Luxembourg has established the space industry as its newest pillar of innovation. The country intends to leverage its ICT and legal skills to develop this high-potential but capital-intensive sector. We asked Olivier Lemaire, Partner at EY Luxembourg, to share with us his analysis and initial thoughts.
(Featured Image: Olivier Lemaire, Partner at EY Luxembourg / Image Credit © Silicon Luxembourg / Anna Katina)
What is your first impression of this promising sector?
The space industry has evolved rapidly in recent years. New policies have encouraged and contributed to the opening up of the commercial market to competition. Technical innovations, such as the digital revolution, miniaturization, 3D printing, robotics and avionics have increased the power of technology and, thus, satellites, while reducing their weight and size. Managerial innovations are improving design and creative management to significantly decrease costs.
Investors are showing massive interest. What are your thoughts on that?
One of the most remarkable effects has been the increase of private investment – and interest – in this sector. The personal involvement and enthusiasm of world-renowned entrepreneurs and GAFAMs have contributed to the belief that space is “cool,” – that the boundaries of space can be constantly pushed, that it is possible to reduce costs and increase productivity, and that long-term profits can be generated.
The market is very competitive. What were the triggers?
Increased competition has had a dramatic impact on the entire value chain. Historic broadcasting and telecommunications satellites are now threatened by a myriad of nanosatellites with diversified activities. Time to market, cost constraints and scale changes are forcing existing players to radically change their modus operandi from strategic thinking to innovation itself, via the value chain and risk management.
ICT and space seem to mix well. Why?
This new approach has contributed to the convergence of the space and IT sectors. On the one hand, the information technology sector has expanded to meet the connectivity needs of companies specializing in the Internet of Things, big data and geolocation. On the other hand, e-commerce, cloud computing, software development technologies and all major data providers, are moving into the space sphere. The amount of data manipulated and generated in space has increased considerably and requires new solutions for storage, security, throughput, etc.
As a result of these changes, the space sector has begun to have a deeper impact on the global economy. Data collected from space is incredibly useful to an increasingly interconnected and demanding society, providing for ultra-fast broadband, Earth observation for businesses and individuals, space mining, space tourism, etc. Space is no longer just a frontier for exploration, but has enormous economic potential.
“Unlike the startup ecosystem, the space ecosystem is very capital intensive.”
What trends do you see emerging?
In the past decade or so, the space industry has gone from a static niche that is not very risk averse to a buoyant and highly competitive industry with many synergies, e.g. with artificial intelligence. We see several trends emerging:
The development of a global Earth observation system
The development of a miniaturized and economical spacecraft that will explore deep space
Mining exploration in space will produce new resources and materials (including data) that will improve the quality of life on our planet
High-value space assets, ranging from materials to mineral medicines, will create an economic race to space
Space discoveries will have a profound impact on the advancement of the humanities, medicine, education, entertainment and culture
New energy sources developed to navigate through space will accelerate the exploration of our galaxy
The industry will represent a specific asset class for investors.
The United States is still leading. What are the reasons for this?
According to Morgan Stanley Bank, the value of the space industry in 2040 will be $1.1 billion compared to $350 million today, as the cost of accessing space continues to decline. Space companies received $3.9 billion in private investment in 2017. In the United States, since 2000, more than 80 space-based venture capital companies have been created. And in 10 years, about $15 billion in private capital has been invested in business creation. While we are witnessing tremendous development in the United States, Europe seems to be lagging a little behind, whereas a few years ago it was co-leader with the United States.
How did Luxembourg take the lead – at least in Europe?
As with any strategic sector, one of the most important issues concerning development is the role of the government. This is particularly true in the case of space, given its high uncertainty combined with high capital intensity. Luxembourg as a country is well positioned in the space market with the creation of Spaceresources.lu and, more recently, the Luxembourg Space Agency and the Space Cluster at Luxinnovation. After the steel industry, and the financial, ICT and digital sectors, Luxembourg is now betting on space, which it began developing back in 1985. For example, the Grand Duchy joins the United States as the second country to clarify a legal framework. Today, the country has been able to attract a number of space companies, some have established their global headquarters here while others their international development center. This bet on the future demonstrates the government’s entrepreneurial spirit. From the beginning, education and research have been involved in the space ecosystem, with cooperation between the European Space Agency, the University of Luxembourg and the LIST.
How are venture capitalists positioned to invest in space?
Space is more than a whim. Unlike the startup ecosystem, the space ecosystem is very capital intensive and generally requires a long period of investment before the technology is released and validated. To some extent, this contradicts venture capital in the short to medium term. Investors in this area are limited to a few specialized venture capital funds, which can inject large amounts of money into infrastructure. However, in recent years, greater liquidity and availability of funds has contributed to the emergence of new funds.
What do you think is a fundamental trend to watch out for?
Another question that is beginning to arise and will increasingly arise is what to do with space debris. There are indeed more and more activities taking place in space, creating more and more debris, making this a crucial issue in the near future.