NewSpace and the financial crisis

It has been impossible in recent days to avoid the news about the current financial crisis gripping markets in the US and around the world, from bank failures to government bailouts to stock market plunges. Some have called this the worst financial crisis since the Great Depression or even “the end of American capitalism”. That may just be hyperbole—a near-term overreaction to the crisis—but it is clear that the economic situation is going to be rough for at least the next several months, if not longer.

So what does this mean for NewSpace? With credit tightening and portfolios taking a beating, it seems unlikely that personal spaceflight and other entrepreneurial space sectors will be able to completely escape the current financial turmoil. A quick examination suggests that companies are going to feel it in two ways, involving a somewhat overlapping group of people.

Investors: Earlier this week one of Silicon Valley’s leading VC firms, Sequoia, sounded the alarm about the current situation in a meeting with the CEOs of its portfolio companies. Sequoia’s message: if you’re not cash-flow positive, you need to get there as soon as possible if you want to have any hope of raising additional funding for the foreseeable future. Getting there may require some drastic cutbacks, but acting now, and quickly, is better than delaying and finding themselves in a “death spiral” where no cutbacks can save the company.

Given that NewSpace companies have, to date, had very limited luck in raising rounds of funding from VCs, this suggests that raising money will be all the more difficult in the near future, especially for those companies developing vehicles or other hardware that require years of work before reaching positive cash flow. Getting money from angel investors, more frequently used by NewSpace companies, may also be more difficult, as these investors, like so many others, have suffered big losses in their investment portfolios in the last several weeks. This could even affect so-called “mega-angels” who put very large sums into ventures, including their own. According to Forbes magazine, Jeff Bezos lost over $1 billion in September as stock market declines devalued his holdings. It’s too soon to say whether this will affect Bezos’s investment in his Blue Origin suborbital vehicle venture, but you could sure do a lot in space with $1.1 billion…

Customers: During Monday’s press conference by Space Adventures to discuss Charles Simonyi’s return trip to the ISS next year, the first question posed to him, from the New York Times, went like this: “Are you the last guy in America with money? Has anything happened in the past, say, two weeks to your assets that makes you think you might want to hold on to cash?” Simonyi responded that “the timing worked out the way it worked out” and that “either we do it now or we don’t do it”.

While Simonyi may still be forging ahead, it’s possible others considering purchasing tickets, a group that includes some angel investors, may have second thoughts now, especially if they’ve lost a significant fraction of their wealth in the stock market’s recent fall. In a healthy economy, spending $200,000 on a suborbital spaceflight might seem like money well spent to realize a dream of going into space; in today’s uncertain economy, the same trip might seem like an unnecessary extravagance. That mindset could be damaging for some space tourism ventures, especially if the downtown lasts for an extended period or if the recovery is slow.

This situation is certainly not catastrophic for NewSpace in general, particularly for those firms that are well-funded, have good balance sheets, and/or can diversify beyond personal spaceflight: think SpaceX, Virgin Galactic, and perhaps a few others. However, for other companies, especially those who need to raise significant funds to develop vehicles that will be years away from entering revenue service, it’s going to be much more difficult to make those plans become reality in the near future.

4 comments to NewSpace and the financial crisis

  • Pete Zaitcev

    Elon can probably wither the storm. His order book includes international government customers and he was talking about to 15 launches per year. He is cash positive now.

    Scaled is a part of Northrop now, they are likely to stay around. Burt will be fine.

    I’m more concerned about Masten, and perhaps XCOR.

  • […] kommer finanskrisen att drabba de nya aktörerna inom rymdbranschen? Bloggen Personal Spaceflight tror att de mest framgångsrika, som SpaceX och Virgin Galactic, kan klara sig bra, men för andra […]

  • Robert Horning

    I wouldn’t get too worried about Jeff Bezos and his “paper loss”. Google is fundamentally a sound company and will weather the current financial storm just fine…. assuming that they haven’t done something stupid and invested some of their cash reserves into collateralized mortgage obligations or worse yet the mortgage derivatives. BTW, the wiki article is a who’s who of the current financial crisis and what is so screwed up…. and how this really isn’t so different than the margin purchases of stock certificates in the 1920’s from a broad perspective.

    If anything people will be driven even more to on-line services like Google, Amazon, and E-bay to get hard bargains for things that they really need that are beyond what you would get in a typical grocery store. Buying Google stock right now wouldn’t necessarily be a bad thing either.

  • Scaled is a part of Northrop now, they are likely to stay around. Burt will be fine.

    Scaled isn’t really relevant. They are neither new, nor space. They’re an airplane company that occasionally does spaceships on the side.

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