Space Startups Find Cash Among Defense Industry Giants (1)

  • Biggest contractors have leverage for M&A in space sector
  • Space startups hunt for elusive capital, paths to contracts

(Updates with quote in the sixteenth paragraph. A previous version corrected a company name in the fourteenth paragraph.)

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Defense contractors like Lockheed Martin, Booz Allen, and Raytheon that have invested heavily in their venture portfolios may benefit most from a crunch in the capital-intensive space industry if cash-strapped startups need to exit the arena.

“They’re going to have a front-row seat for when there’s blood in the water,” Space Capital founder Chad Anderson said.

Government spending on space technology looks set to accelerate, as more agencies clamor for satellite-enabled capabilities and the Pentagon and the Department of Homeland Security look for ways to stay ahead of national security concerns.

This year kicked off with a measly first-quarter haul of $2.2 billion in private space investments, however, the lowest in the sector since the second quarter of 2015 brought in $1.8 billion, according to venture firm Space Capital.

Many space industry startups held off raising funds last year, in the hopes that capital access would improve, Anderson said in an interview. That hasn’t panned out.

Liquidity issues for companies struggling to make it work in a tough market may get worse by the end of the year. Quilty Analytics partner Justin Cadman said capital scarcity could bring acquisitions to market that otherwise wouldn’t have happened, and “perhaps a few companies that go bankrupt or liquidate.”

Companies that can land big Defense Department and NASA contracts aren’t lacking cash quite so drastically.

“High-quality companies continue to raise capital, and M&A interest remains largely intact for companies that are both profitable and growing,” Cadman said.

Such companies like SpaceX and Rocket Lab are five months into a big year, showing off tests of new rockets and aiming to make getting to space even cheaper.

Established contractors with experience bringing companies they’ve invested in on as subcontractors and sharing expertise across staffs have strong positions in the mergers and acquisitions field, as do private equity shops.

The startups, hungry for capital investment or open doors to government buyers, have “invited the wolf into the sheep pen,” Anderson said.

Vulnerabilities in SPAC

Navigating overall economic pressures doesn’t just push startups to seek capital from bigger competitors.

Going public, especially as a special purpose acquisition company, or SPAC, was one way to get into the market.

KippsDeSanto & Co. managing director Toby Albright said SPAC deals flooded the market in 2021, but “they’re all on an average down 80% and 60% year-over-year.”

Using the SPAC process to go public before a firm was financially ready generally led to major stock drops, with a follow-on effect of even better-performing companies losing out on investments.

One factor is investors understanding SPACs better after that rush and “increasingly reserving capital for companies built on more solid fundamentals,” Albright said in an interview.

Investor demand, too, is “gravitating back to the military side,” Albright said, comparing it to overall commercial space business.

Companies looking to buy a SPAC for parts of at pennies on the dollar shouldn’t expect an easy time. Shareholders often bring suit when a sale price is well below where investors bought in.

Perhaps the most high profile case of a failed SPAC is Virgin Orbit, which just sold itself for parts to bidders including Rocket Lab USA Inc. and Stratolaunch LLC. The company was once seen as a potential future competitor to SpaceX and the United Launch Alliance venture of Lockheed and Boeing.

To contact the reporter on this story: Caleb Harshberger at

To contact the editors responsible for this story: Amanda H. Allen at; Fawn Johnson at

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