You need deep pockets to run a successful business activity in space. VCs offer one solution, but not for everyone.
When Luxembourg announced its space economy strategy in 2016, financial support was among the pillars. In addition to tax incentives, and national and European R&D grants for businesses establishing their headquarters in the grand duchy, was the 2020 launch of Orbital Ventures, a new investment fund managed by Promus Ventures and based in Luxembourg.
This pot of public and private money for space tech companies capable of delivering a return on investment, closed at €120m in October 2021. The checklist, which included space-based telecommunications network and services, applications and space-related technologies and innovation (robotics, sensors, data), captures the activities of scores of space tech businesses found in Luxembourg. Yet, local firms were absent from the beneficiary list, which includes Isotropic Systems (UK), Ellipsis Drive (Netherlands), Fernride (Germany), Vicarious (US), The Exploration Company (US), Recycle Eye (UK) and Wakeo (France). “I don’t think that Luxembourg lacks space companies that need investment at this early stage,” says Omar Qaise, founder and CEO of Luxembourg-based OQ Technology.
“Orbital Ventures invests in “space and geospatial startups globally, which may include Luxembourg, if it fits our investment discipline.”
Orbital Venture’s spokesperson
A spokesperson for Orbital Ventures did not rule out future investments in Luxembourg firms. She said: “Orbital Ventures invests in “space and geospatial startups globally, which may include Luxembourg, if it fits our investment discipline.”
Luxembourg aside, the fund sends a positive message to Europe-based firms, in an environment in which historically the lion’s share of VC went to the US. This follows a trend. According to analytics and engineering firm Bryce Tech, from 2019-2020 more non-US firms benefited from investment than their US counterparts. Meanwhile, the majority of investors came from outside the US, from China, UK, Japan and France.
Space tech consultant Joerg Kreisel credits this change to a growing interest in space activities. But, he says the amount being invested is “peanuts” compared to other sectors. “The space sector is not even there,” he says. No surprise then, that according to Bryce only 124 space tech firms received investment in 2020. The challenge for VCs, says Kreisel, is the fragmentation of deal-flow. “It is basically impossible that you have a team to oversee and manage well space investments. You have to be selective and have a more stringent focus but then you have to have enough deal flow to make these investments, because you will invest in one in ten. But, you will never see enough to justify a fund.”
His advice for startups, depending on the type of activity, is to go it alone to reach a “certain level of maturity that would potentially facilitate financing and access to other sources of funding.” And then, when investment is needed, he recommends that entrepreneurs do thorough investor due diligence. If mature enough, firms could take the public offering (PO) route. According to Bryce, PO was a finance source for the sector for the first time in 2020, accounting for 6% of space tech investment. Another route to PO are special purpose acquisition companies (SPACs), publicly-traded companies that aim to raise funds to acquire or merge with a private company seeking to go public. Luxembourg-based Earth observation firm Spire, for instance, was among 12 firms to secure a SPAC since 2019. All in all, the number of companies benefiting from these vehicles remains small. Kreisel reckons that until there are more exits on space tech activities, securing investment for the sector will remain challenging.
This article was first published in the Silicon Luxembourg magazine. Read the full digital version of the magazine on our website, here. You can also choose to receive a hard copy at the office or at home. Subscribe now.
