Early investments from a government agency, like NASA or the Air Force, can be a crucial step in the evolution of commercial space companies from scrappy startups to successful businesses. That’s according to a new report from Space Angels, an investment firm focused on the space industry, which quantified how much money government agencies have invested in private aerospace firms over the last 18 years.
The analysis reveals just how important a role the government still plays in the private space industry. It found that early public investment can sometimes be the difference between life and death for a company. “I think it’s really important for people to recognize that it isn’t just the private sector deciding to do something,” Chad Anderson, CEO of Space Angels, tells The Verge. “The government has played a key role in the development of entrepreneurial space companies.”
Space Angels made the report at the request of NASA, as the agency wanted to know just how its investments over the last couple of decades have affected the private sector. Ultimately, Space Angels found that 67 space companies received a total of $7.2 billion in investments from the government between 2000 and 2018. And about 93 percent of that investment went into companies dedicated to launching rockets. “It’s no surprise,” says Anderson. “Government funding has been directed at reducing the barriers to entry, and the biggest barrier in the beginning is launch.”
The report highlights SpaceX as a prime example of how early government investment contributed to the success of a company. During its first decade of operation, SpaceX operated off of $1 billion, and about half of that money came from government contracts from NASA, according to the Space Angels report. Musk notably thanked NASA for the agency’s support after SpaceX launched its very first Dragon cargo capsule to the International Space Station in 2012. “They didn’t do this alone,” says Anderson. “They couldn’t have done it without the help of NASA.”
There are also many space companies that haven’t received public investment yet. Space Angels estimates there are 375 companies within the private space industry, which have received a combined $19 billion in private funding since 2009. And there are at least 123 companies that have registered for a DUNS number — a requirement for getting public funding — but have yet to get government investment. Anderson notes that there are downsides to working with the government, which is why some may not pursue such partnerships. Among other issues, DOD or NASA requirements might be too cumbersome for a small company, or the goals of government programs could take resources away from a startup’s focus.
However, the report focuses on many of the government investment programs that have worked the best, such as NASA and the Department of Defense’s Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) initiatives. Both SBIR and STTR have given money to small entrepreneurial companies in their earliest stages and as a result, these businesses have attracted additional private investment. “This is helping us steer us towards program and funding mechanisms that really work,” says Anderson. “So let’s use this data to help influence policy and help influence funding decisions at NASA.”
Anderson argues that since most NASA and DOD investments have gone to launch-focused companies up until now, it may be time for these agencies to branch out more into other areas of space business. He notes that we are seeing some of that with NASA’s CLPS program, which just awarded contracts to three private space companies building robotic spacecraft that can take instruments to the surface of the Moon. Anderson argues that this is a prime example of how the government can jump-start new models of business that don’t have a very clear way of making money yet. “The government plays a larger role in new markets where there’s not as much economic incentive,” says Anderson. “And then once that economic incentive starts to develop, that’s when the private sector can come in and take over.”
But ultimately, Space Angels makes the case that if you’re going to work in space, you’re going to cross paths with the public sector at some point. So getting investment from the government may be in a company’s best interest. “You can’t do business in space without the government,” says Anderson. “They’re involved in some way or another.”