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Space: ‘There’s a huge market opportunity’ for some companies, strategist says

Space Capital Managing Partner Chad Anderson sits down with Yahoo Finance Live anchors to discuss whether the space industry is equipped to weather an economic downturn, SPAC activity, and investing opportunities in space-related assets.

Video Transcript

[MUSIC PLAYING]

- After an out-of-this-world year in 2021 for investments in space companies, economic headwinds have cast a shadow over the second quarter of this year. Deal-counted investment dipped 35% and 38% respectively when compared to the prior quarter. So for what lies ahead for the future of space, we've got the perfect guest, Capital Managing partner Chad Anderson, who we should mention is also an investor in SpaceX too. So let's talk about the broader slowdown that we're seeing right now. I mean, it sort of feels like what we're seeing in the tech space, all these private companies, the startups who got so much funding over the last few years starting to see a real freeze,

CHAD ANDERSON: Yeah, I mean, most of the action in the space economy right now is in the private markets. The public markets certainly affect the private markets. It starts with the late stage and then it moves its way to the early stage.

But what we're seeing is some economic headwinds. And I'm sure that this macro market is going to continue to affect some of these space companies, particularly those that are capital intensive, with long timelines to revenue. But overall, we don't see that the space economy is at any existential risk. And, in fact, most of the companies that we're investing in and that are in the space economy are countercyclical and resilient to macro market conditions.

- Yeah, and what's interesting is, I guess, the pool of investable projects and companies and opportunities really grew before the pandemic and into this slowdown that we find ourselves in. So what do you do in terms of strategy now? From Space Capital's standpoint, are you staying on the sidelines, seeing how the investments that you've already put in pan out? Or are you still aggressive in looking for opportunities out there?

CHAD ANDERSON: Not at all. We are continuing to be active. We've been active throughout this entire period. Last year was a massive year for venture capital investing in general. And the space economy benefited from that.

We saw a lot of investment into infrastructure companies, so Launch and emerging industries, like space stations and logistics and lunar transportation, for example. A lot of investors coming in investing in this category for the first time in these really deep-tech, long-term markets. We're really focused a lot on the data that's coming off of space-based assets. So the satellites industry is really where we spend a lot of our time.

And these are companies that are providing critical data. Actually in Q2, we saw the NRO, one of the US intelligence, big five intelligence agencies, make their largest ever purchase for satellite imagery from our portfolio companies and others. And we're seeing across our portfolio our companies are seeing an increase in demand for their products and services and their data as the world becomes more dynamic and uncertain. I mean, people want, governments and enterprises want more information, not less in this type of market.

- In terms of where the funding is flowing to, we keep hearing at least in the private sector or private companies, I should say, a lot of that is in early stage. And yet I'm looking through the data that you put out. I mean, SpaceX is kind of an outlier. And they are a later-stage company, right?

CHAD ANDERSON: Yeah, that's certainly true. I mean, so we think that these data businesses that I mentioned are going to have a much easier time throughout this downturn raising capital. They're generating revenue that's increasing. In the Launch side and in these emerging industries we're seeing that are more capital intensive, like Launch and like some of these others, they're going to have a harder time raising in this market, for sure.

SpaceX has continued to defy macromarket conditions, raised a large round, almost $2 billion, an increasing valuation. And for us we were watching that very closely, because it was-- we've heard some of these companies struggling to raise. We wanted to see how SpaceX fared. And it turns out they were able to raise at will seemingly.

- So for the companies that maybe are having a more difficult time, is there a scenario where you could see a lot of M&A, where those companies that are in a good cash position, do have the capital to be able to take on assets during this time actually go in and consolidate?

CHAD ANDERSON: Yeah, and we always look at that as a bit of downside protection for us. So we've been operating in space for decades. It's only recently become a category for investment in the last 10 years. So we have large publicly traded incumbents that are being disrupted. And they have cash.

So yeah, I mean, from our perspective, we look at some of these companies and say, there's a huge market opportunity. Let's back the right team and see if they're able to carve off a piece of the existing market and grow the market. And if not, if they're developing some interesting IP and technology, then there are certainly willing buyers.

- Really quickly, we saw a lot of these space names, Virgin Galactic one of them, get in on the public markets through SPACs. Is that over? Or do you think that some companies could still try to go through that?

CHAD ANDERSON: So we have a pretty disciplined investment strategy that we've executed throughout this market mania. We didn't really get caught up in these SPACs. They have not performed very well. There's been a couple of them, you know--

- I can see you trying to parse your words, try to be--

- Edgier, edgier, yeah.

CHAD ANDERSON: We didn't get involved in the SPACs. I don't think that there's going to be many more of these. We might see a couple, just because there's a lot of cash sitting on the sidelines that needs to be deployed and we're reaching the end of their timelines. So we might see a couple more. But I don't think that this is going to continue.

- Yeah. I mean, it does seem like a natural fit, though, space, SPAC? Right, it's only a few letters away from each other. But Space Capital managing partner Chad Anderson, thanks for stopping by in person, by the way. Great to have you in the studio.

CHAD ANDERSON: Nice to be here. Thank you.