Space, the Final Frontier of VC: Investing in the New Space Race

he global space industry is on the brink of a major expansion, potentially growing its revenue to over $1 trillion by 2040. Historically, space exploration was a sector aided and supported through government funding. However, this has changed drastically over the past two decades due to technological progress, reduced costs of launches, and the rise of innovative entrepreneurs opening up the industry to private investments.

Firms such as SpaceX, Blue Origin, and Virgin Galactic have been in the spotlight with their bold visions to transform space travel, introducing concepts from recyclable rockets to suborbital tourism experiences.

Venture capital firms are increasingly drawn to startups in the space tech sector, attracted by the potential for groundbreaking innovation, disruption, and commercial success. Although the United States has historically led in space tech venture capital investments, other regions like Europe and Asia are witnessing a surge in VC interest for space tech startups.

Key investment areas in the space industry

Venture capital is being channeled into a number of technologies within the space sector, with a focus on the following:

Reusable rockets

Innovators such as SpaceX and Blue Origin are at the forefront of creating rockets that can be launched, landed, and launched again, significantly cutting the expenses associated with space missions.

Space tourism

Ventures such as Virgin Galactic are introducing suborbital journeys, making the dream of space exploration a reality for non-astronauts at a fraction of the cost and risk associated with conventional space voyages.

Satellite networks

Companies like OneWeb and SpaceX's Starlink project are in the process of setting up extensive satellite arrays to offer worldwide internet coverage, transforming the global landscape of communication and data availability.

In-space manufacturing

Emerging companies, including Made In Space, are leading efforts in utilizing 3D printing technology for producing components directly in the cosmos, minimizing the reliance on expensive and complex supply missions from Earth.

Key trends for 2024

The space tech forecast for 2024 predicts that we’ll be seeing more of these trends over the next one year:

• Opening space to all: Falling costs for space entry are broadening accessibility to diverse groups, such as startups, academic institutions, and private individuals.

• Space as a marketplace: The space sector is evolving into a more market-driven environment, where businesses are creating innovative products and services for different consumer needs.

• VC investment on the rise: VC investment in space technology is expected to keep recovering, supported by a general improvement in market conditions. The year 2024 is anticipated to break records with an increasing number of space tech companies receiving funding, across both early and growth stages. This increase is predicted to stem from strategic government initiatives, marking a worldwide growth and broadening of venture capital engagement in the space tech industry.

• Governments worldwide are ramping up their space capabilities: The increasing geopolitical tensions are driving governments globally to enhance their independent space capabilities. This move towards greater space independence—whether through manned space missions, building their own satellite networks, or developing local launch capabilities—is a key trend for 2024. This race for space superiority among competing countries will also escalate geopolitical conflicts into space, leading to a new era of "space politics" that is expected to dominate headlines over the year.

• The space industry's mood is closely linked to SpaceX's achievements: The coming year is set to be a turning point, with SpaceX's progress serving as a key indicator for the space investment scene. All eyes are on the eagerly awaited Starship launch, whose success could significantly boost investor confidence. Additionally, the possibility of Starlink, SpaceX's satellite internet project, going public adds an exciting dimension to the investment sphere. Just the thought of Starlink's initial public offering has the potential to dramatically change the space sector. If it happens, it could revolutionize the investment field, opening up new possibilities for both big and small investors. Thus, SpaceX is expected to significantly influence the direction of investor sentiment in the dynamic space industry.

VC benchmarks for investment

McKinsey’s report on the space race included discussions with ten leading VC companies, on the companies they chose to invest in and why. There are several leading factors which VCs look for in startups when making an investment.

1. Focusing on large, expanding markets with immediate revenue possibilities from both public and private sectors.

Given the risks and uncertainties of the space industry, ventures targeting significant current or future market segments, like launch vehicles, satellites, and spacecraft, demonstrate a more evident route to achieving the substantial growth and returns VCs favor. One VC mentioned a baseline expectation of ten to 15 times return on invested capital (ROIC) for space projects, with potentially higher returns for ventures with greater risks.

2. Developing proprietary or innovative technology.

The high costs associated with space ventures mean VCs are drawn to companies that offer unique and proprietary technology, ensuring distinct market positioning and a protective "competitive moat" against market share dilution.

3. Leveraging experienced leadership.

Startups led by seasoned executives with comprehensive industry insight, technical skills and an entrepreneurial background are better positioned to draw VC funding. Space presents a particularly challenging market for newcomers.

4. Demonstrating clear commercial applications.

Despite NASA and the US Department of Defense being the largest space sector customers, their budgets expand slowly. Establishing credibility and connections with the government takes years, with established contractors often maintaining a significant portion of government space spending. Successful space startups stand out by securing footholds in both commercial and governmental spheres.

5. Innovating business models to satisfy customer demands.

Traditional government contract-dependent business models are becoming less common for early-stage space companies. Instead, successful ventures often adopt flexible, cost-effective business models that attract a wide array of government and commercial clients.

6. Showcasing rapid progress and market engagement.

As the financial landscape shifts and funding becomes scarcer, the criteria for space ventures to secure investment tightens. Ventures that quickly achieve profitability with minimal initial capital are better equipped to attract funding under current economic conditions.

Biggest Space Tech Fundings in 2023

Although 2023 was sluggish for many startup sectors, space tech was not one of them. In total, the sector brought in $12.5 billion in investment.

According to Crunchbase data, investors poured more than $4.6 billion globally into startups in the space travel and satellite categories specifically. Some of the biggest rounds went to Series A through Series D stage companies working on everything from space stations to satellite networks.

Chad Anderson, managing partner at Space Capital, stated that space infrastructure was the most funded area, mostly due to a strong appetite for defense tech and sectors with government funding.

Below are some of the most notable rounds of 2023.

Axiom Space

Company bio: A Houston-based startup building a commercial space station.

Raised: $350 million

Sierra Space

Company bio: Based in Colorado, Sierra Space is developing the first commercial space station.

Raised: $290 million Series B

Astranis

Company bio: A San Francisco startup building a network of satellites to provide internet access in remote regions.

Raised: $200 million at a $1.6 billion valuation

Isar Aerospace

Company bio: A Germany-based launch service provider for small and medium-sized satellites.

Raised: $168 million in Series C funding

Top Space Tech Startups in 2024

Hadrian

Building automated precision component factories to help space manufacturers get parts 10X faster and 2X cheaper.

Investors: Andreessen Horowitz, Founders Fund

Raised: $117M Series B in 2024

Founders: Chris Power

Air Space Intelligence

AI for complex air operations.

Investors: Andreessen Horowitz

Raised: $34M Series B in 2023 at $300M valuation

Founders: Phillip Buckendorf, Kris Dorosz, and Lucas Kukielka

Skydio

Drone navigation tech.

Investors: Andreessen Horowitz, Accel

Raised: $230M Series E in 2023 $2.2B valuation

Founders:  Adam Bry, Abe Bachrach, and Matt Donahoe

SpinLaunch

Send satellites to low-Earth orbit using kinetic energy.

Investors: Kleiner Perkins

Raised: $71M Series B in 2022

Founders: Jonathan Yaney

Hermeus

Hermeus is building the world's fastest commercial aircraft.

Investors: Founders Fund, Khosla Ventures

Raised: $100M Series B in 2022

Founders: AJ Piplica

Pyka

Pyka makes technologies that make aviation safer, more affordable, and more accessible.

Investors: Y Combinator

Raised: $37M Series A in 2022

Founders: Chuma Ogunwole, Michael Norcia, Nathan White

Varda

Varda is a space manufacturing startup which focuses on creating products in space for terrestrial applications.

Investors: Khosla Ventures, Founders Fund

Raised: $42M Series A in 2021

Founders: Will Bruey, Delian Asparouhov, and Daniel Marshall

Relativity Space

Building humanity’s multiplanetary future, starting with Terran 1 – the world’s first entirely 3D printed rocket.

Investors: Y Combinator

Raised: $650M Series E in 2021 $4.2B valuation

Founders: Tim Ellis, Jordan Noone

Astranis

Astranis is a space startup that builds small and low-cost telecommunications satellites to provide internet access in remote regions.

Investors: Andreessen Horowitz, Y Combinator

Raised: $250M Series C in 2021 $1.4B valuation

Founders: John Gedmark

Boom Supersonic

Boom Supersonic is a commercial airplane manufacturer that builds supersonic airliners designed for speed, safety, and sustainability.

Investors: Y Combinator

Raised $50M Series B in 2020 $1.0B valuation

Founders: Blake Scholl, Josh Krall

Top Space Tech VC Firms

RRE Ventures

• Stages: Series A, Seed
• Minimum check size: $250,000
• Maximum check size: $10,000,000
• Founders: James Robinson, Jim Robinson, Stuart Ellman

Lux Capital

• Stages: Seed, Early Stage
• Minimum check size: $100,000
• Number of investments: 437
• Founders: Peter Hébert

BoostVC

• Stages: Pre-Seed
• Maximum check size: $500,000
• Number of investments: 423
• Founders: Adam Draper, Brayton Williams

Correlation Ventures

• Stages: Seed, Series A, Growth
• Minimum check size: $100,000
• Maximum check size: $4,000,000
• Founders: Trevor Kienzle, David Coats

Eclipse Ventures

• Stages: Early Stage
• Minimum check size: $3,000,000
• Maximum check size: $4,000,000
• Founders: Lior Susan

7 Percent Ventures

• Stages: Seed, Series A, Pre-Seed, Early Stage
• Maximum check size: $500,000
• Number of investments: 119
• Founders: Andrew J Scott

Space Capital

• Stages: Seed, Late Stage, Early Stage
• Number of investments: 70
• Number of exits: 7
• Founders: Chad Anderson

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