- Defense technology companies are capitalizing on space opportunities as rising interest rates impact the M&A and venture capital markets.
- The U.S. government, through initiatives like the Office of Strategic Capital, is investing heavily in space innovation and technology to ensure national security and promote space exploration.
Defense Tech Ventures Turn to Space Amidst Economic Headwinds
WASHINGTON, D.C., Aug 21, 2023 – As the economic landscape faces challenges from rising interest rates, defense technology companies are finding a lifeline in space. With the government’s continued investment in cutting-edge opportunities, the space sector is poised for significant growth.
Luis Avila, Government Contracts Market Senior Analyst, and Stephanie Smith, Government Contracting Senior Analyst, both from RSM, shed light on the current trends and future prospects of the defense technology sector.
A Shift in M&A Activity
The tightening of liquidity due to rising interest rates has led to a slowdown in M&A activity. Venture capital investments have also seen a decline compared to previous years. However, space technology companies serving the U.S. government have found support from nontraditional capital sources and programs during these challenging times.
Defense Primes Reevaluate Strategies
Over the past few years, defense primes have heavily invested in their venture portfolios. As they now focus on integrating these acquisitions, private investment in space has seen its lowest quarter since 2015. This decline underscores the importance of federal interest in ensuring the development and commercialization of essential technologies.
Government’s Role in Space Innovation
The government’s funding trends for defense and space-related technology are on an upward trajectory. The Biden administration’s fiscal year 2023 budget has made historic investments in science and technology, with spending levels for research and development reaching unprecedented heights. Notably, the budget has allocated $1.4 billion for NASA’s space technology R&D portfolio, marking an increase of $338 million from fiscal year 2021.
Furthermore, the establishment of the Office of Strategic Capital (OSC) in 2022 aims to bridge the gap between laboratory research and full-scale production of critical technologies. The OSC’s initiatives, such as the Small Business Investment Company Critical Technologies Initiative, are designed to support the scaling of vital technologies.
Space: A Key Component of Global Security
Space-based intelligence plays a crucial role in global security, aiding in informed government decisions to address threats like climate change and piracy. The rising international demand for U.S.-based space technology and products is expected to further boost the U.S. space sector.
A Bright Horizon for the Space Sector
Despite economic challenges, the defense technology sector’s future looks promising, especially in the realm of space. With strong funding channels and alignment with the U.S. technology growth strategy, the space sector presents a unique opportunity for long-term investment.
The commitment of the Biden administration and the Department of Defense to space innovation and defense technology advancement signifies a promising future for the sector.
RSM Report Contributors: Luis Avila, Government Contracts Market Senior Analyst, and Stephanie Smith, Government Contracting Senior Analyst, RSM.
