Commercialisation of the Space Sector: What Can ESA Do in Europe?

by Josef Aschbacher
Director General
European Space Agency

There is no need to point out the importance of commercialization in the space sector. It has been implemented and visibly demonstrated in all corners of the world. The commercialization of space has entered a new dimension with the digital sector massively investing in the space sector, giving it the attention, credibility, funding and even celebrity the American space industry needed to grow colossally and at a very quick pace. Its success set off a ripple effect overseas, encouraging similar investments in space industries in Japan, China, India, UAE, to name a few. Around the globe, countries have been further encouraged to heavily invest in space after being woken up to the great economic, societal and strategic benefit potential the sector promises.

Certainly, the US has led the way more than a decade ago, but today basically every country puts a huge emphasis on putting the commercial sector into the driving seat for “NewSpace” projects, however you may wish to define NewSpace.

It is therefore no surprise that commercialization is one of five top priorities that I have emphasized in ESA’s Agenda 2025. I certainly consider it to be the one that makes or breaks the whole Agenda 2025 or rather, the whole European space sector. It is the one that if we don’t get widespread buy-in and risk-tolerance fast, then the other priorities become quite irrelevant. This of course applies to projects or programmes that one may consider in the NewSpace domain. Having said that, there will always be domains where the commercial sector has no interest to invest and where projects will follow the more traditional space project development scheme. I would put high precision, cutting edge, long-term missions with fundamental technology development needs into this category, like BepiColombo, Aeolus, or Mars Sample Return.

But in many other domains, where technology is more mature and markets ready to pay for services or information, industry has completely changed its approach and has become very pro-active in co-developing and/or co-funding space projects. I have seen many incredibly encouraging examples where this is happening right now.

When I look at the European space sector, I see a huge talent base, with many engineers and scientists having incredibly innovative ideas which they want to bring to fruition. I would claim that Europe’s human resource excellence is unique world-wide with some of the brightest talents among them. Where Europe is weak though is easy access to funding and speed in implementing projects. Lower readiness to take risk is often linked to these deficits.

The overall European space economy could be at risk if Europe doesn’t respond to this evolution. Let’s take for instance the case of European-bred start-up Spire, founded by three Europeans educated in Europe. Spire was created 8 years ago, ultimately choosing Silicon Valley over Europe due to lack of substantial financial funding opportunities here but has in the meantime expanded very impressively and was listed at the NYSE just last month. According to market expectations the company may be valued at up to 1.6B US$, with more than 200M US$ of new cash to invest. As much as I am happy about this success for Spire and for space in general, I regret that the financial backing has been made primarily by Silicon Valley investors (I said primarily – not totally).

Let me take a step back, though: while the financial success of Spire is a good Silicon Valley-meets-space story, it is also substantially a European one. Spire still benefitted from Europe’s expertise, engineering, design, mentoring and yes, even funding: the London-based Seraphim Space Fund has been a key investor of Spire since 2017 and ESA has also placed procurement contracts with the company. Many of the satellites have been built in Europe, while ESA has also supported Spire both technically and in the form of downstream applications, with projects on vessel detection for maritime safety and on ionospheric measurements for autonomous vehicles, to name a couple of examples.

Beyond Series-C funding

Fundraising to the tune of €2M-€20M at Series-A is a critical moment, particularly because it is when the company HQ is being chosen, which we know creates many trickle-down benefits (job creation, stimulates local economy, national taxes) for the host country. And much has changed in the past 5 years in Europe, where Series A-C level fundraising has indeed become easier, but as a company matures, it will need bigger sums found in Series D funding. For this, Europe still does not have investors willing to carry the full burden. This is the point when foreign money becomes attractive, and we risk leakage of European brilliance to foreign markets.

Which brings us back to the fundamental European challenge: having built an investment ecosystem for €2M-€20M, Europe now needs to address its funding gaps for companies needing scale-up funds in the range of €20M-€200M. Our investors and lenders are more cautious than their American counterparts and are not just looking for a quick return. So, ESA must help European companies to demonstrate strong business cases and to identify revenues that can inspire confidence to invest for the long term, sometimes with ESA as a customer, but certainly not as the only one. And those business cases must be underpinned by strong and validated technical credibility, leveraging our reputation as a technical partner and guarantor. There is much for ESA to do!

In addition to enabling access to funding through programmes like the ESA Investor Forum, where ESA introduces companies to investors and vice-versa, ESA is also already taking several actions to create a vibrant NewSpace ecosystem in Europe.  Technology development, which sometimes requires 10+ years before any commercial benefits are seen, is a big one. This is of course ESA’s trademark asset, and we have many successful examples to show. When speaking to the NewSpace community, they acknowledge ESA’s indispensable role in developing technology, algorithms, etc. An even closer link with the start-up community may help to create opportunities over the next years.

Another domain where ESA makes a strong contribution is in data access and distribution. Take the example of a small Earth Observation start-up developing a new type of data. What they usually lack is access to large user programmes, like Copernicus. ESA has been active in testing and inserting their data into operational and commercial data streams.

In some cases, ESA supports NewSpace companies by providing technical assistance, e.g., testing their new satellite in our ESTEC labs, advising them how to improve their engineering specs, etc. This is very labour and time-intensive, but ESA’s engineering and science expertise is very much desired.

The new Commercialisation Department at ESA

The new Commercialisation Department I have created at ESA that will gather, coordinate and streamline existing activities, scattered across different ESA Directorates to form a coherent team with a critical mass to address the above challenges.

In particular, the Commercialisation Department will have to identify and incubate space start-ups and businesses with a commercial and competitive potential, making use of the well-established ESA BIC programme boasting a portfolio of over 60 locations across Europe. This will facilitate faster access to capital for the growth and scale-up of these start-ups, as well as regular opportunities of In-Orbit Demonstration and Validation to qualify their products and technologies against the harsh conditions of space. In order to do so, the new Department will work closely with the Departments for Industry and Procurement to set-up new procurement tools and approaches more suited to small entities, enabling a drastic reduction of time-to-contract, for fast innovation. Fast innovation will also be supported by establishing an ESA-wide Phi-Lab network, building on the existing Phi-Lab for Earth Observation.

With the creation of the Commercialisation Department, I give a clear message of the importance of commercialisation for ESA. I want to increase the visibility of ESA’s action in this domain. And finally, I want to provide a coherent and simple initial interface to all the concerned entities and partners, be they start-ups, SMEs, investment funds, VC or public institutions such as our EU partners, so that we can join forces and be more efficient.

The commercialisation of European space activities will only succeed with the help of ESA. SpaceX (always referred to as THE commercial success in space) has received, as of today, a total of 28 billion US dollars in revenues: 56% from public funding (NASA, DoD, FCC), 24% private equity, 20% commercial contracts. NASA has provided 12.3 of that 28 billion, roughly 44%, in addition to a huge engineering skill base. In other words, SpaceX would not exist without NASA. Therefore, to create strong commercial companies in Europe, it needs ESA and other public partners to back them up.

We can observe on a daily basis how fast the space sector is changing worldwide, from a technology standpoint with reusability, miniaturisation and digitalisation, but also from an organisational standpoint, with new contractual approaches and new business models and partnerships.

ESA must be ready to take these new roles, to support incubation, to take the first risks (the technical risks), and at a later stage to become a reference or anchor customer providing a certain level of stability for new businesses to develop and for new markets to be created.

The global space economy is worth more than 300 billion euros today, with satellite manufacturing and launchers representing about 7 percent of this value but driving the growth of a thriving downstream sector and ground equipment industrial ecosystem, including start-ups and SMEs. Today ESA is already today supporting the development of these companies with several initiatives, including:

ESA Industry Space Days, as opportunity for industry and SMEs to showcase their expertise, products and services and establish new business contacts;

Matchmaking, to support especially SMEs in their networking and partnering efforts;

Start-up competitions such as the ESA Global Space Markets Challenge serve to support space start-ups in the internationalisation of their products/services;

Global Space Economic Workshops, bringing together leaders from different industrial sectors to foster the creation of spin-in opportunities and industrial projects;

ESA Grand Challenge, ESA’s first inducement prize to create a new European ecosystem of entrepreneurs and start-up companies competing to develop solutions to the challenges proposed by sponsoring companies, outside of the space sector.

The Commercialisation Department will build on this work and will also establish a partnership with the EC on its Cassini initiative.

In order to support the growth of the space economy in Europe we need to ensure easy access to capital from investors. As a comparison, in 2019 the private funding for space start-ups reached just 188 M€ in Europe, against 5 B€ in the US.

In the past weeks we have embarked in a series of concrete actions to reduce this huge gap and address this top priority.

I have just signed the cooperation agreement with ENEATech Ventures, an institutional Venture Capital Fund (owned by the Italian Ministry of Industry and Economic Development), to provide our technical support to assess the space-related deals and to feed its pipeline of deep-tech deals flow through links with the ESA BIC community.

I should also soon be able to sign another agreement, for a partnership with STATION F (the world’s largest business incubator) and a large European System Integrator – I will tell you more once we have finalised the negotiation!

Finally, I have recently met the President of the European Investment Fund and we have agreed to negotiate a partnership agreement to connect investment funds and the deal-flow of start-ups incubated by our Business Incubation Centers network.

All these activities are exciting, and we are doing the work with a lot of excellent brains and drive and ambition spanning Europe and its agencies. But still, Europe, its leaders and policymakers, must become more agile and more risk tolerant. We cannot walk a careful line. We must trust in our capabilities in this fast-developing market segment.