Annual investment in Europe’s space industry has surpassed that of its United States counterpart. Benjamin David examines what this means for the future of exploration.
For decades, the United States has been the undisputed space exploration and technology leader. However, in recent years, Europe has been catching up, and it is now leading the way in some areas. In 2023, Europe surpassed the US in total space technology investments for the first time.
The ‘Seraphim Space Index‘, a quarterly review of global private investment compiled by space tech investor Seraphim Space, recently revealed that Europe’s investment in 2023 is poised to match or exceed 2022 levels, given that Q1 is already at nearly 50% of the previous year’s value.
Total investment in the first quarter of this year reached $1.4 billion (€1.3 billion) – up 75% from $801 million in the fourth quarter of 2022.
Although space tech investment has decreased since the record highs of 2021 and 2022, Q1 2023 still ranks as the fifth-highest funding quarter, the report said.
“THE GROWING FOCUS ON SPACE AS A STRATEGIC DOMAIN WILL HELP OPEN DOORS FOR MORE PRIVATE PLAYERS IN THE MARKET.”
The quarter also saw the highest number of deals in a year. Some 128 deals closed in the first quarter, which compares with Q3 to Q4 2022 when there were about 106 space tech deals in each quarter.
The top-ten space tech deals in Q1 comprised 15% of the total sector investment, most of which were in capital-intensive subsectors.
The report said Europe played a “key role in driving Q1’s rebound”, leading to the region’s growing prominence in space tech. The research also found a record-breaking number of deals in the first quarter and a rebound in investment this year after a “pullback” in 2022, which signals a substantial appeal in space tech from private and public market investors.
Why the growth?
The European Space Agency (ESA) is the leading space agency in Europe, coordinating all European space activities, including scientific research, satellite development and human spaceflight.
In November 2022, it received a record 17% increase in funding from its 22 member states to back ambitious space exploration projects and maintain Europe’s competitiveness in the global space sector. Aggregated EU Member States’ annual spending on civil space operations is around €10 billion.
In recent years, the ESA has invested heavily in new technologies, such as reusable rockets and small satellites. As a result, the ESA is now leading the way in several areas, including small satellite development and space tourism.
In addition to the ESA, several other European companies are active in the space sector, including Airbus, Thales and Arianespace. These companies are developing new technologies and providing public and private customer services.
Krish Ramadurai, a partner at Harmonix Fund, says that European governments and institutional investors are realising the “exceptional strategic” and “investment return potential” of space-related technologies that are rapidly expanding the commercialisation of space.
While the strategic and return potential play a big role, the increasing prominence of the space tech sector in Europe is heterogeneous, according to Maureen Haverty, investment vice president at Seraphim Space. Factors worth considering, she says, include:
- The growth of the “new space” industry, driven by start-ups
- Europe’s new focus on space sovereignty
- The urgent need to tackle climate change
- The success of SpaceX and other new space companies
- Discussions around space sovereignty in Europe
- The new IRIS2 constellation of European satellites
- Increased European government spending on space
To infinity and beyond?
Many see the growth of the European space sector as marking a positive shift for the global space community. Indeed, Geo Thomas, assistant director at Acuity Knowledge Partners, says that European companies secured five of the ten major space tech investment deals in Q1 2023, showing early signs of the region finally catching up to the US.
While most of the investments in Q1 were in early-stage companies requiring smaller investment rounds, he expects EU investments to increase in this sector, given its importance to the region’s economy, security and defence.
Recently in March 2023, the EU presented its space strategy for the first time, Thomas explains, highlighting an increased need to strengthen and protect its space assets. “The growing focus on space as a strategic domain will help open doors for more private players in the market.”
But why has it taken until 2023 for the EU to present its space strategy? Bogdan Gogulan, CEO and managing partner of NewSpace Capital, says that the cause for this “unusual situation” is a delay in infrastructure investment in Europe.
In the US, due to a rise in interest rates and uncertainty in the banking sector, the market has experienced a retraction of the capital that inflated valuations and exit prices over the past three or four years. “A lot of this capital was speculative; investors poured money into the space sector in a herd-mentality fashion on the back of a few headline stories,” he adds.
As capital became more costly, that influx of cash slowed, “leaving the stage clear for more savvy investors and more sober valuations to step in”. This has led to an overall fall in the amount of investment and the number of deals. Consequently, investors are now focusing on companies with a “real” value proposition.
“MAJOR HAULS IN 2021 AND 2022 WERE INDEED DRIVEN BY SPACEX, ONEWEB AND VIRGIN GALACTIC. AS THE ECONOMY REBOUNDS, YOU’LL SEE AMERICAN INVESTMENT REBOUND WITH IT.”
Although Europe’s investment in space technology fell in 2023, it was still significantly less of a fall than in the US, warns Gogulan. This was due to Europe’s focus on developing its sovereign launch capabilities, which required additional investment.
However, the “single biggest” factor in Europe’s space investment overtaking the US in the first quarter of 2023 was the €155 million funding round of the German launch provider Isar Aerospace, he adds.
The “good news” for the space industry is that Europe and the US will likely see increased investment in the future, explains Gogulan. This is because space technology is becoming increasingly important for addressing a wide range of social, environmental and economic challenges.
The issue of US space sector contraction in Q1 is also raised by Thomas, who says that most of the newly listed players are trading significantly below their initial valuation levels.
A series of launch failures (Astra and Blue Origin) and a recent bankruptcy filing (Virgin Orbit) have dampened investor confidence, he says. In addition, the rising risk of recession and the high-interest rate environment have made investors wary of making big-ticket start-up investments.
What does it mean for investors?
Modulus CEO Richard Gardner highlights several takeaways from the Seraphim Space Index. Many companies searching for investment dollars are waiting for a better climate to avoid a ‘down round’ (where additional shares in a private company are offered at a lower price than in the previous issuance), he says.
However, it’s important for investors to know that Europe “isn’t even close” to where American investment was in 2021.
“Major hauls in 2021 and 2022 were indeed driven by SpaceX, OneWeb and Virgin Galactic. As the economy rebounds, you’ll see American investment rebound with it.”
This sentiment is shared by Kasim Zafar, chief investment officer at EQ Investors, who points out that funding for European space start-ups in 2020 was only one-ninth of that in the US.
There is a space industry beyond Elon Musk’s headline-grabbing SpaceX, he explains. The convergence of advanced technologies that comprise the Fourth Industrial Revolution (4IR) is transforming the space industry, “making it more accessible and economically viable”.
He adds that some analysts forecast the space industry has the potential to be the next trillion-dollar industry, which could positively impact economies and job markets in the long run.
“CONSIDER THEIR TARGET CUSTOMERS CAREFULLY: THE US MARKET REMAINS THE LARGEST CONSUMER OF SPACE TECHNOLOGIES, SO FOCUS ON THOSE START-UPS AIMING FOR GLOBAL MARKET LEADERSHIP.”
Ongoing geopolitical tensions between the US and China have made Europe’s leaders aware of the need for tech sovereignty, says Zafar. This may lead to increased investments in the European tech industry, including space tech, as European countries try to reduce their dependence on foreign technology.
According to a report by McKinsey, Europe’s space ecosystem could be further strengthened by emulating the success of other innovative industries such as crypto and biotech, Zafar adds.
He says this can be done by focusing on a shared vision, creating specific space innovation hubs and fostering industry entrepreneurship through various financial incentives through government agency grants and lower taxes for space industry companies.
Additionally, institutional investors in particular have access to high-growth cutting-edge technology investment opportunities, says Harmonix Fund’s Ramadurai. He cites start-ups with dual-use technologies, such as military and private civilian applications, making significant strides in space exploration and innovation.
The continued growth in European space tech investments reaffirms the sector’s importance to the greater innovation economy, he adds, and could position the region as a critical player in the “new-age global space economy”.
So, what does this mean for newcomers on the European space tech investments scene? For Haverty at Seraphim Space, the message is clear: “Seize the moment”. While Europe’s market is in its early stages, she explains, it is “brimming” with potential global leaders, with the sector projected to expand to $1 trillion by 2030.
“Consider their target customers carefully: the US market remains the largest consumer of space technologies, so focus on those start-ups aiming for global market leadership.”
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