Corona’s Effect
No one thought the space industry was going to be hit as hard as it has been by the Coronavirus. But a few months in, it has become apparent that many commercial companies were not prepared for venture capital to stop and what to do when they have to suspend operations.
While people still want to invest in the space market, many venture capitalists are hesitant to spend more money to fund these companies when no one knows when the markets and restrictions are going to open back up. Not only is this a major concern for the commercial sector but the government sector as well. In regards to the government, “The top official from the U.S. Space Force procurement arm, Lt. Gen. John Thompson, said in February that only 20 percent of the R&D investment in space now comes from the DoD and 80 percent from commercial investors.“
So with the government needing help from the commercial sector, they should be trying to bail these companies out, right?
The problem
The problem is that they can’t. They can’t because “Many startups are funded by venture capital firms that typically invest in a portfolio of companies. To be eligible for the SBA loan program a business has to have fewer than 500 employees. When defining a small business, the SBA applies an “affiliation rule,” requiring companies to include in their worker count all the employees of companies with which they are “affiliated.”
That rule requires venture-backed startups to aggregate the employees of all the unrelated companies in which their investors have equity positions, pushing many beyond the 500-employee threshold.”
Due to the companies having the affiliation rule in place, these startups can’t use the Coronavirus aid, Relief, and Economic Security Act (CARES). That puts the small space startups at a disadvantage because, if their investors are holding out and the government won’t give them money, then they are more at risk of going out of business.
So why doesn’t the government change the rule? They don’t want these companies gaming the system and get multiple bailouts when they should only be receiving one. It is understandable why the government would do this, but it is rough on the startups.
Who has been affected
While many space companies have been affected by Corona, I wanted to bring your attention to three of them.
1. OneWeb
One of the biggest companies affected by Coronavirus is OneWeb. OneWeb was going to make its own constellation of 630+ satellites to give internet access around the world. This project started out as a good idea, but the price of what they wanted to kept going up and was already in the billions and needed more.
On March 27th, “OneWeb filed for Chapter 11 protection in U.S. Bankruptcy Court for the Southern District of New York. The company said it laid off about 85% of its 531 employees prior to filing for bankruptcy.”
And “OneWeb, in its March 27th news release, blamed the coronavirus pandemic for its inability to raise the money it needed to avoid bankruptcy.”
Now was the Coronavirus to blame for this? It is hard to tell because of how the price was there was a good chance it would fail. There have not been many successful constellations of that size in the industry. Also, the project seemed too ambitious, and they promised things like cheap land terminals that they most likely would not be able to deliver on. This bankruptcy is an interesting one to watch because they are selling their bands and spectrum, and it will be interesting to see who buys their assets.
Another company that has blamed the Coronavirus for having to shut down is a long time established company Bigelow Aerospace. This company was founded in 1999 and has been trying to commercial space ever since with big ideas like space hotels and tourism.
2. Bigelow Aerospace
Bigelow Aerospace said on March 23rd, “that the company laid off all its employees because of the governor’s order, and that it faced “fines, penalties and threats of having our business license revoked” if it remained open. The spokesperson added that the company planned to hire workers back once the emergency directive was lifted.”
Just like OneWeb, there was speculation that they would have gone out of business anyway, but the process may have been sped up by Corona.
3. World View
The last company I will mention affected by the Coronavirus is World View. World View is a small launch company that planned on launching rockets from a ballon system called Stratollite.
Due to the Coronavirus World View had to furlough all of its employees and suspend operations. They plan to come back when they can, and they said it has only delayed them by months. I hope for their sake, they are right, and they don’t permanently go out of business.
I am sure that there are many companies I have left out. The virus isn’t just affecting the launch companies and the satellite companies. It is affecting the supply chains as well. Many of the companies that supply the materials and parts are effected and losing out as well. It will be interesting to see who is able to come back from this and who will stay permanently closed.
Good news
If you look in the right places you can still find some space companies actually doing better than ever. Services from companies like BlackSky and Plant are in high demand. The geospatial data companies use their satellites to make predictions and watch trends happening. With everyone working remote and supposed to be home these companies privide valuable data on cities that are social distancing or not. A side effect of Corona has been skies clearing up over cities so now these satellites can get crystal clear pictures. This just goes to show that if you look in the right places you can find companies to invest in even during a pandemic.
Last Note
The space industry is going to be interesting to watch over the next few months. The Coronavirus may have artificially popped the bubble that is the launch industry. We knew that the industry could not support 140 plus companies, but now we will see how many of those survive this and if it knocks the weaker ones out.
Look out for more foreign countries trying to grab parts of the American companies while they need funding, make sure to watch out for companies consolidating, and make sure to watch out for who is buying spectrum and assets from companies going bankrupt.