Space: A new universe for opportunities?
Space exploration has historically been the realm of governments, but what opportunities does it now pose for investors?
It’s a well known fact that, for decades, space exploration has created and fostered new technologies with a whole range of applications on earth. NASA, for example, has been the cradle for many inventions that we take for granted today, from camera phones and memory foam through to cordless vacuums and infrared ear thermometers. Yet while space activity was largely a government-sponsored activity in the past, we are now seeing momentum building for privately-funded innovations related to space – and private equity and venture capital funds are starting to get in on the act.
One of the biggest shifts in recent times has been a reduction in launch and satellite-building costs. With the arrival of private companies such as SpaceX and Rocket Lab, launching objects into space has become dramatically cheaper – the cost has reduced by 95%, according to McKinsey figures – while satellites have become much smaller and mass-produced, which has made them much also much cheaper to build.
“Space may have been an activity for over 60 years, but we have seen massive changes over the past few years,” explains Marwan Lahoud, Chairman, Private Equity at Tikehau Capital. “The laws of physics haven’t changed and neither have the technologies or applications; what has changed is that space has become a business rather than just a government-backed activity. Back when the telecommunications companies were launching satellites, they weren’t paying the real launch price – it was supported by military programmes and the agencies that brought space to where it is today. Now, we can start considering space as an investor because we can achieve returns.”
This change has allowed some firms to look more closely at space opportunities. “Space has always been a part of our portfolio,” explains Kirk Konert, Partner at AE Industrial Partners. “As an aerospace investor, we have backed companies that make components for aircraft that are also used on satellites. Space activity tended to be government contracts and programmes that ran for at least a decade and involved putting big objects up in space.
That has all changed since launch costs reduced and we are now seeing an industrialisation of space that could result in significant economies of scale.”
AE Industrial Partners is not alone. Advent International recently acquired space technology business Maxar for US$6.4bn and there are, according to S&P figures, 16 aerospace-focused private equity firms in the market today (including Ace Aéro Partenaires, run by Tikehau Capital, which is raising a fund with a €1bn target).
This movement is also supported by the agencies that started the space revolution. The European Space Agency (ESA) is now actively engaging with private investors to commercialise the opportunities it sees in the domain.
“Our objective with Agenda 2025 is to support the growth of private investment in space,” says Heriberto Saldivar, Head of Strategy at the ESA. “We want to increase private investment here threefold by 2025.”
Some of the private activity to date has been driven by some of the wealthiest people on the planet looking for new travel experiences. The future, however, looks quite different, according to Saldivar. “We need to build an understanding of what the opportunities are,” he says. “Many private equity firms have exposure to areas such as a logistics and navigation – these could be improved by the information we gain from space. We can use our observations to improve agriculture and security – there are so many applications. At ESA, with our satellites, we generate terabytes of images every day across the world. Many investors don’t currently recognise that there are great opportunities that could be used for hundreds of applications.”
He points to an experiment the ESA ran during the pandemic. “Space exploration is more than just astronaut walks,” explains Saldivar.
“One experiment launched to the space station in December 2020 examined the efficiency of remdesivir for the treatment of COVID-19. It used a commercially owned and operated research facility, Europe’s International Commercial Experiment Cubes. Micro-gravity and the harsh environment up there allowed us to increase its efficiency. That’s just one example. Another is that organ transplants could be made more effective because there is no gravity to pull down the cell scaffolding.”
“We need to build an understanding of what the opportunities are,” he says. “Many private equity firms have exposure to areas such as a logistics and navigation – these could be improved by the information we gain from space.
It’s applications such as these that are behind Korean pharmaceuticals manufacturer Boryung’s joint venture with Axiom Space announced earlier this year. “Pharma companies can test their products much more effectively in space,” says CEO Jay Kim. “We see it as a giant lab.”
So, while investing in the domain of space may seem pie in the sky at first glance, there is plenty of momentum behind it today and we may see many more applications stem from the capital deployed there over the years to come. “Space is ready for private equity investment,” says Khaled Abou Zahr, Founder of Barbicane Space. “We’re at an inflexion point and with the industrialisation of space we’re now starting to see a growing LP interest.”
