Challenges in Closing Growth-Stage Funding Rounds for Young Space Companies

The Challenges of Closing Growth-Stage Funding Rounds for Young Space Companies

Securing funding for growth-stage rounds has become increasingly challenging for young space companies, according to a panel of investment bankers and equity analysts at the recent Space Symposium in Colorado Springs. This difficulty is due in part to the poor trading performance of early-stage space companies on the stock exchange in recent years, as well as the end of cheap capital as interest rates rise.

In the past, young space companies only needed to secure one lead investor to close a funding round. However, the landscape has shifted to what panelist Sameer Garg described as a “market of three,” where the success of a funding round now depends on both existing investors and lead investors demonstrating their interest and willingness to support the company.

Garg, an investment banker with Citigroup, highlighted the importance of existing investors stepping up in funding rounds, citing the $290 million Series B funding round for Sierra Space as an example. This level of funding was only possible because existing investors joined a consortium of lead investors.

Akshay Patel, managing director of PJT Partners, emphasized the challenges that companies face in securing greater capital in later Series B and C rounds. Competition from other companies in the space sector, as well as other sectors, can make it difficult for young space companies to attract growth dollars.

While it may be easier for space companies to raise funds in the early seed and Series A stages, securing funding in later growth stages remains a challenge. JP Morgan investment banker Mithil Mehta noted that many investors are more willing to bet on early-stage companies where funding needs are smaller and a larger pool of investors are willing to write checks.

As markets mature and procurement cycles become clearer, securing funding in later growth stages may become easier for space companies. However, investors are increasingly cautious and spend more time scrutinizing funding deals. Mehta advised young space companies to approach investors early and come prepared with a well-developed story about why capital is needed and their path to profitability at scale.

While the significant expenditures from the U.S. government’s Space Development Agency provide a boost for the broader space industry, there is also a higher level of scrutiny from investors. Overall, navigating the funding landscape for young space companies requires strategic planning, strong investor relationships, and a compelling business case.