Investment in space start-ups continues to soar, buoyed by the exploits of highly visible space concerns, like SpaceX and Jeff Bezos’ Blue Origin. But it’s the terabytes of data streaming to Earth daily from a new generation of smaller, less-expensive satellites — thousands of which are slated to join the roughly 1,500 satellites already in orbit over the next several years — that have piqued investors’ interest in everything from satellites themselves to software used to analyze their data and new rockets designed to loft them into orbit.

Newly compiled data from space industry consulting shop Bryce Space and Technology released Wednesday demonstrates the trend.

In 2016 space start-ups received a record-setting $2.8 billion in investment, $400 million more than in the year prior. With roughly 25 venture deals already reported in 2017 — including a $351 million investment in Elon Musk’s SpaceX that pushed that company’s valuation to more than $20 billion last month — these so-called “new space” ventures are once again on pace to raise billions in seed, venture and private-equity cash.

“Fundamentally, investors go after opportunity, and the way I would sum it up is, this is one of the last frontiers, to be a little cliché,” says Tom Barton, chief operating officer at Planet, whose 190 imaging satellites generate some 7 terabytes of fresh overhead imagery of Earth each day. “It’s still old-school; it hasn’t really been touched by Moore’s Law.”

But while cash continues to flow toward space start-ups at an unprecedented rate, the industry is also hurtling toward a kind of reckoning, industry sources say. For every new space start-up like Planet and Spire Global (which also operates a small and growing constellation of data-gathering satellites), there are several more that are developing satellite hardware or new launch vehicles that have yet to make it to orbit.

“Over the next couple of years, there’s a real series of systems that are poised to come online,” says Raphael Perrino, the lead aerospace analyst on the Bryce report. But while investors see huge potential in space start-ups, the race is now on to see which companies can successfully convert vision to space-based revenue streams.

“As much as I say that we’re at the start of consolidation in the new space sector, I think we’re probably at the start of some of these companies going bankrupt,” Planet’s Barton says. “I would guess that over the next two years we see five or 10 significant bankruptcies or acquisitions for pennies on the dollar for people that just aren’t going to make it on their own.”

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According to Bryce’s report, 114 investors poured more than $2.8 billion into space start-ups last year. What’s more interesting than raw dollar values is exactly who is piling in and how they are doing so, Bryce Space and Technology founder and CEO Carissa Christensen says.

In 2016 the biggest VC deal came from Softbank, an atypical venture investor (some have characterized the deal as private equity, though Bryce analysts have defined it as venture-based on its nature and purpose). The most active conventional VC funds in the space start-up ecosystem have been and continue to be Draper Fisher Jurvetson and Founders Fund (both early backers of SpaceX) as well as In-Q-Tel, the venture arm of the Central Intelligence Agency.

Though there were roughly half as many venture deals in 2016 than in 2015, the average deal value rose by more than $20 million, to $80.7 million, per deal. Moreover, of the 62 venture investors that funded space start-ups in 2016, fewer than a third had put money into the commercial space industry previously, Christensen says. Both points suggest that investor perceptions about the long-term viability and nearer-term profitability of space start-ups is changing.

The influx of new investors send a strong signal that perceptions of the commercial space industry and its ability to create viable business models are shifting among mainstream investors, Christensen says. “There are strategic investors that are investing in space because it aligns with their business,” she says. “But the most interesting investors, and the ones that have really entered the arena in the last few years, are the financial investors — the ones that are entering the space market because they see the potential for outsized returns.”

“The cost structure is coming down, and I think that’s fundamentally what investors are interested in,” Planet’s Barton says, and as those costs go down, the path to profitability becomes easier to navigate than it was just a few years ago. “What’s different today versus five years ago is, we now have these data sets, and the cost to apply machine learning and analytics has probably come down by a factor of 10 in the last five years.”

While we haven’t see a blockbuster deal like Softbank’s $1.2 billion investment in satellite communications start-up OneWeb last December, it’s possible we will see something like it before year’s end.

In terms of performance, the commercial space industry is arguably enjoying its best year ever. SpaceX, the industry darling, is on pace to launch more rockets this year than it ever has before by quite a wide margin (the company also plans to fly its much more powerful Falcon Heavy rocket for the first time later this year). Bezos’ Blue Origin continues to test critical technologies and construct new rocket-building facilities. Small satellite constellations continue to grow, bringing the industry closer to the Holy Grail of on-demand real-time satellite coverage of the entire planet.

For the investor who can stomach a little risk, it’s an industry that can suddenly look very attractive, says Marco Caceres, a senior analyst and director of space studies at aerospace consultancy Teal Group. “If you look at the traditional market, nothing exciting is really happening,” he says. “The Boeings and Lockheeds of the world, in terms of launch services or manufacturing satellites — there’s no big boom in the market. But if you look at what’s proposed, it looks like the market in five to 10 years is going to look a lot different.”

The trick is, of course, transitioning from proposed satellite constellations to real, revenue-producing data sets and insights — and doing so before investor enthusiasm runs out. There’s nowhere near enough launch capacity in the world to put all these proposed satellites into orbit in the near term, Caceres says, creating risk for satellite companies and opportunity for new launch providers. But at some point in the next year or two, the entire space start-up ecosystem will have to start delivering in a major way.

“We’re not yet seeing the outcome of investment in a lot of funded companies,” Bryce’s Christensen says. “We’re seeing their ability to raise money, we’re seeing their ability to design and deploy their systems, but we’re not seeing their ability to return profits.”

Starting as soon as next year, that will have to change.

— By Clay Dillow, special to CNBC.com