Inflection Point Seen Looming for Small-Satellite Startup Financing
Sizable private equity investing resulted in legions of startups in the small-satellite universe, but 2019 will likely be the year when "some of them start peeling off" and failing, said Quilty Analytics President Chris Quilty at an American Bar Association space law symposium Tuesday. "There's going to be a lot of roadkill in the next year or two." Most companies are "fighting over the table scraps" beyond the money that's gone to OneWeb and SpaceX, and when those smaller startups start getting to the point where they're ready for larger-scale investments, "stumbles" are likely, Quilty said, with funding if not declining at least decelerating. "It's healthy, it happens," he said.
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As more players enter the space arena, there are increased policy conversations about how to navigate all the capabilities coming online, said House Space and Aeronautics Subcommittee Chair Kendra Horn, D-Okla. Space “is entering uncharted territory," with a lot of unanswered questions and regulatory and international implications with which to wrestle, she said. She said space-related federal agencies need to have both predictable, long-term funding and congressional guidance. NanoRacks General Counsel Jessica Noble said private space companies “desperately want” long-term regulatory and policy predictability.
Raising money for satellite projects can be challenging since the market risk is very different from many other industries, with the frequent lack of long-term contracts meaning debt can be longer than revenue streams, said White and Case financing lawyer Ned Neaher. Quilty said for financing large projects, contracts “are where the rubber hits the road.” If it’s not a demonstrated market, lenders want to see evidence of demand, and memorandums of understanding can be good as gold or worthless, depending on the company, Quilty said. Underwriters are more comfortable with the industry than they were a decade ago, Global Inspace CEO Mark Quinn said.
Satellite Industry Association Senior Policy Director Therese Jones said operators are particularly concerned about regulatory certainty for such matters as spectrum access as they plan geostationary orbit satellites that might not be launched for several years. She said some C-band satellite operators tried to talk to 5G operators about jointly doing technical studies but to no avail because some in the 5G universe don't see a need to cooperate with the industry.
Three years of “disastrously low” geostationary orbit (GEO) satellites orders are now starting to pick up, Quilty said. He said part of the slowdown was the threat of low earth orbit constellations that have GEO operators rethinking investments, but a bigger issue is the emergence of high-throughput satellites.
Jones said some remote sensing operators are looking to get their systems authorized by nations outside the U.S. because the NOAA approval process can be particularly onerous, especially for non-optical technology like infrared. The agency didn't comment.
When it comes to proposed space mining operations, the preponderance of opinion globally is that extracted resources can be owned or sold or used, but there's still debate about whether an operator would have to share a percentage of what it earns with the rest of the world, akin to royalty schemes at the national level, said Robin Frank, retired NASA associate general counsel-international law. Lockheed Martin Vice President-Technology, Policy and Regulation Jennifer Warren said the Moon Treaty has numerous unanswered questions, and the risk to capital for lunar resource reclamation operations is "significant."
Lunar activities and satellite servicing lack the clear-cut rules that come from actual implementation of those activities, which hurts business, said space consultant Peter Marquez of Andart Global. "The lack of law is worse than bad law and regulations."