Despite Virgin Galactic's red hot start to the year don't expect new space IPOs

As the threat of the coronavirus persists, investors wonder if now is a good time to buy stocks. Space Angels CEO Chad Anderson joins Yahoo Finance’s On The Move to break down the importance of investing in space during a financial crisis.

Video Transcript

ADAM SHAPIRO: Let's talk about the space race because despite COVID-19, later this month history is going to be made when SpaceX launches two astronauts into orbit. It's history because it's a private company doing it.

To help us understand where investment money can be made with space, even in this environment, Chad Anderson, Space Capital's managing partner, joins us now. It's good to have you here. And a lot of people are asking where, really, is the investment opportunity with space? Because with COVID-19, even the industry's getting hit, like Virgin Galactic. We saw that yesterday when they reported.

CHAD ANDERSON: Well so the space is very broad, a lot more broad than just satellites and launch vehicles, which a lot of people look to. There's a lot of really exciting things happening on the infrastructure side of space, but you shouldn't discount the opportunities in distribution and applications that come off of that space-based infrastructure.

We produce some intelligence on investment and equity value that's been derived from space. And if you look at GPS as a playbook for investment opportunities-- we just published a report that looks at how GDP has developed, how infrastructure investment by the government into GPS satellites created this really valuable space-based signal that then distribution companies like Trimble and Magellan and Garmin tapped into and made accessible to the tech community. And then we saw it gave birth to the rise of location-based services, hundreds of billions of dollars of equity value and trillions of dollars in economic activity.

So GPS is a great example for how we view space and where we view the investment opportunities. Of course, there's a lot of really interesting things happening in launch vehicles and satellites as well, particularly over the last 10 years.

INES FERRE: Chad, Ines Ferre here. I know that you look at space companies that do B2B and B2G more favorably, especially, of course, during a recession. What about Virgin Galactic with its partnership with NASA? I mean, is that positive for that company, and what what kind of companies are going to survive this recession?

CHAD ANDERSON: Certainly a positive development for Virgin Galactic. We, like most other investors over the last six weeks or so, have, you know, been triaging our portfolio, looking and trying to understand where they're at and what their cash situations look like, what contingency plans they might have, and how we can help out.

And the majority of our company is faring very, very well with COVID, and the reason for that-- well, there's a few reasons. One is, you know, like you said, they are business to business or business to government, so that's a little bit more resilient. The government is stepping up and providing a lifeline in a lot of cases. So there's a number of agencies that are increasing their contract amount-- contract amounts or advancing payments. And so all of these things are important in terms of resiliency, especially in a downturn.

But also a number of our companies are actually-- we're having conversations with them about how to seize this opportunity. So there is a lot-- there's a lot going on right now, and while everyone is retrenching, there are opportunities opening up in a number of our companies particularly that are focused on Earth observation, geospatial intelligence.

Governments and businesses are turning to these companies in this crisis to understand macroeconomic trends, to look at their-- use satellite data to monitor their supply chains and their facilities. And so we're actually having conversations about where they can look to capitalize on the opportunities that are opening up.

ADAM SHAPIRO: Chad, when you talk about trends-- and you used the example with GPS. Regarding Virgin Galactic, part of the play there-- we all get excited about going into space, but they're really not going into deep space, into full orbit. What they're really doing is building a very fast vehicle that would cut down the flight time, say, from New York to Tokyo. Given what's happening in the world today, though, is there going to be a future for what they're developing?

CHAD ANDERSON: Yeah. If you look at the market opportunity and where the price targets are based on the analysts that cover Virgin Galactic, they really are on the point-to-point travel, like you mentioned. And they're still a ways off from that. They're still working towards putting their first human to the edge of space. Richard Branson is going to be the first person to fly on their vehicles, and that has been pushed out till next year. And with the pandemic, who knows when that flight is going to be?

So for us, I mean, Virgin Galactic is not something that our fund invests in. But what it does and what's so interesting to me is it's a really interesting case study in the appetite in public markets for space-based opportunities.

And so Virgin is pre-- for the most part, prerevenue, preprofit certainly. And so what would happen if a company went to the market-- went onto the public markets to have good revenue growth and was profitable? I think SpaceX talking about spinning out StarLink. I think there's going to be a huge opportunity here, and it should be speaking to a number of these space founders that have been at this for six or eight years that there's an opportunity here.

JULIA LA ROCHE: Hey, Chad, it's Julia La Roche. I'm definitely sensing a bit of optimism from you, especially when you're talking about some would say longer-term opportunities as it pertains to space. Since you are the space guy, I'm going to ask you this. What is your moonshot, and what do you think is that investment or opportunity that's going to be the biggest game changer for humanity when it comes to space?

CHAD ANDERSON: I think in the same way that GPS is ubiquitous and a pervasive part of our everyday lives, Earth observation is going to be the same way. So we are-- we have all of this infrastructure and all of these new satellites in space gathering intelligence about our planet, and we are right at that distribution phase that GPS went through with Trimble and Magellan and Garmin and others. We're investing in those companies now. And what that's going to do is open up the market for millions of new applications based on this data.

So it's really the space-based data that's providing a lot of the value, a lot of the investment opportunity, and a lot of the opportunity to really change how we interact with our planet and also do business on it. So--

ADAM SHAPIRO: And--

CHAD ANDERSON: Please.

ADAM SHAPIRO: Finish that thought.

CHAD ANDERSON: No, and then, I mean, we can also talk about some slightly longer-term, bigger plays. I mean--

ADAM SHAPIRO: Ignore it.

CHAD ANDERSON: --the government is making some big moves towards the moon. We have invested in a couple of those companies also that is part of their program to send rovers and landers to do the first scouting missions for Artemis and the human landers that they're going to be sending up by 2024.

ADAM SHAPIRO: I'm going to make a suggestion we bring you back on the 27th should SpaceX actually do that launch because I'd like to continue that discussion. We're going to go to break right now, but Chad, all the best to you. Chad Anderson, Space Capital managing partner.