Space, money and, finally, reality

The European Space Agency's Investor Forum is getting ready to restore face-to-face contact between start-ups and investors; here, we talk about what powers innovation

Like the rest of us, Europe’s new space companies have spent the past year-plus working under lockdown restrictions. But for a chosen few, one of the first big opportunities to step out of the virtual world and back into actual meetings should come on 7 July in Zurich, when the ESA Investor Forum returns to the “real thing” of bringing a selected group of entrepreneurs face-to-face with serious investors.

With fingers crossed that travel and meeting restrictions will continue moving back towards normal, I spoke to Elia Montanari about the European Space Agency’s vision for linking investors and start-ups.

Montanari’s formal job title at ESA – head of management & control – reveals little, but fortunately he describes his role simply, as “matching companies to investors”. Or, as the Investor Forum puts it: “Our purpose is to match demand of investment with supply of New Space companies. New Space becomes a new investment asset class at the ESA Investor Forum.”

ESA’s contribution on that front is formidable; as the Investor Forum reported after its last event, on 30 November 2020 - hosted virtually by the London Stock Exchange’s ELITE private market – the June-November period alone saw some €500m of investments over 30 transactions across an ESA “portfolio” of more than 2,000 promising companies, where the space agency itself has over time deployed nearly €400m.

At the sharp end of that investment class are about 300 companies that ESA works with. Montanari describes these companies as having been through an accelerator, seen early investment and maybe even a Series B round. The really interesting part is how ESA manages this funneling of 2,000-plus companies with space connections down to a few hundred.

As Montanari explains, ESA exists to deliver infrastructure: satellites, launch capability, ground control, etc. But space infrastructure is useless unless it’s put to work. And, some of that infrastructure is worked very hard, such as the satellite navigation constellations - GPS or Europe’s Galileo system: “It’s unthinkable, not having this sort of thing.”

What makes their absence – the same goes for Earth observation – unthinkable for modern living is the applications they enable. Of a $400bn space industry, observes Montanari, maybe a quarter is government budgets and only a “tiny bit” is “shiny stuff” like rockets and satellites, around $15bn. The rest is the chips, gadgets and data processing that delivers services via names like Garmin or Google Maps.

Sentinel-2, Mt Etna; now, add value (ESA)

To win ESA’s support, says Montanari, a company must be trying to deliver something innovative, something truly new and not merely another version of an existing service. The five companies invited to pitch at the Forum’s Elite event in November describe the range of that vision; two help manage or protect space infrastructure, one streamlines exploitation of the vast pool of Earth observation data and two deliver space-enabled services: unmanned aviation and infrastructure analysis. 

FROM HERE TO REALITY

But what turns a good idea into a practical solution? At some stage, says Montanari, an innovative idea is embodied in a visionary group, but to succeed they need a “secret sauce”. And, he adds, “If I knew what that sauce was...I’d be in venture capital!” The point being, it takes more than engineers – and Montanari is one – to make the running, because they often lack the critical ingredient of a clear concept for going to market. A great idea, solid engineering, market savvy, a well-rounded team – and even some luck: “It’s more of a marathon than a sprint.”

A winning idea, he adds, should pass a Google concept known as the “toothbrush test”. That is, nobody should need training to use it, which means it can work for large numbers of people. ESA is looking for innovations with a broad market, and is wary of complicated solutions to simple problems; ask the question, does a particular problem really need space as part of its solution?

ESA’s objective in the start-up arena is, of course, to build the European new space sector. Europe generally, notes Montanari, suffers from risk aversion, which tends to penalise risk-taking and contrasts sharply with the US willingness to accept risk as the price of success. But the investment environment may be changing. Europe, he says, has done a good job of building the legal infrastructure, in the single market and single currency, for example, to support large-scale operations. Now, too, the European Commission has committed to building a European space programme, and to promoting such “goods” as corporate environmental, social and governance (ESG) standards - arenas where space technology can be helpful.

What he sees in Europe is a “growing appetite” for investment in start-ups: “Maybe Series A, or a little more.” But the question remains, what comes next, when growth demands make start-ups cash-hungry? Looking to the US for more money is obviously tempting, but that route creates a US company. “If we want to grow a European ecosystem, that’s not good. We need to grow the European appetite for the future.”

How investor appetite evolves for space-oriented risk in Europe remains to be seen. But some developments are encouraging. Montanari points to falling launch costs and the trend toward smaller, less costly satellites as factors which reduce the financial risk of any given investment. Even the past three or four years have been significant in what Montanari calls the “Cambrian explosion” of space-enabled technologies into so many aspects of our lives – a surge which can be traced back, perhaps, to the 1991 Gulf War experience with GPS, a technology which now lives in every mobile phone.

ESA, meanwhile, has an “evangelising” role to play in promoting the understanding, acceptance and development of fast-growing space-enabled capabilities. “The commercial part is taking over faster than we can know,” he adds – which means many investors can participate.

Further indication of investors’ taste for innovation, and risk, will come in Zurich. If any lockdown tightening precludes a physical meeting the event will be rescheduled (with virtual meetings, says Montanari, “I see a lot of fatigue”), but if systems are “go” then the yardstick for success at this invitation-only event will be simple: investment committed: “Here we are talking money”.

Unthinkable to do without, truly unthinkable not so many years ago; Android app gives augmented reality view of Galileo satellites (ESA)

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Dan Thisdell adds: I write about European spaceflight: industry, politics, science and money. After a fruitful mid-career at Flight International, I am preparing to launch a newsletter for space industry investors: Geoconomy. Watch this space and contact me via LinkedIn - especially if your company should be profiled.