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Silicon Valley Business Journal Leadership Trust

By Roger Royse , Partner at Haynes & Boone, LLP
Partner, Haynes and Boone, LLP, Emerging Growth and Venture Capital

 

Recently, I gathered with a group of venture and corporate investors as part of a panel for the startup group Idea to IPO to discuss investing in the sector. According to one report, the space industry was a $380 billion business globally in 2020 and is expected to grow to $10 trillion by 2030 and accounts for 0.5% of the global GDP. Space tech is an investment sector that will likely continue to grow in the coming years.

What is space tech?

Taken literally, space tech could include everything under the sun, however, when investors speak of space tech, they mean something closer to extraterrestrial businesses and the technology that enables them.

Most people might think of satellites when they think of space tech, but satellites themselves make up only a small part of the sector. However, satellites require many other technologies. For example, Starlink, the satellite internet constellation operated by SpaceX, consists of thousands of satellites and requires artificial intelligence to coordinate the simultaneous operation of the satellites. Less obvious are the operations that must take place in a zero-gravity environment, such as pharmaceuticals, food production and manufacturing.

Space technology can also be broadly classified as commercial, civil or military and, a company might have an application in all three categories. For example, software for a drone might have application in a satellite or a satellite in space might gather information on the earth.

Related sectors to watch

As companies do more business in space, payment solutions might also adapt. A subsector of space tech is space decentralized finance or DeFi. For example, a blockchain solution could allow a peer-to-peer payment or other transactions to take place in space without ever touching Earth. Companies are working on solutions that hope to avoid the financial regulation and oversight of an earthbound government. Aside from payment, as companies conduct more operations outside of any jurisdiction, the code-is-law nature of blockchain could provide rules for commercial transactions.

Mining seems to be the most promising industry in space. Asteroid mining could be a very lucrative industry, potentially worth quadrillions of dollars. Mining operations might be done by robots or autonomous vehicles due to the long travel times. NASA has already said it will pay companies to collect samples in space. Profitability in mining, however, may be a long time away. Interestingly, the use case to be mined is not gold or silver, but water, since water can supply hydrogen to refuel rockets as they launch further out into the solar system. As another example, moondust might be used for feedstock for 3D printing.


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What investors should keep in mind

A current problem is space waste. As of now, there are about 27,000 pieces of debris orbiting the earth, traveling at thousands of miles per hour. At that speed, even a fleck of paint can cause damage in a collision. Satellites must be equipped to avoid debris.

Space tourism is not only for billionaires, but it is primarily for the uber-wealthy. Companies are taking customers to the edge of space for hundreds of thousands of dollars when previously the price was in the millions. The price is expected to continue to reduce over time, creating the opportunity for space tourism to become a booming industry.

Looking ahead

Generally, there are more startups than there is capital for this growing industry. By one measure, there are over 10,000 space tech startups, most of which are competing for venture capital. Several funds have emerged to address the demand. In addition, there have been some private equity deals and numerous special purpose acquisition companies (SPACs).

Nondilutive government grant money also figures prominently. The U.S. Air Force has been making hundreds of millions of dollars in grants to seed-stage space tech startups. Through a program called Afwerx, the Small Business Innovation Research (SBIR) program is used by the Air Force to develop and adopt commercially viable innovations as integrated program components or commercial solutions. SpaceWorks, a Georgia Tech spinoff, focuses on space transportation concepts for NASA and the U.S. Air Force. NASA and the Department of Energy also have grant programs for space technology. Foreign governments similarly provide matching funds and grant money to space companies.

Looking ahead, investors who are interested in space tech should weigh the pros and cons, consult with licensed advisors and decide if an investment in space tech is right for their overall investment goals.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Roger Royse is Corporate and Tax Partner at Haynes and Boone, LLP, an AmLaw 100 law firm, practicing in Emerging Growth and Venture Capital

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