Europe spacetech startups need more money and talent to compete

“Europe is being much more serious about having domestic space capabilities. Startups have really tried to fill that void where they can. So that ecosystem is growing, it’s evolving. There is, or there will be, a European equivalent to pretty much everything that we have in the US, I think,” says Timur Davis, director at Munich Re Ventures.

“The quality of the founders, the quality of the engineers, the quality of the products is very high. I don’t think that there’s a gap between the brains, so to speak, between the US and Europe.”

At a time when Europe is increasing its home-grown defence capabilities, it is also increasingly interested in accessing space by itself, without help from across the Atlantic or the Carpathians.

Given that the the European spacetech startup ecosystem is much younger than the US’, much of the discussion has focused on the bigger picture – how can nations get new capabilities and non-dilutive funding for startups that can help them bridge the valleys of death, according to Brian Schettler, head of AE Ventures – formerly AEI Horizon X – the unit spun out from aerospace and defence giant Boeing.  

Now, he says Europe needs to put the practical steps in place. “How do you set up the commercial infrastructure to support these startups to transition from a neat idea to a fully deployed and scaled capability?” he says.

Europe is also a far more fragmented market than the US, and has to deal with a balancing act of the wider European vision for space, as well as the individual nations’ ambitions.

Finding the money

Perhaps the main challenge facing spacetech founders in Europe is finding enough, and more varied, sources of capital. At the early stages, there is sufficient funding, particularly from government-backed initiatives and non-dilutive grants.

EU programmes include the Cassini Initiative, which allocated €1bn in 2021 to invest in early-stage space startups through 2027 – including seed investments, acceleration programmes, hackathons and others.

National-level programmes are also looking for ways to help. Germany’s space agency DLR and Italian development bank CDP, to name just a couple, both invest directly into spacetech startups.

However, once a startup gets to series B and beyond, capital gets harder to come by. Much comes from VCs, but also from less sophisticated investors like family offices.

“As you get later stage, the amount of capital available shrinks really rapidly. For space, that’s particularly problematic because it’s not cheap. You’ve got to build things. You’ve got to pay for a launch. There’s a lot that goes into even a fairly straightforward payload,” says Davis. Munich Re Ventures invests in spacetech companies as part of its thesis to fund the future of risk to human endeavour. It currently has startups like space traffic management company Okapi Orbits, in-orbit refuelling startup Orbit Fab and satellite servicing company Starfish Space in its portfolio.

In many other areas of engineering, there are specialist infrastructure investors willing to back projects once they have gone through a certain stage of de-risking. But no equivalent exists in spacetech, leaving the sector dependent on generalist investors.

There is also a sense that European investors are more risk averse – even the deeptech-focused ones – and need to see more before cutting a cheque, compared to their American counterparts. At the same time, American investors will want to see more from a European startup before backing it over a similar American one.

If the tech has a dual-use angle – for defence, for example – then there are additional routes to find finance, such as the Nato Innovation Fund, or a national defence funding pipeline. But these, according to Schettler, have not always been particularly consistent or dependable.

The other thing about space is that even the testing equipment is phenomenally expensive, making them hard to come by for startups already scrambling for cash.

“You need certain very expensive capital equipment before you launch something in outer space to make sure it survives the hostilities of space. There’s limited access to that in Europe,” says Schettler.

“We’ve actually seen, with some of our US-based portfolio companies, an interest from European startups wanting to be able to use some of our test infrastructure. Could be test ranges, test labs, shock and vibe, vacuum chambers, what have you. I think until Europe gets fully capitalised around the infrastructure piece of how you do space, it’s still going be a little reliant on partnership from the outside.”

Investing in Europe

AE Ventures has backed a UK-based startup called All.Space – which provides a smart communications terminal platform that can access multiple satellite and terrestrial networks at the same time – but has largely refrained from backing other spacetech companies in Europe, opting to watch the ecosystem for now.

But as the European space ecosystem begins to take off, picking winners early may pay off. For example, Munich Re Ventures felt that Okapi Orbits, a German space traffic management company, was ahead of the rest in the region, and provided a better prospect than one of many such startups competing in the American market.

“It made a lot of sense to back the clear front runner in Europe as opposed to taking a bet on one of five companies in the US,” says Davis.

What investors are keen to see is signs of long-term funding commitments, not just one-off shows of support for a small number of seemingly promising companies. The sector needs solid funding streams that the wider ecosystem can benefit from to establish commercial traction.  

But to the extent that companies are set to pop up as European champions in the space sector, investors may be wary. Examples of European darlings from other sectors, like NorthVolt in the energy space, which managed to turn an 11-figure sum of capital and a lot of goodwill into failure, will make people think harder to look past just a good story.

“From our point of view, you don’t want a lot of upfront investment being made – a lot of risk being put on VC shoulders to get it to a certain point and then not have it come to fruition in a long-term way or a way for investors to get a return because the governments couldn’t coordinate appropriately or you couldn’t devote the right amount of cash to see it to the next phase,” says Schettler.

Talent gap

The prospects for European spacetech are getting better quickly, but there is still a significant gulf between its incumbents and SpaceX’s and Blue Origins on the US side.

“ For so long, there were only two countries with any kind of space capabilities whatsoever – the US and Russia,” says Schettler, pointing out that Europe as a whole doesn’t have the same long-time pedigree of space competence going back to the moon landing.

There is, however, now a much more open market for talent in spacetech, whereas in the past you were limited to the Boeings or Lockheeds of the world if you wanted to work on putting something in orbit.

Failure to launch?

An area where Europe is glaringly lacking is in launch capabilities. This was exacerbated when access to Russia’s Soyuz programme was cut off following its invasion of Ukraine.

Not helping things is that launch is a notoriously difficult and costly area to pursue, which is why many investors like Munich Re Ventures tend to not want to gamble on it, opting instead to focus on more solid prospects like the “picks and shovels” in space – traffic management, communications, in-space fuelling and servicing, etc.

To wit, the first ever orbital rocket launch from mainland Europe – German company Isar Aerospace’s launch from Norway, exploded seconds after lifting off.

At the moment, European launch is more or less monopolised by Arianespace – a subsidiary of ArianeGroup, which is itself a joint venture between Airbus and Safran. But the route to launch is prohibitive, not least because they only take place at the European Space Agency-controlled Guiana Space Centre in French Guiana. The logistics there do not allow for any competition with the SpaceXs of the world.

There are other launch companies popping up in the region, like the UK’s Orbex and Skyrora, Germany’s HyImpulse or Spain’s PLD Space, but time will tell which will end up reliably sending stuff into orbit.