Private investment into space companies in the second quarter of 2020 saw a significant dip compared to last year, but the slowdown has not been as drastic as many expected, according to a report Monday by NYC-based firm Space Capital.

Investments in space-based companies totaled $5.5 billion in the second quarter, down 23% from the record highs hit in 2019, the report said. The decrease was primarily due a drop in capital invested in infrastructure companies, like those which build rockets and satellites, but was made up partially by an increase in space-based application companies.

Total space investment this year is up to $12.1 billion, a slight increase compared to the same period last year, the report found.

Space Capital was among those that warned the recent boom in space investing may take a strong hit due to the coronavirus pandemic, with other industry analysts and executives fearing a new era of frozen capital. But while there’s certainly been a decline, it wasn’t as bad as anticipated.

“We didn’t see a pullback like we thought we would, as it turns out that venture capital is still active,” Space Capital managing director Chad Anderson told CNBC. “All in all, things seem to be holding up really well.”

There were 47 deals in the second quarter, meaning activity was down 29% compared to the previous quarter. Space Capital breaks up the broader space economy into three layers: infrastructure, distribution, and applications. That’s due to the critical importance space plays in other seemingly non-space-related companies, Anderson explained.

“We’ve certainly seen something of a space renaissance in the last 10 years,” Anderson said. “While the infrastructure layer is a very important of this puzzle, it’s not everything. As investors, we would be remiss to focus … on only this part of the technology stack and say we’re not interested in any of the applications.” 

He pointed to the example of Earth imaging satellites.

While the spacecraft are needed to deliver the images, Anderson pointed out that “all of the value is being derived from the applications” of Earth imaging and data. Space Capital’s analysis of application companies showed $5.3 billion was invested in the second quarter, as the group continues to represent “the vast majority of equity investment in space” with $98.1 billion put into 421 companies since 2004. 

The top application deals in the second quarter were from Alphabet’s autonomous driving subsidiary Waymo and platforms that leverage global positioning satellite services like ride-sharing and food delivery.

“Location-based services, which is basically the applications stack, like that wouldn’t exist without GPS,” Anderson said. “It is without a doubt space-based technology.”

Overall, this year’s investment in space infrastructure companies is down 33% compared to last year. But that is offset by the 39% increase in the larger space application group.

The other trend that has continued is the dominance of the U.S. and China in terms of investment in space. The report found that 74% of the investments since 2004 in the space economy has gone to companies in those two countries. Anderson said that China’s investment has begun to bounce back already, after grinding nearly to a halt in the first quarter.

China has especially built up its distribution and application capabilities. While Space Capital expects China’s growth in the latter to continue to accelerate, the country is increasingly pumping funds into companies that are building rockets and spacecraft.

“The infrastructure layer is now the piece that they’re looking to build and bring in-house,” Anderson said. “If you look at infrastructure, they’ve gone from basically 0% about five years ago to now making up 5% of the total investment over the last 10 years.”

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