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Space Tech's Investment Case Is Increasingly "Normal"

Tom Burroughes

23 February 2023

Space flight and related technology is already a commercial reality in this day of SpaceX and Blue Origin . Wealth managers may still have the impression that this segment is a proposition where payoffs take decades to bear fruit. But increasingly, returns can come in short-term periods as the sector matures.

According to the not-for-profit Space Foundation, the space economy was valued at $469 billion in 2021, up 9 per cent from 2020, the highest recorded growth since 2014. . 

A benefit of modern spacetech is that one does not have to wait for, say, one to 15 years to monetize it. The return time horizons on investments are getting shorter, and that attracts more money, Alykhan Sunderji, founding partner, Sunder Legal, told Family Wealth Report. Sunderji is based in San Diego, California.

One example of a fairly short-term return model on investment is the Project Kuiper satellite, he said. “There are massive efficiencies that can be gained.”

Sunderji’s work in the legal world, helping space-sector entrepreneurs and others, has given him a ringside seat in an area that’s now more Wall Street than Buck Rogers. For example, Elon Musk’s SpaceX launches are so regular that they’re no longer prime-time news. 

“There are people who are dreaming about space and investors in space are also very excited about it,” Sunderji continued. He said there are several “adjacent” opportunities – technologies and industries that are influenced and driven by space flight.

Imaging tech is becoming more attainable and commercially viable all the time, Sunderji said, to give one example. 

“The reduction in launch costs has made on-planet activities more feasible off-planet. Think of how high-speed internet and massive data centers made on-premises computing feasible off-premises,” he said. The costs for heavy launches in low-Earth orbit have fallen from $65,000 per kilogram to $1,500 per kilogram – a greater than 95 per cent plunge, according to McKinsey. In a way, the drastic fall in launch costs resembles the Moore's Law trajectory of rising computer power from shrinking computer chips.

FWR talked with Sunderji about tech ideas such as orbital data centers, which don’t need the costly cooling tech used for such facilities on the Earth’s surface, as an example of what can be developed.

Sunderji’s firm represents space companies. Based on the US Northwest in Seattle, he talks to many firms, both the big-brand names . Sunderji also talks to family offices and ultra-high net worth investors and entrepreneurs interested in the area. The angel investment community is often a powerful network to draw upon.

The market
The sector is on a roll. In January, Seraphim Space Investment Trust, a UK-listed trust, predicted strong growth in areas such as cell phone connectivity from space; commercialization of the moon; defense, cyber and climate-related issues, and a surge in the number of countries’ space agencies. On the flipside, agencies may try to control space-launch volumes and manage the problem of “space junk” – dead satellites and other craft orbiting the Earth and creating a hazard to new equipment.

And Seraphim is – perhaps unsurprisingly – bullish on the sector overall. According to its January note: “Despite the backdrop of greater economic uncertainty, raising interest rates, soaring inflation and recession we believe new records will be established in spacetech in terms of giant commercial projects being funded. Whilst the second half of 2022 saw growth staged funding rounds reduced and postponed due to economic uncertainty, we believe several mega-rounds will close in 2023, producing another overall record year.”

Sunderji’s business is not just confined to the US.

Besides US-based clients, he also talks to some international clients as well. The US government has regarded space as part of its critical infrastructure and is supportive of private space faring/tech in general, he said. There are US government regulations on the extent to which foreign investors can become involved because of controls on access to sensitive technology.

“Practical applications for technology in space are no longer a remote possibility. There are opportunities for startups and their investors to earn returns as government and private enterprise invest in space capability,” he said. 

“The US government has turned to private enterprise to support its space ambitions; startups and investors know they will have customers for their products,” Sunderji continued. 

With interest rates rising, and after a punishing year in global equity markets, the funding environment for spacetech is “more challenging,” he said. “But this also means that startups who have a realistic path for generating returns will receive outsize attention from investors.”

“Space is a greenfield where customers like the US government – and the defense department – are willing to spend tens of billions of dollars with private enterprise. This is as good as it gets,” he added.

Feet on the ground, gaze at the stars
FWR asked how clients’ expectations stay realistic when the area appeals to a sense of adventure and fun?

“Anyone who is building for space is aware that these are – in some cases – literal moon shots. Space adventurism receives a lot of press. But space is also a geopolitical issue that attracts significant defense spending. Not to mention the practical uses for private enterprise. Like in any industry, there is a continuum from outlandish to `we can start using this tomorrow’.” 

We need to talk about Elon
We asked Sunderji how important Elon Musk’s development of reusable rockets has changed the game, and the economics, of spacetech.

“Reusable rockets reduce costs. They make getting to space more efficient and practical for private enterprise. This has been a major paradigm shift that has allowed more private companies to innovate and sell space-related products,” he said.

“Space has always seemed like a remote possibility – but today, it isn’t. We are going back to the moon. We will likely send humans to Mars in our lifetime. I cannot even fathom what innovations will come out of this next stage of human progress,” Sunderji concluded.