It looks like a new Star Wars scenery is taking place in the Space industry. As we're seeing the privatisation of the sector, big names such as Richard Brandson's Virgin Galactic and Jeff Bezos's Blue Origin are under the spotlight. These US ventures are already much advanced when it comes to the Space race, to the point where U.S. federal government's NASA is partnering with Elon Musk's SpaceX.
It is without saying that China also wants to be part of this race, if not to be the leader in this stratospheric competition. The 2014 decision to open up launch, small satellite and other sectors of the space industry to private capital is seen as a reaction to developments in the U.S. and the emergence of highly innovative and much more agile companies. In fact, the Chinese space sector has seen a lot of commercialization over the past 7 years, with well over 100 companies created, and around ¥40B (US$6.5B) raised by Chinese commercial space companies.
So how does Europe fits in all of this?
The European Space Policy Institute estimated a record amount of € 502 million invested in European space start-ups in 2020. The ESPI pinpoints the development of what they call the "New Space ecosystem", led by the entrants of private companies in the space.
A new set of initiatives are backed by the European Commission to attract all the players required to develop such ecosystem that is still in its early ages. The Commission also recently announced a new initiative to support innovative entrepreneurs, start-ups and SMEs in the space industry, including New Space, during 2021-2027. Called CASSINI, the initiative is open to all areas of the EU Space Programme, and covers both upstream (e.g. nanosats, launchers, etc.) and downstream (i.e. products/ services enabled by space data). CASSINI includes, as a centrepiece, a €1 billion EU seed and growth fund.
When it comes to European ventures, a slew of launch startups have emerged in recent years to help meet growing demand from satellite providers, biotech companies and others looking to send payloads to space. One such startup is Germany’s Isar Aerospace Technologies, which is focused on building orbital launch vehicles designed to carry up to 1,000 kilograms to low-Earth orbit.
The startup made headlines last December for scoring a $91 million Series B, the largest round to date in the European space launch scene. Now the company says it has raised an additional $75 million in a Series B extension, bringing the total round to over $165 million.
The extension round was led by HV Capital, Porsche SE and banking group Lombard Odier. Existing investors Earlybird Venture Capital, Lakestar, Vsquared Ventures, Apeiron Investment Group and UVC Partners also participated.
While European firms remain competitive with regard to many innovations that have impacted the space industry, such as micro-and nanoelectronics, digital transformation and convergence, and optical and ubiquitous communications, this leadership has rarely translated into a commercial advantage within the space sector. One of the reasons
for this dissonance between European innovation and competitive advantages is the lack of upstream activities in Europe, as US firms dominate the upstream sector.
European technology leaders are not active enough in space themselves, and the technology transfer is not effective enough. Additionally, risk capital funds are in limited supply for ventures that are looking to commercialise their innovative technologies. The scarcity of scale-up funding in Europe is a critical shortfall, which often leads to a flight of talent and companies to the US, where the financing landscape is currently more favourable.
The European space sector experiences funding hurdles similar to those of other tech companies, particularly at scale-up phase. Companies in both the upstream and downstream sectors of the industry struggle with access to finance, but for different reasons. On one hand, the space ecosystem lacks investors with a space background and space investment expertise, on the other, European space entrepreneurs feel there is a lack of private financing sources and keep an eye on the US.
As such, it would be essential for the EU space tech industry to tackles the following financial challenges:
The volume of European VC investment is low with small tickets being provided by VC firms.
Access to growth capital is very limited and business loans from commercial banks are nearly inaccessible.
This situation does not convene to upstream companies who face long development cycles, are capital-intensive and operate in a limited market with many business risks.
As such, most space entrepreneurs are looking for private capital outside of the EU; the wave of NewSpace investments in the US, with larger funding rounds and investors with greater risk appetite, is enticing to European firms.
It will still take years for the European space sector to exploit the full potential
of its existing yet disparate ecosystem. It would be by mobilising and aligning the various actors of the industry that the EU spacetech could finally take off.