LEO Economy: ISS National Lab Investor Network and Capital Connections (2023)

At a Glance

  • Despite a volatile FY20 due to the COVID-19 pandemic, the ISS National Lab ecosystem reflected successful funding rounds, contract wins, and strategic transactions for ISS National Lab startup investigators and Implementation Partners.
  • The ISS National Lab Investor Network grew to 200 members in FY20, and CASIS has facilitated more than 840 introductions to date in support of capital raising efforts in our ecosystem.
  • The annual investor pitch event held in conjunction with the FY20 virtual ISSRDC conference drew many new and returning venture firms as well as corporate investors.
  • Award and subsequent flight of an ISS National Lab project are key indicators of economic value creation for startup companies using the ISS National Lab for R&D.

Despite the COVID-19 pandemic, the vitality and overall strength of the commercial space industry was demonstrated by several favorable outcomes in FY20. Many of this year’s successes are a result of ISS National Lab Investor Network growth, timely monetary investments, and funding for the space industry and new ISS projects—successes that indicate continued utilization of the ISS as we move into FY21 and beyond. Several ISS National Lab Implementation Partners have notable achievements to report in FY20; for example, Made In Space (Jacksonville, FL) was acquired by Redwire and awarded funding to develop an in-space manufacturing solution (Archinaut One), and Axiom Space (Houston, TX) won NASA’s NextSTEP Appendix I award to develop a habitable commercial module.

The ISS National Lab Investor Network Delivers Connections

The ISS National Lab Investor Network has grown to include 200 investment organizations in FY20, up 27% from FY19. This network consists primarily of venture capital (VC) firms followed by corporate venture investors, angel investor organizations, accelerators, private equity markets, and selected financial intermediaries that combined manage hundreds of billions of dollars of investment assets.

In line with the ISS National Lab’s responsibilities to identify appropriate funding sources and match qualified research projects with such funding sources, CASIS has now made more than 840 capital introductions with venture and corporate investors, connecting these investment entities with 67 companies/startups in the ISS National Lab ecosystem. The feedback received from the ISS National Lab startup community indicates high value added from such connections, and while not all the resulting funding activity details have been publicly disclosed, CASIS internal estimates indicate that these introductions have supported and complemented financing strategies that have raised more than $400 million in capital.

In response to the COVID-19 pandemic, CASIS chose to hold its annual ISS Research and Development Conference (ISSRDC) investor pitch event virtually in FY20. This year’s theme, “Startups on the ISS: Innovation and Investment,” attracted the attendance of marquee venture firms and corporate investors and included an exciting set of presentations across many of the industry verticals where CASIS has been facilitating R&D for years. Similar to prior pitch events, we were pleased to see several new investors join those with an already established presence in the industry and within our ecosystem. We continue to report strong growth in investor engagement in the ISS National Lab’s capital markets ecosystem.

(Video) ISSRDC 2019: Economics of Low Earth Orbit

Assessing Fundraising Success of ISS Projects

One of the key indicators of economic value creation for startup companies using ISS National Lab R&D capabilities is their ability to raise third-party capital subsequent to award of a flight project and after execution of their technology or science investigation on station. The data we are seeing here is very encouraging.

Boeing Technology in Space Prize Impact: The ISS National Lab and Boeing [NYSE: BA] have a long history of partnering to grant up to $500,000 collectively toward innovative startup research through the Boeing Technology in Space Prize.This annual opportunity to engage with startups from the MassChallenge startup accelerator is designed to educate startup teams on how the unique space-based environment of the ISS National Lab could prove advantageous to their R&D. With the latest awards, two new flight projects will have the opportunity to leverage the microgravity environment onboard the ISS to enhance their products and business models.

LEO Economy: ISS National Lab Investor Network and Capital Connections (1)

Credit: Data from Discovery, Crunchbase, sec.gov, sbir.gov; ISS National Lab data and analysis

(Video) ISSRDC 2022: Day 2 Morning

Since 2013, the Technology in Space Prize has provided $8.8 million in funding for 27 startups. Subsequent to these award announcements, we have seen these companies raise (combined) close to $150 million of venture capital and close to $40 million of private and public grant funding toward their future growth, which amounts to more than 20 times the total awarded amount. More than $30 million of that funding was raised postflight, with the rest of the funding preceding the launch or raised by companies conducting ground-study projects only.

Some of the notable funding successes among the Technology in Space Prize awardees during FY20 were seed capital raises by companies such as AXONIS Therapeutics (Cambridge, MA; $4 million seed round), LambdaVision (Farmington, CT; jointly with Space Tango [Lexington, KY] awarded a $5 million NASA grant), and LaunchPad Medical (Lowell, MA; up to $1.8 million in grant funding from the Michigan-Pittsburgh-Wyss Regenerative Medicine Resource Center).

Post-Award and Postflight Funding Progress: Similar successes with post-award and postflight funding exist outside of CASIS and Boeing as well for startup companies including Emulate (Boston, MA), Beryllium Discovery (Bedford, MA), Orbit Fab (Cupertino, CA), Orbital Sidekick (San Francisco, CA), and Lynk Global (Falls Church, VA). For example, Orbital Sidekick was selected as one of 20 companies to receive “big bet” funding through the Air Force’s AFVentures, and Orbit Fab continued to execute on its funding strategies with a Securities Exchange Commission filing indicating sale of $1.1 million worth of its stock (while also securing a $250,000 NSF grant).

Credit: Data from Discovery, Crunchbase, sec.gov, sbir.gov; ISS National Lab data and analysis

Looking at the combined data across our startup ecosystem, based on our estimates and publicly available data, we have seen these companies raise approximately $220 million (combined) of private and public funding following flight project award announcement, including close to $140 million following actual flight to the ISS.

In addition to CASIS-awarded startup projects, several ISS National Lab Commercial Service Providers have flown payloads and launched CubeSats with successful early-stage enterprises, including with Planet, Spire Global, Analytical Space, LambdaVision, Lynk, and others. Excluding overlapping engagements, and primarily driven by successes at Planet and Spire Global, we estimate from public data sources that these startups raised more than $460 million of capital subsequent to their flight projects. Additionally, in FY20, Space Tango was awarded three projects on biomedical application development through the Research Opportunities for ISS Utilization NASA Research Announcement (NRA), building on the company’s successful ISS National Lab projects.

Industry Context: Volatility in the Financial Markets

The year started with continued strong investment momentum from a record-breaking 2019, although investor appetite had become somewhat more mixed. While VC funding positions remained strong and new investor entry continued, seasoned investors were increasingly focusing on achieved product-market fit and business execution progress. This market momentum was disrupted by COVID-19-driven retreat and reassessment of VC appetites for new investments. The broader financial market declined sharply, with the S&P 500 index dropping 35% in a little over a month, bottoming on March 23. This sell-off was followed by a relatively rapid rebound in public equity markets and deal activity.

In terms of impact on the NewSpace sector, the industry saw some rationalization and restructurings, and space infrastructure investment declined sharply in the third quarter of FY20. However, the deal activity rebounded in the final quarter, as evidenced by a close to $2-billion funding round by SpaceX, continued strong self-capitalization investments for Blue Origin, and several smaller albeit still very material funding rounds.

(Video) ISS National Lab Investor Workshop 2021

While the overall access to funding appears to have recovered, investor commentary from a panel discussion with leading VC and private-equity executives at the September session of ISSRDC pointed to some shifts in investor focus. This change is relative to the earlier years of NewSpace investment activity. Panel discussion highlighted an increased interest in geospatial intelligence and communications-driven applications, relative to infrastructure investments such as launch vehicles or satellite constellation assets (where many of the well-known venture firms have already made their commitments).

Investment opportunities in “second-degree” business models in the NewSpace ecosystem are generally viewed as still in their infancy, with opportunities in earlier stages of quantifiable demand formation and market maturation. In other words, even if there are demand indications from other emerging space companies that result in letters of intent or orders of future business, this demand has likely much more risk associated with it than, for example, an order book with government or established telecommunications company customers. Seed investments are being made, but these opportunities need to mature before they are likely to access capital from later-stage investors. It remains to be seen whether some of the recently announced and sizable special-purpose acquisition company acquisitions will change investor perceptions.

Space Industry Successes Indicate Progress in the LEO Economy

In January 2020, NASA announced the selection of ISS National Lab Implementation Partner Axiom Space to provide at least one habitable commercial module to be attached to the ISS, shedding light on a potential path beyond the current ISS platform. In May, we saw the significant success ofSpaceX’s Demo-2 launchand the docking of Crew Dragon to the ISS followed by its subsequent successful return in early August, ushering in a new era of spaceflight from U.S. soil.

Per ISSRDC investor discussions, there are several positive signals supportive of the viability of commercially funded space stations, including space tourism with real customers willing to commit real dollars as well as an established and growing demand from microgravity research and satellite launch markets. However, questions remain on the depth of the overall market demand and the level of capital investment, including upfront capital costs, that this demand could support. It would be fair to assume that the role of government as a reliable buyer to further de-risk the revenue and cash flow outlook would go a long way to support such business models.

While the crowded landscape of planned small satellite constellations has started to rationalize, we are seeing the emergence of market leaders bound to benefit from the growing global demand for broadband data and geospatial information. The Starlink launch and deployment cadence remained impressive through 2020, and Kuiper received its Federal Communications Commission approvals. The ongoing pandemic has also highlighted additional use cases for LEO Earth observation data. In addition, the space sector is seeing strong interest and engagement from the defense industry, including interest in new constellations as well as unmanned orbital outposts and platforms, and the satellite servicing market is taking shape with Northrop Grumman’s Mission Extension Vehicle deployments.

(Video) ISSRDC 2022: Day 1 Morning

In June, we saw AE Industrial Partners portfolio companyRedwire acquire ISS National Lab Commercial Service Provider Made In Space. This strategic investment complemented AE Industrial Partners’ acquisitions of Adcole Space and Deep Space Systems earlier in the year, with the subsequent formation of Redwire. The Made In Space acquisition was followed by Redwire’s acquisition of Roccor, a military and commercial hardware supplier in the small satellite market and a manufacturer of deployable structures for the space industry. Redwire’s goal is to build a space platform company with advanced and highly competitive capabilities to deliver mission-critical solutions and high-reliability components for the next-generation space economy and related programs. As further evidence of the impact this team is having on the economic development of LEO, Made In Space President and Redwire Chief Operating Officer Andrew Rush was appointed Chairman of NASA Advisory Council Regulatory and Policy Committee.

From an ISS National Lab perspective, the Made In Space transaction is a positive indication of investor confidence in the long-term fundamentals of NewSpace economy opportunities, including increased recognition of value creation by in-space or in-orbit applications (manufacturing, servicing, and technology and infrastructure development). These in-orbit application opportunities build on and benefit from heavy private-sector investments in new launch vehicles, leading to reductions in costs and growth in access, as well as strong investments in human spaceflight capabilities with the recent commercial success. NASA’s long-lasting commitment to private-sector engagement has been essential to the initial seeding and evolution of this ecosystem, and the agency’s forward-looking programs are clearly a significant part of future demand.

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Videos

1. ISSRDC 2022 : Investing in Space: Navigating Volatile Markets
(ISS National Lab)
2. ISSRDC 2018: ISS Transition and the Commercialization of LEO -- A Government Perspective
(ISS National Lab)
3. NLRA 2022-5: Technology Development and Applied Research on the ISS National Lab
(ISS National Lab)
4. NLRA 2023-2: In-Space Production Applications: Tissue Engineering and Biomanufacturing
(ISS National Lab)
5. ISSRDC 2018: Space for Earth: Developing a Sustainable Demand for Low Earth Orbit Services
(ISS National Lab)
6. THE VALUE OF LOW EARTH ORBIT IN THE NEXT DECADE Monday 19 September IAC 2022
(International Astronautical Federation)
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