Private Equity & Venture Capital Boost Investments in Space Industry

Private capital is having its own space race moment, with firms piling into investments in both the industry’s hottest startups and more mature companies.

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Private markets firms invested $12.5 billion into space companies in 2023, a 30 percent jump from the prior year, according to Space Capital, a venture capital firm that exclusively targets the space industry.

Chad Anderson, founder of Space Capital and author of a book entitled The Space Economy, sees this trend continuing to accelerate through 2024.

“Ambitious plans for direct-to-cellular SatCom (satellite communications) expansion, AI integration, increased government funding, and a growing appetite for investment” make 2024 promising, Anderson notes. He acknowledges, however, that even last year’s activity fell well short of the $15.3 billion invested in 2021.

One major difference, however, is that most of the money invested in 2023 did not come from billionaire founders—Elon Musk at SpaceX, Jeff Bezos at Blue Origin, and Richard Branson at Virgin Galactic. Instead, capital came primarily from traditional institutional investors.

Within private equity, AE Industrial Partners and Arlington Capital Partners have been among the most active in the space. Both firms have invested heavily in federal defense and aerospace contractors, and have now applied a similar strategy to space-focused targets.

AE, in particular, completed a series of acquisitions to form its Redwire Space platform, a provider of specialized infrastructure and hardware manufacturing services that sells into companies working to scale their own space operations. Between the Redwire formation and subsequent add-ons, AE has completed more than 10 space-related deals since 2020.

Involvement in space isn’t limited to smaller tuck-ins. On the larger end of the market, Advent International and British Columbia Investment Management Corp. acquired Maxar Technologies for $6.4 billion in December 2022, providing an out for a business hit hard by rate hikes after heavy debt financing in years prior.

Venture has been similarly active. Last year, early-stage space funding totaled more than $4 billion, and activity hasn’t slowed—last week, flashy in-space manufacturing startup Varda Space Industries raised $90 million in new funding from Caffeinated Capital, Lux Capital, General Catalyst, Founders Fund, and Khosla Ventures.

For investors, the allure of lucrative long-term government contracts has made the industry a particularly attractive target. While political risk and shifting government priorities can be a source of concern, the funding outlook remains positive, experts say.

Some of that positivity is based on the U.S. government’s current focus on private-sector innovation, preferring to support commercial-led efforts over internal research.

The most recent evidence of this shift is the U.S. Department of Defense’s Innovation Unit, which received $945 million of new funding written into the defense spending bill passed by Congress on March 21—four times its appropriation in the year prior—in part to help identify commercial technologies with military applications.

Including both public and private spend, the $546 billion space economy is expected to grow more than 40 percent by 2027, according to Kelli Ogborn, vice president of space commerce and entrepreneurship for the nonprofit Space Foundation. Attractive market tailwinds for portfolio companies with space exposure.

Bob Clair

Bob Clair is a reporter at Transacted covering private equity and investment banking. He has covered breaking M&A news for several years and is a general assignment freelance reporter for The New York Times, where he shared in a 2021 Pulitzer Prize win.