Munich Re Ventures: How making money in space has changed

Back in 2019 when Munich Re Ventures began investing in space tech startups there was an expectation that the private sector space economy was just on the point of emerging.

“Folks wanted to do asteroid mining. Folks want to build moon bases and space stations and stuff on Mars. All really exciting. Really wonderful. That’s kind of the lifeblood of innovation,” says Timur Davis, director at Munich Re Ventures, on the CVC Unplugged podcast.

“As space started to democratise, suddenly startups – folks that are not linked to defence contractors – were seeing opportunities to do stuff, and all these great ideas started to emerge.”

That vision, however, failed to materialise in the way that investors hoped. Space sector startups that were hoping to commercialise their products in the private sector, completely decoupling from government revenues, found that there weren’t enough commercial partners.

“Investors piled in, and then they realised that space is really, really difficult, and they piled out. It became difficult to raise money,” says Davis.

That doesn’t mean that “new space” investment is over. In fact, Munich Re has continued to invest in space sector startups. But, says Davis, space sector investors have had to recalibrate expectations of where their revenue was going to come from.

Picks and shovels

During the California gold rush in the 1800s, it was not the people panning for gold that made much of the money – the ones raking it in were the stores selling the picks, the shovels and the blue jeans.

That is the central idea around which Munich Re Ventures formed its thesis on space investment. It wasn’t going to try to find the startup that would be creating the next big launch platform or moon base – that would be incredibly difficult to pick a clear winner – but whatever that first-place startup is would need enabling services out in space. So would the startups in second, third, and fourth place.

Even before any of the more sci-fi future scenarios, providing mission-extending services for the things that are already in space can be lucrative.

“Let’s say you launch an expensive $500m communication satellite that’s going to have 20 years of life and is going to be generating $50m of revenue per year. Today, if anything goes wrong – if a solar panel is slightly damaged or an antenna is a little crooked – you are in trouble,” Davis says.

“If your satellite could have 25 years of lifetime as opposed to 20, the economics of that are now a whole lot more attractive. The return on your investment is completely different.”

To date, the unit has made investments in companies like space refuelling startup OrbitFab, in-space servicing company Starfish Space and traffic management company Okapi Orbits.  

New business models

Historically, making money in space was a matter of winning government contracts. With the growth of private space companies, that had changed and investors were looking for those that could get revenue from other private sector companies, without the need to go through a competitive tender. That trend has since reversed as government money is again seen as more reliable.

“When we started looking at space, circa 2019, everyone was saying, we want startups that have pathways to commercial revenue – of course government is great, but we don’t want government to be the be-all end-all. That was sort of the accepted dogma,” says Davis.

“Now six years later, that pendulum has swung entirely in the opposite direction. People are saying exactly the opposite. They’re saying, hey, the government is a stable source of revenue and it’s probably not going anywhere.”

“ A lot of the commercial space revenue potential has not yet materialised to a certain extent, because a lot of the pipeline that folks had was based on getting revenue from other startups and if you’re reliant on other startups to be your customers, those startups are [also] relying on startups as customers. At some point when one of those chains breaks, then there’s cascading effects across the entire ecosystem,” he says.

Realistically, startups will see a mix of private and public sector revenues. Most space startups, certainly the ones in Munich Re’s portfolio, have some form of dual-use proposition, and they’ll build their product with slight modifications for various defence and commercial applications to benefit from both customer bases.

Funding

Space is, of course, an incredibly costly enterprise. Finding funding at that scale is difficult for startups to do. When Munich Re began to look at the space sector, there was a great deal of interest from investors that were not your typical deep tech or space tech specialists, but not all of them stayed very long once they were confronted with the realities of the asset class. Government funding has remained a mainstay for the industry.

“I think the government, to a large extent, really stepped in through various programmes at different stages, mostly at the early stage,” says Davis.

Investors are now moving back into the fray, but a critical mass of them is concentrated on startups with defence applications, leading to some of the spicier funding rounds being defence-oriented.

“ I think that capital is chasing some really particular things. If you are a space company, but you don’t have a great defence story, for example, then it may be more difficult to raise than if you are a space company and you do have a great defence story. Um, now am I suggesting everyone become a defense company? No, because people pile in and then people pile out, and it’s very easy to miss the wave.”

Right now, he says, space funding looks like a barbell, where you get a lot in the early stage, and then more later on when it’s been de-risked, but the companies that are in the middle – around series B and series C – struggle for capital. By the time startups get to that stage, they will largely be expected to have customer and revenue, but many of them might just be getting to the demo stage at that point.

“ There are big growth equity type of investors who are willing to write big cheques, but you need to have revenue. You need to have a business that’s thriving,” says Davis.

Competition

There are a couple of subsegments, notably launch and space communications, where there is a clear frontrunner – the same company in both cases, Elon Musk’s SpaceX and its subsidiary Starlink. Most other players in those areas are fighting for a distant second place.

“I think there is opportunity to compete with Starlink, but how and at what cost is something that folks are still trying to figure out, and I don’t think that launching several thousand of your own satellites is an option for most companies or countries,” says Davis.

Much of the rest of space, however, is still an open field for companies to compete, and startups are jockeying to be the first ones to hit it big. It’s not only the startups, but also big established incumbents, particularly in the defence sector, that are making moves in orbit.