A Space Remote Sensing Market Renaissance?

The success of commercial space remote sensing companies has always required a delicate alignment of technologies, investors, and customers. As we enter a new phase of commercial enhanced remote sensing and earth observation constellations, the discussion often focuses on the offering and technologies they promise. Perhaps more discussion is necessary, however, on whether they will generate sufficient customer demand to satisfy existing investors and afford the development of next generation systems.

Hundreds of millions of dollars have been invested in new remote sensing and earth observation ventures in recent years. Capella Space, a startup planning a constellation of radar imaging satellites, has already raised over $82M and Hawkeye 360, who is building radio-frequency monitoring satellites, has raised almost $100M in recent years. Leading investors in these companies certainly include wealthy individuals with strong interest in space technology but also include traditional space companies like Airbus, Esri, and Raytheon, as well as government technology-focused venture firms like Razor’s Edge and Allied Minds.

Even this past year’s challenges have not slowed investor appetite in this sector. Just this past month, geospatial imagery and analytics provider BlackSky announced it will be going public through a $1.5 billion merger with a special purpose acquisition company (SPAC). BlackSky is seeking to expand its position as a high-resolution imagery provider to international government and commercial customers while also offering its own suite of analytical tools through its Spectra platform, challenging traditional remote sensing market leaders like Maxar, Airbus, and Planet.

Government to Remain Anchor Customer in the Remote Sensing Market

Remote sensing applications are expanding well beyond government customers and traditional electro-optical imagery. Commercial buyers in agriculture, finance, critical infrastructure, energy, and other industries are developing interesting use cases for commercial earth observation technology every day.

Despite increased commercial demand, governments will likely remain the core imagery and remote sensing customer for the foreseeable future. With US agencies alone driving about half of global government demand for traditional electro-optical imagery, any player seeking funding needs a go-to-market strategy targeting these core customers.

In fact, it is hard to point to a single past or existing commercial remote sensing constellation where a government was not the primary customer or direct source of investment capital. While we expect government support to remain critical for remote sensing companies, it is likely to look very different than previous forms of support.

From the Land Remote Sensing Policy Act of 1992, which first allowed private US companies to operate commercial imaging satellites, through the ground-breaking government subsidized NextView and Enhanced View contracts, the US government has traditionally invested directly in the development of a range of commercial imaging capabilities.

In other parts of the world, successful commercial constellations including TerraSAR-X, ImageSat, KOMPSAT, Pléiades, and Radarsat were also directly supported by their native governments. For these legacy constellations, governments typically subsidized or financed development and launch, and often guaranteed data purchases once satellites were on-orbit.

Today, however, the next generation of remote sensing constellations (at least in the United States) is not receiving the same form of direct government financial support. Most direct investment in the development, manufacturing, and deployment of these new constellations has come from the venture and corporate-backed financing rounds mentioned earlier, but the core business case of each is still very much reliant on securing US government customers.

The most important near-term path to traction with key government customers is the emerging NRO-led EnhancedView2 (or EV2) program. While the NRO finalizes its EV2 acquisition plan, it remains active in shaping the market for emerging capabilities. However, instead of directly investing in these constellations, the NRO has reportedly run various “pilot programs” intended to:

1. Test the quality of the data being collected by the initial satellites that are already on-orbit;
2. Provide feedback to industry for new features and capabilities it desires in future satellites, ground systems, or analytics enhancements; and
3. Flow targeted funding to promising start-up constellations to increase the probability that useful capability will make it into orbit.

While the NRO seems to be providing a unique form of venture investment, the real prize for most of these players will be securing long-term data purchase agreements through the EV2 vehicle. Likewise, CEOs of earth observation startups are keenly aware of the importance of securing the NRO – or their counterpart in other countries – as a long-term customer.

A New Class of Entrants in the Remote Sensing Market

While it is undoubtedly difficult to balance the tightrope act between investors and customers, it would be unfair to ignore the impressive technology advancements and new modes of remote sensing coming to market through this ecosystem.

Some companies, like Albedo, are focused on delivering very-high-resolution commercial imagery (down to 10cm) to compete with capabilities that are likely only available today on government-owned satellites. Players such as BlackSky, meanwhile, seek to provide better than ~1m resolution but offer significantly higher revisit rates thanks to the number of satellites they can deploy. Still other providers including IceEye and Capella Space are striving to succeed as the first commercial Synthetic Aperture Radar (SAR) data providers based in the United States.

Even further from traditional remote sensing technologies, HawkEye 360 and Horizon Technologies endeavor to provide comprehensive space-based Radio Frequency (RF) monitoring, while multispectral and hyperspectral sensor advancements are spawning innovative companies like HydroSat. This company seeks to utilize weather, surface temperature, and other sources of data to help predict and monitor crop yields, water stress, and emissions.

In the meantime, remote sensing market leaders like Maxar and Airbus are also working hard to innovate their offerings. Maxar is expected to launch its first two Legion satellites beginning in the fall of this year, seeking to complement its high-resolution WorldView offering with higher revisit rates.

What to Keep Your Eyes On

With competition intensifying, new customers entering the market, and core US government customers continuing to drive the bulk of spending, below are a few key points to monitor in the coming months:

• How Many Providers Will Be Supported by NRO and Other Key International Government Customers? We will be closely monitoring how many providers governments can afford to support over time. While contracts are being announced and customer requirements grow, budgetary challenges may diminish the promise of a true “golden era” for imagery providers.
• Will the NRO Support Non-US Based Constellations? Another key question is to what extent will US government customers, such as the NRO, contract with international suppliers. European and Asian companies have significant capabilities, but US government may continue to prioritize domestic players in order to support local industry.
• Will Investor Appetite Remain Strong? Similarly, a macroeconomic slowdown or an increase in interest rates could negatively affect future investment rounds.
• Will Non-Government-Driven Markets Mature? A longer-term question is how commercial demand for enhanced remote sensing matures and whether it can ultimately rival government demand.

What’s for certain is that there’s more to come – watch this space.

Company investment data obtained from Crunchbase