Early-Stage VC: Aerospace & Space Technology
According to BCA Research’s Private Markets & Alternatives service, Artificial Intelligence is old news. Given such, it is not prime for Early-Stage Venture Capital (VC) investing. While everyone is distracted with AI, investors should look to Aerospace & Space Technology.
Arguably the most important factor for investors, commercialization, is here. In the US, the share of federal spending allocated to NASA has decreased since the 1990s. This has given rise to increased investment and innovation in space exploration by the private sector, exemplified by SpaceX's historic crewed mission in May 2020. This shift towards privatization and commercialization, alongside the creation of the US Space Force in December 2019, reflects changing priorities and the evolving landscape of space exploration, where private companies play a pivotal role. Global space tourism, valued at $678 million in 2023, is expected to reach more than $1.3 billion by 2033, growing at a 38% CAGR over the next decade.
The financial durability of the sector may be undervalued. While falling input costs are making access more affordable and will ultimately attract a broader user base, the wealthy will continue to be the main customers in the near term. Tickets have been priced in the range of $200,000 to $500,000. Orbital flights, such as those offered by SpaceX, cost in the millions of dollars per seat. Such dynamics are likely to withstand any short-term economic downturns, which typically affect this demographic the least. The sector’s economic resilience is further deepened with steady public sector funding through defense spending, which helped bolster government space budgets through the Global Financial Crisis (GFC). Moreover, the Early-Stage investment structure, featuring a 5-10-year horizon without restrictive debt financing, is well-suited to the characteristics of the opportunity set and potential economic growth challenges ahead.
Regulations will increase and will be positive, especially relative to AI. The increase in compliance costs and potential burden to innovation will be outweighed by the confidence regulation provides consumers, ultimately driving a longer-term path to stability and sustained growth.