No, it’s not just you: everyone nowadays really is talking about space. On a given day, there might be news on an astronaut launch, a new satellite constellation, or another country’s national space initiative. In case you missed it, the first ever fully privately-funded astronaut mission flew to the ISS earlier this month — also known as A Big Deal. And as heart breaking as the events currently unfolding in Ukraine are, an open letter from the president of the country also showed the impact space data can have in such an acute humanitarian crisis, as he urged satellite operators to provide imagery to track Russian military movements.
I can guarantee that you tick off at least a few words from your Space Bingo card every day that you watch the news or scroll through Twitter. So what’s going on? And as an investor, why do you feel like you’re struggling to catch up with a train that’s quickly gathering speed while everyone around you seems to have hopped on board already?
Cheap and regular access to space provided by private companies has completely transformed the space landscape and is why so many startups now want to dip their hands in the pie. Gone are the days of paying tens and hundreds of millions of dollars per launch: SpaceX claims its newest reusable launcher Starship will cost just 1% of what NASA has averaged in the past. In case it wasn’t clear: that is insane.
What this means for you as an investor is clear. You need to start investing in New Space. But I’ll forgive you for not knowing where to start — even though this is my full-time job, knowing where to invest in space is a skill best learned with a side of patience. But I can give you my lowdown on the sector to get you started.
The Space Ecosystem
I like to split the space industry in to upstream and downstream:
- Upstream: any business that primarily exists or has assets in space, is launched or launches things in to space, or is a component or process as part of anything upstream
- Downstream: any business that relies on space-based data, communications or connectivity, or facilitates interactions with space-based assets, but doesn’t necessarily have a presence itself in space
Upstream is what most people imagine when they think of space, but downstream is arguably where I think the more interesting companies are (a bold statement, I know). Of course, there are also companies targeting much more fantastical ideas — I recently came across a one stop shop for mining, terraforming, and then inhabiting an asteroid, which unfortunately didn’t tick many boxes in my investor brain (question 1: who actually needs this?).
Upstream businesses have generally been first-movers in space, launching constellations that will ultimately benefit life on Earth, designing equipment that will benefit space infrastructure, or providing launch services to those that need to access space. Upstream businesses have now become the enablers for the downstream, which use or augment upstream services for a multitude of end applications, or whose existence is demanded by the upstream segment (such as ground terminals).
Let’s go deeper in to some of the key ideas. Note that I will not mention any companies by name; this is meant to serve as an introduction to key themes in New Space which will provide you with some context when reviewing your space opportunities.
The upstream segment has historically been dominated by satellite and component builders, and launch rockets and launch service providers. There are currently c.8000 satellites in space.
- Satellite builders and operators
The main types of satellites are for earth observation (EO), for connectivity, or for communications.
EO satellites are launched with the aim of — as it says in the name — observing the earth to provide valuable insights that can’t be gained from the ground, such as spotting weather patterns, monitoring large scale infrastructure, or providing agricultural insights. These satellites typically have a range of sensors on board which receive signals remotely from space, for example picking up infrared heat signatures to detect wildfires, or using Synthetic Aperture Radar (SAR) to ‘see through’ cloud and monitor key sites.
Connectivity and communications satellites provide services such as broadband internet and mobile phone networks, or to facilitate secure communications when terrestrial networks are susceptible to interference.
Large constellations of multiple satellites provide more consistent connectivity and data, and are typically game-changers in the industry. Satellites can be in geostationary orbits (GEO) meaning they are above the same geographic point on Earth at all times, or in low earth orbits (LEO) where they pass over multiple points on Earth in a day and have lower latency.
Nowadays there are surprisingly many private rocket and launch service providers, including reusable rockets which keep costs down. This is a paradigm shift from even a decade ago when the only way to launch into space was to wait for a lengthy and expensive contract with a national space agency or legacy space company, and rockets were trashed after one use. End to end launch service providers can help customers design and build payloads and connect them with rocket launchers.
Customers with large or many payloads can usually get dedicated on-demand launches. Otherwise, as is more common, you can book onto a rideshare going to the chosen orbit of the highest paying customer — think Uber Pool (is that even a thing anymore?). If this isn’t the orbit you are looking to go to, never fear — ‘space tug’ companies now exist that will literally pull your satellite into the correct orbit for you once it has launched.
Now things are getting complicated, so let’s break it down a bit further. New types of upstream space businesses have recently come in to the spotlight. These have emerged in response to problems posed by, or opportunities presented by, the expansion of New Space capabilities. As well as orbit delivery, this includes space debris removal, de-orbiters, satellite refueling, and exploration companies (exciting).
- Orbit delivery and de-orbiters
Okay, so you reached LEO. But, because your payload was aggregated onto a rocket with a predefined target orbit, you aren’t exactly where you want to be. Enter: a space tug. These companies operate assets in space which will come and rendezvous with your payload and transfer it into the orbit that you need. To be honest, there is not much more to say on this, it does what it says on the tin.
On the other side of a satellite’s life, a de-orbiter will help you deal with your obsolete hardware, pushing it towards the atmosphere to burn up or moving it to an unused orbit.
The first step is to identify where exactly the debris is which is where tracking companies come into play. These can be based on earth, pointing their (telescopic) eye at tiny pieces of space junk from earth, or they can exist in space, whereby cameras on board small satellites can physically observe the debris in situ, which helps identify much smaller items. This data is then fed to satellite operators who can undertake collision-avoidance maneuvers, or fed into removal efforts. Some of the more interesting removal ideas out there include using a net to capture the small pieces, or using a large board that is physically struck by the pieces and therefore removes them from orbit. I’ll let you make up your mind as to the best way to do this.
Now let’s imagine your satellite is running out of fuel to continue operating, but has not yet been classed as space junk — it still works, and if only it could find a gas station in space, it would continue being useful for years to come. Well guess what — this is exactly a gap in the market that certain space businesses have identified, and are looking to launch gas stations into space in various orbits for satellites to rendezvous with and fill up for the road ahead. I wonder if they will sell snacks, too.
Who cares about space debris when you could be spending your money going out and exploring the moon and Mars and setting up colonies for humans to live in on the surface of other planets? According to some space companies, this proposition is not that far off, and they have already started to build up the necessary infrastructure and research in order to make this a reality. While everyone has a different opinion on this, I think I can safely say that this is not something that is likely to materialize over the next decade or so, but depending on your investment horizon it might be something you’d like to dabble in.
Moving swiftly on, we get to the downstream element of space investing. As explained before, these are companies that rely on space data, space communications, or space connectivity, not necessarily having a presence in space themselves.
Ground terminals are essential in order to communicate with space. Ground stations are large antennas which receive large amounts of data from space, and smaller terminals can be used by individual customers in commercial applications. Innovation in this segment is on the multi-satellite connectivity side, with ground terminal providers claiming the ability to connect with multiple different orbits and in different communication frequencies, with a single piece of hardware. Pretty cool.
- Location and tracking — or, where’s my parcel?
Space is uniquely able to provide global coverage for location and tracking, for example a shipping company that wants to track its containers full of Amazon orders as they move across oceans, or an individual user who wants up-to-date traffic information on her route to work. With multiple satellites passing over Earth each day, downstream companies are able to use these signals to provide critical insights to their customers.
Satellite-based IOT is an emerging theme in this area, and will enable myriad connected devices in areas such as mining and construction to provide critical safety and maintenance alerts in remote areas which are out of reach of terrestrial networks.
- Analytics platforms and products
This is arguably the most interesting side of the downstream. With massive amounts of EO data now available from space, many businesses are popping up that help their uses understand insights that can uniquely be generated from space, usually via software platforms. Examples include measuring carbon sequestration, agricultural insights, oceanographic modelling, and tracking disease outbreaks from space. Whole new markets and applications are opening up thanks to space data, which is why I’m personally so excited about this area. Things are possible now which couldn’t have been dreamed of a decade ago, such as hyperlocal weather or flooding forecasts on a street-by-street level.
Unique datasets and unique modelling capabilities are key to becoming a leader in the segment. Free EO data can be provided by government-funded satellites such as Sentinel and Landsat. But for the real edge, you’d want to be using paid-for data from the aforementioned private space constellations, in a plethora of frequencies, modalities and resolutions. As for the modelling side of things, downstream space companies are almost synonymous with AI and ML these days.
In my humble opinion, this segment really highlights the notion of using space for the benefit of the Earth.
So what does this all mean?
The definition of a space company is broad — it no longer means just a rocket launcher or lunar explorer. That means that the opportunities for investment are equally broad, from SaaS to space tugs. Teams of people that have worked at well-known space companies are now spinning out and creating their own businesses, but equally recent university graduates are bringing fresh thinking to the sector. However, risks are still high, as New Space is a relatively young industry operating literally at the final frontier. But the market is unquestionably a large one, and given the number of recent space public listings, appetite is high for disruptive products and processes.
So I’ll pass this over to you — where do you see the most innovation in space over the next decade, and are you looking at space as an investable asset class?
Please note all views are my own and not affiliated with my employer.