Private funds are pouring money into space companies, with 2019 marking a record year of investment in extraterrestrial ventures.
Space companies received $5.8 billion across 198 investment rounds last year, topping $5.1 billion of investment in 2017, according to a report Tuesday by New York investment firm Space Angels. The firm itself has stakes in nearly two dozen space companies and publishes comprehensive quarterly updates on private investment in the industry.
Space Angels highlighted the steadily increasing maturity of space companies in this past year, with 75% more later-stage deals from the previous year.
Credit: Space Angels
From the investor side, the report said three sources — corporate capital, venture capital and individual or angel capital — each contributed a third of the total investment in space companies in 2019.
The firm noted funding rounds such as Relativity Space's raise of $140 million, key to taking the company from start-up to its first launch. It's a reflection of a decade-long shift in the industry, Space Angels CEO Chad Anderson told CNBC, with younger companies taking on more responsibility and driving innovation in a market long dominated by government contractors.
"These companies are graduating and going from concept to scale," Anderson said. "All the companies that are in space in the last 10 years are new. They've all entered a different point over that timeline and you need to see them graduate as, in venture capital investing, graduation rates are really important."
Space companies have received nearly $26 billion in investments since 2009, according to the firm.
The largest private companies — such as SpaceX, Blue Origin and OneWeb — made up the lion's share of last year's investments, receiving billions in new funds. But early-stage deals remained strong as well, making up 72% of the total investment rounds last year. Anderson explained that steady growth at both the top and bottom of the funding "funnel" is key for healthy growth in the space economy.
"If [big deals were] all that was happening here, it would be worrying," Anderson said. "But that's why we monitor so closely what's happening on the front end of the funnel as well."
Investment is also picking up outside the United States: Anderson's firm said non-U.S. funding doubled in the past year. China continues to lead in that respect, making up 34% of the private funding doled out to space companies in the fourth quarter, the report said.
Investors are steadily becoming more interested in the space economy, especially as some of these private space companies edge closer to the public markets.
"The meat of this has all happened in the last five years, as in 2015 things just started to really take off," Anderson said.
While there already are opportunities to invest in space, Anderson expects 2020 will see IPOs from several pure-play space companies created in the past decade. He warned that those that leap into the public sphere will have to keep in mind the lessons learned by several technology IPOs last year.
"The key theme for IPOs in 2019 was that top-line growth is not going to do it. Public markets want to see that you're profitable, not just that you can grow the top line," Anderson said.
While he declined to identify which companies he thinks will go public, Anderson did identify two key themes that he thinks investors should watch: cybersecurity and the rise of megaconstellations from SpaceX, OneWeb and Amazon. The former theme is less frequently discussed in the space industry, which typically focuses on rockets and satellites. But Anderson believes the rapidly increasing number of countries with operations and assets in space will see heightened focus on cybersecurity and a ripple effect on the space industry.
Anderson, much like Morgan Stanley, sees human spaceflight as a catalyst for more investment. While it's difficult to quantify a dollar impact from flying people, 2020 is likely to see four space companies do so: SpaceX, Boeing, Virgin Galactic and Blue Origin.
"We're expecting all four of them to make it space this year," Anderson said. "A lot of the reason why we say that is because they were pushing to get there by the end of 2019 and got very close."
Virgin Galactic is "the leading indicator" for both the demand and impact of human spaceflight.
"There's so much interest and very few people have even gone yet," Anderson said.
The space tourism venture's CEO George Whitesides told CNBC last week that Virgin Galactic has seen steadily increasing demand from prospective space tourists. So far, Virgin Galactic has flown five people to space on two successful test flights.
Virgin Galactic's nearest competitor is Blue Origin, the space venture owned and funded by Jeff Bezos. The company expects to fly people to space in 2020, with at least one test flight of its New Shepard rocket remaining.
SpaceX and Boeing, despite both suffering setbacks in the past year, are expected to launch NASA astronauts to the International Space Station in 2020. But even as Boeing seeks to keep up with SpaceX in the realm of human spaceflight, Anderson wondered if the industry's large aerospace and defense companies will stay on top in the space industry in the next decade.
"Can the incumbents keep up with the pace of innovation? Because it shows no signs of slowing," Anderson said. "SpaceX has continued to push the envelope over those eight years and has accomplished more than any other aerospace company in the same time."