Big defence contractors see space startups as a better investment target
Better investment for large Defence Contractors
WASHINGTON, D.C. — Investing in commercial space startups might be a profitable approach for huge defence and aerospace industries trying to raise their innovation game, according to Ronald Epstein, senior equities analyst at Bank of America Merrill Lynch.
Investing in or purchasing space industry startups outright. At a Foundation for the Future online seminar on space projects on Nov. 10, Epstein said that he thinks it is essential approach for a bigger firm to stay adaptable and innovative.
He noted that big DoD contractors need to “be able to bring in creative energies and ideas,” and that Lockheed Martin has done so successfully so far. United Launch Alliance is owned by the corporation, and it has invested in various commercial space enterprises in recent years, including Terran Orbital, Rocket Lab, ABL Space Systems, and Orbit Fab.
Acquisition by Raytheon
Raytheon recently bought Blue Canyon Technologies, a commercial satellite maker, and SEAKR, a spacecraft engineering firm. Virgin Orbit has received funding from Boeing. Orbit Fab is also backed by Northrop Grumman.
Lockheed’s third-quarter financial figures revealed “some snags in some of their key defence contracts,” according to Epstein. They did, however, make some money on some of their investments. ” These improvements are “insignificant in comparison to the F-35 [fighter aircraft programme], but they’re progressing,” he said. Furthermore, commercial technology investments serve as “feedstock for future firm innovation.”
Large defence contractors, according to Epstein, who is also a mentor to entrepreneurs at the Techstars accelerator, spend very little of their own money on new research and development. “Any defence contractor listening to this would certainly take issue with this statement,” he continued, “but it’s true.”
The government funds approximately 95% of the R&D done by these larger companies. “So it does not research; it’s revenue-generating research that’s client-funded and tailored to the needs of the customer.”
According to Michael Mealling, general partner at Starbridge Venture Capital, large military organisations can give much-needed cash for entrepreneurs to pursue cutting-edge technology, but businesses must first understand the objectives of investors.
Investments from bigger firms
Many space companies can benefit from seeking capital from major primes. “But you have to keep in mind that you’re dealing with a Tyrannosaurus rex,” Mealling said at the Foundation for the Future conference on November 9.
In-space computing is an emerging segment of the space economy where tiny businesses are expected to be bought by conglomerates, according to Mealling.
“There are a lot of conversations around big-scale in-orbit compute capacity,” he stated. “Anyone working on requirements to know that the big cloud firms could easily access the market, and you need to know their objectives for having partnership… Some of such discussions are uptight. And most of the times it can be confrontational.”