftoff Failure: NewSpace’s Mission Derailed
BY: Will Jagiello, RBFL Student Editor
Even with the greatest of efforts, progress towards solving a complex problem may be inexorably damaged by events completely out of the most skilled actor’s control. The budding NewSpace[1] sector that took the market by storm in 2020 (and continued astronomically through 2021) learned this lesson when Silicon Valley Bank (“SVB”) collapsed. While the ensuing 2023 Bank Run had widespread consequences across myriad industries, especially those primarily funded by Venture Capital (“VC”) investments, precariously-positioned NewSpace startups and SVB were intimately linked.
SVB’s first forays into aerospace investments were with launch and satellite startups, and over time, they became hailed as “the [NewSpace] industry’s ultimate market leader and growth champion.”[2] As such, they were uniquely positioned to provide lines of credit to the emerging leaders of the pandemic’s valuation craze – and were willing to provide such loans on non-standard, startup-friendly terms. Essentially, SVB served as an alternative to the traditional VCs that financed nearly the entire sector. Thus, NewSpace’s largest industry players (and critically, their cash-flows) were reliant upon SVB’s unique business practices.
Unfortunately, the FDIC’s depositor reassurances are too little, too late for these high-flying startups, which have been struggling to maintain a foothold since the markets began to cool.[3] Space ventures of any sort involve significant initial and long-term expenditures, extensive timelines, and a much lower chance of success than other scientific industries.[4] The entire industry’s investment interest is highly speculative, driven by decades-out projections and collapsed SPAC listings. When economic woes cause these investors to prefer safer investments or hold cash back for the moment, NewSpace researchers are among the first to feel the pullback. For instance, Astra Space went public at a whopping $2.1 billion valuation in 2021 – only to find itself now worth barely over $125 million and facing imminent NASDAQ de-listing.[5] Plagued by runaway cash burn, as well as the slower-than-projected scientific progress that is so inherent in all attempted space ventures, even the most-hyped prospects were barely staying afloat prior to SVB’s collapse.
Today, as most businesses flee for the safety of megabanks and VCs opt to sit on their war chests, NewSpace leaders find themselves without their most reliable go-to liquidity source. The prevailing megabanks are largely unwilling to extend the short-term types of credit that high-burn-rate startups require to conduct primary research activities, so without an existing revenue stream or cash coffers, these promising companies will be unable to progress at all. If the players wish to survive and hold out for more advantageous future conditions, they must seek alternative courses to both financing and their business models to ensure survival through suboptimal conditions. Near-term growth opportunities were already dubious because of general market conditions, but this latest economic comet has left an impact crater the size of the NewSpace industry, and revitalizing small, private participation in the sector will take reforms of atmospheric proportion.
[1] NewSpace refers to the emergence of the private space industry. NewSpace ventures are becoming more common, spanning areas such as private launch companies, small satellite constellations, or sub-orbital tourism. See SpaceTec Partners, NewSpace, https://www.spacetec.partners/markets/newspace/#:~:text=NewSpace%20refers%20to%20the%20emergence,traditional%20space%20industry%20supply%20chain.
[2] Anne-Wainscott Sargent, Silicon Valley Bank: The Ultimate Advocate of NewSpace Investment, Via Satellite (June 27, 2019) https://www.satellitetoday.com/innovation/2019/06/27/silicon-valley-bank-the-ultimate-advocate-of-newspace-investment/.
[3] Mateo Anelli, The Best and Worst Funds and Trusts in August, Trustnet.com (Sep. 1, 2022) https://www.trustnet.com/news/13324689/the-best-and-worst-funds-and-trusts-in-august (showcasing Seraphim’s 24.6% quarterly loss as the third worst of any individual trust in the UK).
[4] See generally Catherine Amirfar et al., Funding the New Space Race: Risks and Opportunities for Sponsors and Investors, DEBEVOISE & PLIMPTON LLP (May 2022).
[5] Joey Roulette, Rocket maker Astra seeks more time to avert Nasdaq delisting, Reuters (March 17, 2023) https://www.reuters.com/markets/us/rocket-maker-astra-seeks-more-time-avert-nasdaq-delisting-2023-03-17/.