Investment banks take stock of evolving space finance challenges

TAMPA, Fla. — It is becoming more difficult for young space companies to close growth-stage funding rounds amid increasing investor scrutiny, according to an April 9 panel of investment bankers and equity analysts.

The poor trading performance of early-stage space companies listed on the stock exchange in recent years, coupled with the end of cheap capital as interest rates rise, is weighing on businesses’ ability to build scale in the market. 

Citigroup investment banker Sameer Garg said during the Space Symposium in Colorado Springs that young space companies used to just need to nail down one lead investor to close a funding round.

Then it became “a market of two,” where the success of a funding round depended on existing investors stepping up and continuing to demonstrate their interest and desire to support a company alongside a lead investor, Garg continued.

“We’re in this sort of strange time right now where, because there has been some level of fatigue coming out of [the] 2022-2023 timeframe, that it has become a market of three,” Garg said, “where it is not just the existing investors … but the lead investors also want to know if there’s someone else who will either be a co-lead or will write a substantial check.”

Citigroup advised Sierra Space on a $290 million Series B funding round last year to accelerate work on its Dream Chaser vehicle and commercial space stations.

Garg said a funding round of this scale was only possible because existing investors stepped up meaningfully and joined a consortium of lead investors.

Securing greater capital needs in later Series B and C rounds is particularly challenging, added Akshay Patel, managing director of boutique investment bank PJT Partners.

Companies at this stage usually face more competition from others in space or other sectors for these growth dollars.

Space companies have an easier time raising funds in the very early seed and Series A stages. Here, funding needs are smaller, and companies can tap into a larger pool of investors looking to bet on many different companies.

“The funding universe has migrated more towards seed, Series A and Series B,” JP Morgan investment banker Mithil Mehta said, where there are “a lot of people wanting to write checks because they can use space as a market that is going to continue to grow, but they don’t want to write big checks into later stage companies for a smaller percentage of the ownership.”

According to Citigroup’s Garg, later growth stages should become easier for space companies as markets mature and procurement cycles become clearer.

Because increasingly cautious investors are spending more time scrutinizing funding deals nowadays, Mehta advised young space companies to start approaching investors early and to come with a well-developed story around why capital is needed and their path to profitability at scale.

Regarding investor caution, Garg said the significant expenditures coming out of the U.S. government’s Space Development Agency provide a major boost for the broader space industry, but “there’s certainly a higher level of scrutiny than we’ve seen in the past.”

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