Tulipmania in Space

SPACs are creating a space bubble that will eventually come crashing back to Earth along with cosmic junk launched during the current frenzy.

By , a columnist for Foreign Policy and a fellow at the American Enterprise Institute.
A SpaceX Falcon 9 rocket is launched.
A SpaceX Falcon 9 rocket carrying the company’s Crew Dragon spacecraft is launched on NASA’s SpaceX Crew-2 mission to the International Space Station at NASA’s Kennedy Space Center in Florida on April 23. NASA/Aubrey Gemignani

A commercial space transportation company is about to go public with a valuation of around $1 billion, despite not yet providing commercial space transportation. Momentus of Santa Clara, California—which sells in-space shuttle services that help move satellites between orbits—is having what one might call a moment in the sunshine. And the 3-year-old start-up isn’t even unusual: Space is filling up with all manner of start-ups that resemble the flowers that once sparked a speculative bubble centuries ago. In fact, we’re approaching tulipmania in space.

Between the first quarter of 2020 and the first quarter of this year, private-equity investors pumped $8.7 billion into space firms. That’s a 95 percent increase over the previous 12 months—and it took place during a raging pandemic. “A near doubling in investment levels in the face of a global economic crisis is remarkable,” noted the venture-capital firm Seraphim in a recent report. And the investors didn’t just put their money in a few Momentus-like deals: They signed 68 deals worth an average of $46 million each.

The venture-capital investments include $130 million for Axiom Space of Houston, which wants to build private space stations, and $170 million for ABL Space Systems, one of many start-ups building mini-rockets.

Space is filling up with start-ups that resemble the flowers that once sparked a speculative bubble centuries ago. 

The U.K. government, meanwhile, has injected $500 million into London-based satellite internet provider OneWeb, rescuing it from near-bankruptcy. Another mini-rocket start-up, Isar Aerospace Technologies of Munich, has just sold launch services worth 11 million euros ($13.4 million) to the German government—the first time Berlin has bought such services from a private firm.

Space is abuzz with start-up activity. Tech types in Silicon Valley and new space strongholds like Munich are building rocket launchers, mini-rocket launchers, satellites, satellite transportation vehicles, sensors, communications systems, propulsion engines, and space vehicles serving satellites. Others offer manufacturing in space, are planning to make everything from rockets to human tissue, and are even trying to build space-mining tools.

“In the past, space was the preserve of governments and intergovernmental organizations because of the huge capital investment needed to deploy assets into space,” said Mark Dickinson, executive director of the Space Data Association, a leading space industry association. “In recent years, these barriers have been fundamentally reduced. Now, satellites can be a lot smaller, which makes them cheaper to launch, and these satellites can be batched together on a single rocket, further reducing costs.” You can launch lots of other things pretty cheaply too. But it’s cheap only compared to past decades’ space expenses. Building a space transportation vehicle involves a lot more money than building an app.

There’s another reason for the atmosphere’s sudden pull: star power. “Elon Musk with SpaceX and Jeff Bezos with Blue Origin have made private space enterprise a lot more public,” Dickinson said. “Musk has a real following. … Everyone wants to be the next SpaceX.” In addition to pulling off the feat of joining leading government space agencies in building rockets and transporting people into space—including four astronauts who returned from the International Space Station on May 2—Musk’s 19-year-old firm launches lots of satellites. Over the past few years, it has launched some 1,500 of its Starlink broadband mega-constellation satellites into space. SpaceX has, in fact, single-handedly doubled the active number of satellites in orbit.

The Wild West in space is mirrored by an investment Wild West on Earth.

That’s exhilarating but not an entirely positive turn of events. Earlier this month, a 40,000-pound defunct Chinese satellite crashed into the Indian Ocean—though there was a distinct risk the satellite could have hit an inhabited area. Today, more defunct satellites are orbiting the Earth than functioning ones, and the more satellites companies dispatch into space, the more crowded it gets. By 2030, an estimated 100,000 satellites will be orbiting Earth, and there’s no global regulator that makes sure defunct ones are safely brought back.

Vast though it may be, space is getting congested. That increases the risk of collisions, including the space version of highway multicar pileups that could cause enormous harm to satellites that every single one of us relies on for navigation, communication, and a growing number of other aspects of daily life. And consider this: Such a collision could cause an environmental disaster that would fill space with debris and deny future generations access. We, Earthlings, thus face a double jeopardy: an overcrowded and thus dysfunctional space and a congested cosmos whose junk will, Chinese satellite-style, drop down on us.

Space sensors exist, but they can’t keep up with the satellite boom. “There is such a rapid growth in the deployment of satellites. The questions is how can you track them all,” Dickinson said. “Rules in space date back many years, and the people who introduced them didn’t have this amount of traffic growth in mind. The U.N. has a number of committees that set standards, but it’s up to the national space agencies to implement them. It’s truly a Wild West.”

The Wild West in space is mirrored by an investment Wild West on Earth. When Momentus joined the stock market, it wasn’t propelled purely by its own momentum but with a push from a newly fashionable financial vehicle called SPAC, or special purpose acquisition company—also known as a blank-check company. SPACs are shell companies that have no operations or business plan; they can be set up by investors to merge with another company and help it quickly go public. These shell firms are booming.

In January alone, U.S.-based SPACs raised $26 billion, more than a third of the amount raised by SPACs in 2020, which, in turn, was a staggering six times the amount raised by SPACs in 2019. Last year, in fact, the little-known SPACs raised nearly as much as all of that year’s initial public offerings (IPO) combined. The situation is reminiscent of tulipmania in the 17th-century Netherlands, when people energetically invested in tulip bulbs because they feared missing out on the next big thing.

Combine a cosmic rush involving lots of start-ups with expensive kit and unproven capabilities (not to mention commercial potential) on one hand and access to SPAC financing on the other, and you get the makings of a space bubble. “Many firms taken public by SPACs have little to show in terms of business plan or revenue, in some cases triggering shareholder lawsuits by disgruntled investors,” wrote Ivana Naumovska, a professor at INSEAD, in the Harvard Business Review in February, warning “the SPAC bubble is about to burst.”

The situation is reminiscent of tulipmania in the 17th-century Netherlands, when people energetically invested in tulip bulbs because they feared missing out on the next big thing.

It’s a sign of the red-hot space start-up market Momentus managed to go public at around $1 billion despite having to part with its CEO and key innovator, Mikhail Kokorich. The U.S. Committee on Foreign Investment, the regulator in charge of scrutinizing business deals on national security grounds, declared Momentus a foreign entity as Kokorich and his co-founder, Lev Khasis, are Russian citizens. Khasis is, in fact, first deputy CEO of Sberbank.

To make sure Momentus could be considered American and thus be allowed to proceed with its stock market plans, Kokorich swiftly removed himself from Momentus’s operations and resigned in January. Khasis, meanwhile, put his shares (officially owned by his wife) in a blind trust.

The world has seen bubbles before. In 1637, the Dutch tulip bubble suddenly burst. In 2001, online grocer Webvan declared bankruptcy, only two years after a frenzied IPO, setting in motion the first dot-com bubble. But if space start-ups go bust, it’s a problem not just for their investors but for all of us.

When space firms go bust, nobody is responsible for retrieving their equipment from space. That means all those satellites being sent into orbit could stay there for thousands of years and collide with the other pieces we keep sending into space—or come crashing back to Earth. As HAL 9000 says in Stanley Kubrick’s 2001: A Space Odyssey, “This mission is too important for me to allow you to jeopardize it.”

Elisabeth Braw is a columnist for Foreign Policy  and a fellow at the American Enterprise Institute, where she focuses on defense against emerging national security challenges, such as hybrid and gray-zone threats. She is also a member of the U.K. National Preparedness Commission. Twitter: @elisabethbraw