Will NewSpace Supernova Into a Trillion Dollar Business?
Table of contents
Last month, SpaceX successfully shot its 16th rocket into outer space. That’s significant for a couple of reasons. First, that’s double the number of launches from last year and truly demonstrates that NewSpace commercial companies can do rocket science as well as NASA and its cadre of old-school aerospace contractors. Second, it gave the Elon Musk fanboys at Futurism yet another reason to write about the billionaire. (BTW, we’re selling locks of Mr. Musk’s hair if you’re interested.) Indeed, the commercialization of space seems to be on everyone’s radar, and there’s a trillion reasons for that. We’re talking a literal trillion, as more and more experts and market researchers are predicting that the NewSpace industry can supernova into a trillion-dollar industry in just two or three decades. We wanted to take a closer look at the numbers and see what’s happening as 2017 (and the decade itself) begins to wind down.
If you’ve spent much time reading Nanalyze you’ll know we’re not too keen on market research reports, as the predictions seem to come from a crystal ball stuck up some MBA’s derriere. The variance between estimates from reports X, Y and Z can be light years apart. Each company claims to be the leading market research firm and wants to sell you a report for $5,000 or more. However, we did take notice when headlines began popping up last month on how both Bank of America Merrill Lynch (BofAML) and Morgan Stanley predict the space industry will reach a trillion-dollar valuation in the coming decades. Both peg the current industry at about $350 billion but then they rip apart on future growth estimates like a spaceship trying to escape from a black hole. BofAML is the more bullish of the two, saying the industry can reach $2.7 trillion over the next thirty years. Morgan Stanley predicts a more modest $1.1 trillion by 2040.
Satellites Slow Down
While it would be cool if construction of billion-dollar starships was driving the growth of the space industry, the reality is that the main driver is on a much smaller scale—satellites. A 2017 “State of the Satellite” report from Bryce Space & Technology, an analytic consulting firm, shows that revenue on all things related to satellites, from manufacturing to services such as communication and weather monitoring, topped $261 billion in 2016. The firm estimated the entire space economy at $339 billion last year, so in the same solar system as BofAML and Morgan Stanley. That means about three-quarters of the industry is in orbit around satellites, with satellite services accounting for about half of all revenues at $127.7 billion. That gels with the report from BoAML that identified only five “pure play” public companies in the current space economy, with all five involved in the satellite business. All are pretty small potatoes, with market caps south of $5 billion.
While satellite-related revenues have doubled in 10 years, according to Bryce, growth has slowed significantly in the last couple years and was only up 2 percent in 2016 compared to 2015. We wonder how the explosive growth in smaller, inexpensive satellites is shaking up this market. In June, we highlighted 10 startups with plans to launch their own SmallSat armadas into orbit. We noted that aerospace engineering design and analysis firm SpaceWorks Enterprises reported that there are about 800 SmallSat (up to 50 kilograms) launches on the books between 2017 and 2019. It would seem swapping van-sized satellites for something as small as a toaster would have an impact even as the number of launches and missions goes up.
So that leaves us to wonder where the growth in NewSpace will come from more immediately.
The answer from Morgan Stanley: the internet. The firm estimates a $400 billion revenue opportunity from “providing internet access to under- or unserved parts of the world”. Some of the world’s biggest companies are pursuing the dream of global internet, as we’ve previously reported. Companies like SpaceX and OneWeb want to do it through a vast web of satellites circling the globe. Others like Alphabet (ie, Google) have the crazy idea of connecting the world to its search engine and fake news ads by flying giant balloons in the Earth’s stratosphere. Project Loon, as far as we know, is the only one currently in business in any shape or form.
The company had balloons in the air (like the one pictured above) over Puerto Rico after Hurricane Maria turned the power off on the island. It doesn’t take an MBA to calculate that when the other four billion people on the planet finally get an internet connection, a few companies stand to make a few bucks, not to mention the ones plugging them in.
Mining for Millions
We’ve been fascinated about the prospect of space mining since watching Bruce Willis blow up an asteroid in the movie Armageddon. The idea of riding a hunk of rock through the cosmos to harvest rare, precious metals seems like the stuff of science fiction. For the foreseeable future, that’s probably where it will remain, though asteroid mining may be closer than you think. The potential payoff is certainly enticing, with CB Insights recently reporting that a single asteroid might be worth upwards of $50 billion. Deep Space Industries (below) and Planetary Resources are the two companies at the forefront of the asteroid mining.
It turns out that might be small change compared to setting up mining operations on the moon, which could harbor $4 quadrillion in extractable helium-3, not to mention an invaluable wealth of water that can be processed for rocket fuel. Only a handful of small startups are bold enough to go where no one has gone before, so while the earnings ceiling for space mining is high, the ground floor is still being built.
A Star System of Startups
Perhaps the biggest reason to be bullish on the future of the NewSpace economy is the industry itself. The Big Bang of commercialization that started with companies like SpaceX has birthed a whole universe of NewSpace startups. While we normally defer to the bright minds at CB Insights on these matters, Bryce has produced some impressive reports over the last couple of years on the NewSpace tech industry. The firm’s 2017 Start-Up Space report has some interesting statistics:
- Start-up ventures have attracted more than $16.6 billion, including $5.1 billion in debt financing, since the start of the 21st century.
- More than 140 angel- and venture-backed space companies have been founded and funded since then.
- Fifteen of those companies have been acquired at a total value of $3.2 billion.
- Last year, 114 investors put $2.8 billion into 43 NewSpace ventures across 49 deals. (In contrast, CB Insights came up with the same number of deals but only counted $1.5 billion in investments.)
In addition, the NewSpace universe has reached the critical mass to pull in venture capital funds and accelerators/incubators dedicated to space tech startups, just like what’s happened with artificial intelligence and VC funds, including:
- Starburst Ventures, part of Starburst Accelerator, raised a $200 million fund to invest in 35 space startups over the next three years.
- Seraphim Capital recently created the $100 million Seraphim Space Fund.
- LightSpeed Innovations is an accelerator that focuses more on the aerospace end of the NewSpace industry.
- The Founder Institute plans to incubate 500 NewSpace startups by 2025.
- SpaceNest is an Israeli organization providing seed funding and other services for the home team.
- Australia has its own version of Space-Nest called Delta V SpaceHub.
- Space Startup Ecosystem plans to help launch 100 NewSpace companies each year.
- The $1.6 billion Bessemer Venture Partners IX fund includes heavy betting on NewSpace ventures, including Terra Bell (acquired by Planet), Rocket Lab ($75 million) and Spire ($40 million).
So, between these organizations, we might see more than a thousand launches by the quarter-century mark. That’s 10 times as many NewSpace startups that have emerged since the beginning of the century. Of course, most of these won’t escape the gravitational pull of competition, financing and the sheer challenge of working in outer space.
Will the NewSpace economy ever reach the critical velocity necessary to break the trillion-dollar barrier? We think so. The industry has momentum and is really just getting ready for liftoff. The commercialization of space is making entry into the industry more accessible than ever by lowering costs and spurring innovation, which creates a number of new niches in the NewSpace ecosystem that startups are rushing in to fill. We’ve seen this with companies focusing on supporting scientific research or geospatial analysis. Missions to establish a base on the moon or a colony on Mars will only create a trillion more ways for astropreneurs to make money on the final frontier.