The stratospheric rise of Elon Musk’s SpaceX’s masks growing turbulence for space startups: ‘We’re going to see some of that get wiped out’

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But Musk’s legacy may be partly determined by another company he says was, at one point, doomed to fail: His space company SpaceX.

The business, which is known for its reusable rockets, launched a record 61 missions last year. That’s around 34% of all space launches worldwide by both governments and private industry. 

This year, Musk has set his sights even higher by eyeing as many as 100 orbital flights, an average of one launch every three to four days, and the company is seeking to launch its next-generation reusable rocket, the powerful Starship, as soon as this month for its first orbital test. 

The rest of the private space economy, however, is facing major turbulence. After private investment in space peaked at $47.4 billion in 2021, it plummeted 58% in 2022, according to a report by investment firm Space Capital, which targets early-stage space-based technologies.

A shake out in space may be coming. Bad deals by inexperienced investors who poured into the industry risk a serious crash and burn. 

“2021 was really the height of market mania,” said Chad Anderson, managing partner at Space Capital, told Fortune. “We’re going to see some of that get wiped out.”

Clearing out the weeds

Companies making riskier bets that take more time to mature, like lunar exploration or private space stations, will be the hardest hit, experts said. Those that succeed will likely be focused on fundamentals, revenue, and sustainable business models, and the industry at large may benefit from it in the long run.

“If you want to use a rocket metaphor: The fueling stage is over. A lot just happened and now it’s time to see who has orbital velocity amongst the smaller startups,” Jordan Bimm, a historian at the University of Chicago who focuses on space technology and exploration, told Fortune.

While private investment dropped last year and will likely stay low in 2023, the industry’s total value is increasing. It grew 8% in 2022 and is now worth $424 billion, according to a January report by Euroconsult, a consulting firm specializing in space and satellite technology. 

While private investment is declining, the public sector may be ready to step up and continue funding promising companies. Astrobotic, a company developing lunar technologies including landers and rovers, secured NASA funding last summer to develop and fly a rover to the moon as early as 2025. While Astrobotic did not disclose the amount of funding, it was one of six NASA awards for small businesses that were worth $27 million in total.

“It’s going to be the companies that have those public contracts that are going to be the most resistant to this temporary downturn in investment,” Bimm said.

The man in the lead

But even companies that survive the investment downturn will have to play catch-up to Musk’s SpaceX. SpaceX has not only dominated launch capabilities, it has reduced costs through economies of scale after having launched more than 3,600 satellites since 2019 for its space-based Starlink internet service.

In 2021, SpaceX even beat out competition from Jeff Bezos’ own spaceflight company, Blue Origin, to clinch a $2.9 billion government contract in 2021 to fly NASA astronauts to the moon with its Starship rocket, tentatively by 2025.

Because of Starship’s reusability and powerful engines, SpaceX could dominate space exploration for decades to come. Whatever the case, Musk, a self-promoting optimist, has set high goals for the rocket: “Be 10,000 times better than the current state-of-the-art,” he said in an interview last year with Tim Dodd, who has a YouTube channel focused on popular science.

In January, Musk said Starship had a “real shot” of making its first orbital test flight this month, while a March liftoff was “highly likely.” Starship’s launch has been delayed many times over the years, but the nearly 400 foot-tall rocket went through an all-important “wet dress rehearsal” last week at the Starship base in Texas.

A successful Starship orbital flight would be “critical” to the growth of the space economy, Namrata Goswami, an independent scholar and consultant specializing in space policy, told Fortune. It could also serve to further entrench SpaceX’s leadership as far as rockets and launch capabilities go.

Beyond the next year, SpaceX’s influence in the industry is likely to rise as it grows its fleet of Starlink satellites, which gained attention last year after the Ukrainian army started using the online connection the service provides for communications after Russia targeted the country’s telecommunication infrastructure. Musk is rumored to be considering taking Starlink public as a SpaceX spinoff, and venture capitalist Chamath Palihapitiya predicted last month that the satellite unit would garner a valuation of at least half what SpaceX is currently worth. 

For small companies, catching up to SpaceX and Musk may be an impossible proposition. It already has a reported stratospheric valuation of $137 billion and raised a gargantuan $2 billion in funding last year. 

“They really are just sucking the air out of the room,” Bimm said. 

Finding their niche

But while SpaceX may have already cornered many aspects of the space market, other opportunities remain. Boeing, for instance, has signed a deal with NASA to use its Starliner capsule for missions to low Earth orbit, although that vehicle has been beset by delays due to technical issues.

“Just because a company isn’t doing rockets doesn’t mean it isn’t attractive,” Goswami said. “If companies are able to cater to a particular niche, investment will come in.” 

The growing interest in implementing military applications in space is a key example, she said. Satellite companies that can provide detailed imaging and surveillance services—as some have done during the Ukraine War—are expected to be in particularly high demand.

Private companies and federally-backed research groups are also working on scientific projects SpaceX has yet to show any interest in. They included space-based solar panels, orbiting telescopes made of liquid mirrors, experimental lunar rovers, and A.I.-guided spaceships.

For example, Astrobotic, the lunar robotics company that won NASA funding, last week completed testing of its latest lunar lander model in preparation for its moon launch. Axiom, meanwhile, is developing the world’s first commercial space station, and last year unveiled details behind its plans to conduct scientific research on stem cell treatments for cancer in low-Earth orbit. Axiom plans to launch the first section of its space station to orbit in 2025.

Not all of these companies or ideas will bear fruit, but that’s kind of the point, experts say. Even SpaceX, after all, had to deal with multiple launch failures in its early days as it tried to perfect reusable rockets. 

In the immediate future, small space companies and startups may be faced with more headwinds than they would like, and no one knows if SpaceX’s success will help or be an obstacle. SpaceX might “lay the railroad tracks” for others to follow, according to Space Capital’s Anderson, or it could be “pulling the ladder up after them by being so dominant,” said Bimm.

Either way, space startups will have to be creative to succeed in the industry. If they do, they might find that the sky is not the limit at all.

“There’s a seemingly infinite number of use cases and opportunities in front of us, and now we just need to use our imagination to capitalize on it,” said Anderson.

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