Space Startups to Face Bigger Financing Challenges
Commercial space startups' access to capital is increasingly a challenge, GVF event panelists said Thursday. Financing costs for debt capital are substantially higher than a year ago, and equity investors have higher expectations, said Noel Rimalovski, managing partner at investment bank GH Partners. Financing deals are still getting done, but investors are focusing far more heavily on business fundamentals like having revenue now, he said. Echoed, Akshay Patel, PJT Partners Strategic Advisory Group managing director, the bar investors have for considering a company is "quite high." He said it has become hard to get investors' attention to equity investing when the debt market is more attractive right now.
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Rimalovski said investors who got into space in the past two or so years often weren't focusing on business fundamentals like companies' operating expenses, so valuations of companies were "a bit high" in relation to their addressable markets.
QuadSAT CEO Joakim Espeland said the satellite equipment testing and verification company's recent fundraising efforts took longer than expected. He said investors are more focused on business fundamentals and near-term business results, "less on grand vision of 'when is this going to take over the world.'"
The collapses of Silicon Valley Bank and First Republic Bank, whose customers included numerous tech and space startups, shined a light on the operational health of some of those startups, said Patel. A key question for the long-term viability of many of those startups is whether they can throttle back on their use of cash as the economy slows, he said. For the startups themselves, he said, the banks' woes "is a lesson learned -- don't put all your money all in one place." Added Espeland, space startups are seeing the importance of having their capital stashed "somewhere big and reliable."
The bankruptcy of Virgin Orbit is a case of patient capital running out of patience with the launch company taking too much time to get off the ground consistently, Patel said. Iridium Executive Director-Strategic Planning Peter Kossakowski said Virgin Orbit's capital requirements and the technological leaps needed, combined with the pressures of being publicly traded, "is a really challenging mix," He said bankruptcy might be a route to setting new priorities that could let it generate a path toward revenue.
Many early-stage space companies are regretting going the special purpose acquisition company (SPAC) route to becoming publicly traded, said Rimalovski: "There's a lot of discussion, 'how do we get out of this.'" He said the problems include the high level of scrutiny while still being in the development stage and the high transaction costs that came with the gross proceeds of the SPAC deals. Patel said in some cases SPACs were good ideas. "It's a very bespoke product" and can be a route to financing when there aren't other good options, he said.