SpaceX Success Launches Space Startups to New Heights

SpaceX's successful landing of a reusable rocket booster last month opens a new frontier for commercial space startups by offering tremendous cost savings and attracting venture capitalists who once shied away from spatial ventures.

Space startups include nano-satellite makers, earth-imaging and weather-tracking technology developers, and ventures with ambitious plans to mine asteroids. If this fledgling industry can reuse rockets, that will save money and accelerate the pace of launches, enabling startups to more quickly test and update their technology, and replace old satellites more frequently - all critical for growing revenue.

"Driving down the cost of the launch, which is the single greatest barrier to entry for the startups and the investors ... makes (space startups) much more viable," said Jeff Matthews, director of venture strategy and research at the Space Frontier Foundation, a space advocacy nonprofit.

To be sure, space remains a high-risk endeavour. SpaceX, founded by high-tech entrepreneur Elon Musk, had one successful rocket landing after multiple failures, and more work to do. Rocket companies including Richard Branson's Virgin Galactic have also had catastrophic failures.

While another disaster could take momentum away from the nascent sector, venture capitalists say investor confidence has been buoyed by the historic landing of SpaceX's Falcon 9, upright and intact, on December 21. It was the first ever successful recovery of a reusable rocket.

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Peter Hebert, cofounder and managing partner at Lux Capital, has long been enthusiastic about space ventures, but said his colleagues are now joining in.

"SpaceX's success has been a major driver," said Hebert, whose firm backs Planet Labs, which builds shoebox-size Earth-imaging satellites, and Orbital Insight, a satellite image processing startup.

Planet Labs Cofounder and CEO Will Marshall said he has been talking to SpaceX about lowering launch costs. The startup has scheduled more than 200 satellite launches this year, about double its total previous launches.

"It's not going to have an effect tomorrow," Marshall said. But "there is no question that this helps companies like ourselves and the growing space tech ecosystem."

Since 2012, space startups have raised $2.2 billion, according to venture capital database CB Insights. The lion's share of that came in SpaceX's $1 billion round in January 2015, which valued it at $12 billion.

"That woke people," said Richard Rocket, CEO and co-founder of NewSpace Global, which tracks for-profit space companies. "Investors are now starting to ask the question of 'Where is the next SpaceX?'"

Bagaveev Corporation is a reusable rocket launcher startup that hopes to raise $15 million in the next couple of months, in time for its first launch. Founder Nadir Bagaveyev said the enthusiasm generated by SpaceX has proved helpful.

"Optimism is high everywhere," he said.

Cost cut
How much cheaper launches will become and when those savings will be passed to startups remains to be seen. SpaceX has not spoken about price changes publicly and did not respond to questions from Reuters.

Spire is a startup that builds nano-satellites weighing about 11 pounds each. It has four nano-satellites in orbit and is ultimately aiming for 100 so it can offer complete coverage of global weather and shipping patterns.

Spire replaces the satellites every two years, and each launch currently costs about $250,000, according to the company's operations chief, Chris Wake.

"Even if you cut that by a quarter or in half, that's a massive savings," he said.

Although developing a reliable fleet will take many years, reusable rockets will reduce the delays that are the bane of many space startups.

"If you're trying to put 4,000 satellites in orbit, one launch a month doesn't work," said Steve Jurvetson, a venture capitalist with Draper Fisher Jurvetson, which has invested in SpaceX and Planet Labs.

Sunil Nagaraj of Bessemer Venture Partners, an early space investor, estimated that the cost to launch the SpaceX's Falcon 9 can be cut from $61 million to between $40 million and $45 million by reusing the first stage of the rocket, which contains nine of its 10 engines.

He said his firm is meeting "more and more" New Space companies every month. "I am optimistic that we will grow our pace of investing in this sector," Nagaraj said.

© Thomson Reuters 2016