A reader floated a suggestion my way regarding a question posed (What is the “lingua franca” that should be used?) at the end of “The Challenge for Space Startups:”
Could the missing link be a common and relatively inexpensive power source?
I don’t think it’s one single technology that will solve it. I think it needs to be some kind of agreed-upon standard, sort of like the transport protocols used for the internet. But everyone is so set on doing their own thing—NASA, the Space Force, the startups, legacy companies—it’s currently a mishmash. I’m not saying we need a grand plan (that’s playing China’s game), but we do need something common, positive, that provides fertile ground. Money alone won’t do it, especially if VC’s get bored and leave.
I think the first part of the answer is fairly straightforward–but there will probably be disagreement with that follow-up. Perhaps, though, the second part needs just a smidge more explaining. To be clear, while new space startups are getting money (a good thing) from venture capitalists (VCs), their funding sources tend to be fickle. It’s not unheard of for VCs to eventually “get bored and leave” with their sacks of money (and that’s a bad thing)–especially if a space startup is moving slowly or not showing any progress. This kind of funding does not lend itself to long-term progress.
Which ties into today’s analysis.
“Non-Space” Space Applications
There have been a few articles posted essentially echoing the math from Space Capital’s latest “Space Investment Quarterly.” The reported good news surrounding that particular document is that VC funding of “Space Companies” was up 4% for the first half of 2020 when compared with 2019’s funding activities. This kind of increase for the space industry seems particularly positive when considering the pandemic that’s been hammering the economy during that same period.
Except within the same report, overall funding for the space industry in the second quarter of 2020 declined 23% when compared to 2019. More to the point, space infrastructure investments declined 33% in 2020 when compared to the same time period in 2019. Over that period, space application investment increased by 39%. This particular investment category, space applications, is why funding was up 4%.
What are space applications? In essence, products or services that rely on space infrastructure/space manufacturing to accomplish an assigned task, or make a task easier to do. These products or services aren’t typically related to the space industry–they aren’t suppliers, they aren’t space industry manufacturers, they don’t operate space systems–they just use what space infrastructure offers to build their businesses/applications.
An example of these types of businesses would be a software application, such as “what3words,” a review site like “Yelp,” or a rideshare service, like “Lyft.” All examples of the space applications listed above rely on space-based positioning, navigation, and timing (PNT) infrastructure like the Global Positioning System (GPS). And that’s because the majority of space applications rely on PNT infrastructure.
Space Capital added space application investments to the investments it tracked in this year’s first quarter. It did so to provide “… a holistic picture of capital flows into the Space economy…” When Space Capital added the space applications category, the total amount of “space funding” the company reported on essentially tripled, from $1.8 billion for space infrastructure to $5.4 billion.
The share of investments in space applications continued growing during Q2 2020 to $5.3 billion (up from $3.5 billion in Q1). The Q2 space applications share includes $3 billion in funds raised for a decidedly non-space company–Waymo (an autonomous car company). In fact, all of the space applications companies listed in Space Capital’s “Top Deals of the Quarter” for Q2 are non-space…but they do use space infrastructure (primarily PNT) to make their tasks easier.
It Adds Up
To be fair to Space Capital, others also attempt to somehow capture the activity going on in space applications. The Space Report, which I worked on, places space applications under the larger space products and services umbrella. During the time I worked on the report, we started adding European GNSS Agency estimates to the PNT category within Commercial Space Products and Services. That total was then included in The Space Report’s global space economy number (back in 2017, I think). PNT was an extremely large share of Commercial Space Products and Services, growing in overall share and revenue each year since its inclusion.
The Space Foundation then, like Capital Space now, recognized that while the products and services relying on PNT weren’t coming from space companies (and that PNT infrastructures weren’t directly profiting from their offerings), PNT constellations did/do provide a value-added component that should be recognized and captured. Otherwise, the products/services relying on PNT infrastructure probably wouldn’t exist.
Based on Space Capital’s Top Deals list, there’s another obvious reason why it included space applications in its space company portfolio–software. VC’s are used to concepts such as software development, especially smartphone software development. This is also an area which is, according to the latest European Global Navigation Satellite Systems Agency’s (GSA) GNSS Market Report, a significant part of PNT services growth. GSA’s report would probably place Space Capital’s space applications category under the generic “added-value” category. Added-Value, according to the report, includes (page 9):
“…data downloaded through cellular networks specifically for the purpose of running location-based applications (such as navigation), as well as the GNSS-attributable revenues of smartphone apps (sales revenue, advertisements and in-app purchases), subscription revenues from fleet management services, and a new quantification of drone service revenues across a range of industries.”
According to that report, added-value revenues will more than double between 2019 and 2029, from slightly over €80 billion to €166 billion (page 11). VC’s definitely want a part of that, whether a technology/service uses space or doesn’t.
While space applications investment is worthwhile to document, it would be well to understand the investment is just a continuation of what startups in Silicon Valley have done so well already–use software and technology to enable a task that is supported by an infrastructure–in this case PNT satellites. VC’s are very familiar with this type of business, so, of course, this segment is growing!
Also note that while PNT takes a large share of space applications, Earth observation, and communications categories are included, too. Something different than I noted in “Space Startup Observations” is that the keyword often used to get VCs attention–data–is absent in the report.
But the irony displayed within Space Capital’s report is that the segment that would allow true space software and technology startups to grow, is the part that declined in investments during the first half of 2020 by 85%–space infrastructure. In “The Challenge for Space Startups,” I noted that the new space startups are not just wrestling with building up their businesses–they also have to build the infrastructure and/or tool to build their businesses on. Infrastructure takes time to build–more time than developing the next app.
Maybe investors are getting bored with space already?