European Space Startups Grapple With Red Tape on the Path to Growth

The European space startup scene has been going strong in the past few years despite global financial headwinds. But accessibility of growth-stage funding and too much red tape remains an obstacle for many fledgling space firms.

Investment in space tech has dwindled globally since 2021 due to high inflation, rising interest rates and growing distrust of venture capital (VC) investors in space startups after a range of companies that had gone public via mergers with special purpose acquisition companies (SPACs) failed to deliver on their promises. But Europe may have been somewhat sheltered against those influences by its reliance on public funding for early space ventures.

In February, French geolocation company Unseenlabs secured a $92 million investment round to beef up its maritime surveillance nanosatellite constellation. According to Chad Anderson, managing partner at venture capital firm Space Capital, France is leading in space investment in Europe this year; small launcher developer Latitude being another French firm that raised a substantial $30 million round this year.

Anderson says that the outlook for Europe is good in 2024 as accessibility of venture capital globally is on the rise after two thin years,

“There are signs that things have improved in capital markets,” he says. “Globally, we have had the highest quarter in terms of deal activity and rounds done in the last nine quarters. Deal-making is picking up. And only halfway through this year, we have already seen more investment into applications than there was for all of last year.”

Record Breakers

The European Space Policy Institute (ESPI), in fact, thinks that the European space sector may have avoided the thin years altogether. In 2022, European space startups raised a record-breaking 1.1. billion euros ($1.2 billion), 23 percent more than in 2021, according to ESPI. And although that growth stalled in 2023, the decrease in funding amounted only to 7 percent that year while the global sector saw a funding slump of around 30 percent, according to ESPI.

ESPI industry and finance research fellow João Falcão Serra tells Via Satellite that it’s not yet clear whether Europe’s traditionally higher reliance on public funding and specialist investors compared to venture capital has helped the continent to mitigate the worst effects of the 2022 – 2023 global funding crisis or whether a full-blown fallout is yet to be felt.

“It’s possible that European venture capital investment will face a heavier downturn this year,” says Serra. “But it’s also possible that the European new space ecosystem is maturing and as a result, we see an increase in late-stage funding with higher ticket sizes, but an overall decrease in deal count.”

Among the companies that have sailed through the thin years is Finland’s smallsat synthetic aperture radar (SAR) operator Iceye. The firm secured its highest-ever investment in February 2022, in an oversubscribed Series D funding round of $136 million. The company topped off the fundraising success with another oversubscribed round in April this year that brought in $93 million, mostly through Finnish sovereign wealth fund Solidium.

Since its foundation in 2015, the Espoo, Finland-headquartered company, has raised approximately $440 million and it has launched nearly 40 satellites.

Rafal Modrzewski, Iceye’s CEO and co-founder tells Via Satellite the company’s engineering success in miniaturizing the previously bulky SAR systems opened new avenues in satellite imaging. With a quickly built constellation of cheap, small satellites, the Earth’s entire surface can be observed at night and through cloud cover on an almost daily basis. Its investor base stems nearly from the entire world, including Europe, North America and Asia.

“What sets us apart was the sheer determination of the team to challenge the status quo,” Modrzewski says. “Most people thought SAR technology had to be massive and cumbersome. We said, 'Why?' and went on to prove them wrong by miniaturizing with determined execution.”

Iceye's 2022 funding round was the most abundant of any raised by European space startups that year. Other top rounds of 2022 included $100 million euros for Celestia Aerospace and 95 million euros for Mangata Networks.

In 2023, the highest amounts of investment were raised by German small launcher developer Isar Aerospace (155 million euro) and Italian orbital transportation provider D-Orbit (100 million euro. Exotrail, Sylvera, and Open Cosmos all had rounds over 50 million euros.

Driving Forces

According to Simon Potter, managing director at business analytics firm BryceTech, the startups whose technologies address challenges faced by European governments appeal to investors despite the financial downturn as selling services to government customers means secure demand.

“The driving forces we see are essentially around national security and defense considerations, given the geopolitical environment,” Potter tells Via Satellite. “Globally, we see significant increases in the amount of government investment into defense space. I think the companies that are focused on providing commercial solutions or working directly with governments to address those national security challenges are presenting a compelling story to investors.”

Chad Anderson, the founder and managing director of seed stage venture capital firm Space Capital, which publishes the industry-leading Space IQ report, says that European governments “are waking up and realizing that space technologies are critical for national security and economic stability,” and have begun to heavily invest into their development.

“In Europe, they are setting aside funds to invest in startup companies,” Anderson says. “A lot of times, there are managers who know how to manage money and a government with funds that is interested in a new technology. Right now, there are these funds being set up in Europe at a very fast pace and we can expect this capital to start being deployed. We’ll see how it affects things.”

Italy’s CDP Venture Capital, the E.U.’s CASSINI Space Entrepreneurship initiative and the Luxembourg Future Fund are examples of such public-private partnerships.

Anderson named space situational awareness and space traffic management among the hot technologies European investors and governments are ready to fund, as well as regional launch systems and AI data analytics processing satellite imagery.

Pros and Cons

Iceye’s Modrzewski praises the support his company received from government agencies in the EU and especially the European Space Agency (ESA) — Europe’s response to NASA, which is independent of the EU.

He, however, admits that the limited availability of venture capital in Europe “makes it harder to secure the large-scale funding necessary for rapid expansion.”

“While the EU has a vibrant space ecosystem and excellent talent, the US market is much better at providing early support for emerging space companies,” he says. “There are far fewer early market opportunities in Europe for space start-ups compared to the US markets, where often US government agencies become the anchor customers for local start-ups, which is essential at that stage. We are still learning how to do this better in Europe.”

Anthony Baker, CEO and co-founder of U.K. remote sensing company SatVu agreed that the size of the addressable market in Europe hinders company growth.

“Early adopters of technology are typically in the U.S., where venture funding is larger, investors are willing to take more risks, and exits via trade sales or IPOs are more common,” Baker tells Via Satellite. “The U.S. market's scale makes it more attractive for space companies.”

SatVu, which developed novel thermal imaging technology that maps differences in temperatures on Earth’s surface with a resolution as high as 3.5 meters, benefited from seed-level support from the UK Space Agency and the Seraphim Space Fund.

“The U.K. environment is highly supportive of young companies, especially at the seed level,” says Baker. “Numerous organizations offer assistance, including government grants, seed funding, and angel investors. There's a community of investors who understand this sector, and there are appropriate incentives for investing in technology companies.”

Growth Stage Struggles

The analysts agree that growth-stage funding is a major weakness of the European space start-up scene, forcing many companies to set up branches on the other side of the Atlantic to access the more abundant opportunities in the U.S.

“When companies are entering rounds of investment-raising where they’re looking for very significant growth rounds at the slightly later stage where products or proof of concepts have been developed, and there's significant amount of capital required, [the companies] have to go to the U.S. to access those much larger pools of capital,” says BryceTech Managing Director Potter. “That growth capital is not available in Europe. It’s not something that is specific to space. We see that in a number of different sectors.”

Potter, however, adds that a handful of European companies in recent years succeeded in raising significant amounts of capital in Europe. They have done this “either by targeting strategic investors or by doing a really good job communicating their path forward to sophisticated investors who are comfortable in the space industry and aware of its driving forces,” he says.

ESPI research fellow Serra calls for the creation of strategic growth-stage funds that would disperse capital in a more targeted manner, helping promising companies with their expansion.

“You can either spread the capital around and let the companies innovate more freely, or you can look at more directed innovation policies where the public sector distributes the capital to meet certain objectives and develop certain services, products and capabilities,” says Serra. “I think that a fund that is more directed would be appreciated by many startups, especially if it were connected with some sort of procurement processes that would signal to private investors that there is a market for the given technology.”

Market Fragmentation

Gus van der Feltz, senior business development manager at FSO Instruments, a joint venture between high tech contract manufacturer VDL Groep and engineering firm Demcon that builds on technology originally developed at the Dutch Organization for Applied Scientific research (TNO).

“Dealing with Europe as a multi-headed beast with both supranational and national government regulations can take time,” van der Feltz tells Via Satellite. “It takes a long time to get from an idea to execution and sometimes you worry that before you get there, the train will already have left the station.”

FSO, which develops laser communication terminals for satellites, was founded in 2023 to commercialize technology previously developed by TNO. The firm is fully backed by its founders and is currently experimenting with a test payload called SmallCAT, which is flying on board Norway’s NorSat Technology Demonstrator satellite. In January this year, SmallCAT transmitted the first batch of data via a laser link to an Earth-based ground station.

Serra believes that the nature of Europe as a union of independent states can hinder companies’ progress.

“In Europe, although we have a single market, it’s still very fragmented,” says Serra. “It would help to somehow aggregate demand for certain services. I think it would help a lot of these companies to more easily access [opportunities] and bid for them.”

Baker agrees: “Europe is a collection of countries, requiring space companies to navigate different markets, space agencies, and investors. While there are some institutional investors across Europe, the process often involves pitching country by country. This contrasts with the more unified market in the United States.”

In Europe, publicly funded bodies, such as the European Space Agency, national space agencies and the European Commission, make up 70 percent of the market for European space companies, according to Science Business. A recent report by industry association Eurospace, however, found that commercial demand for space services in Europe has been falling since 2017. The authors don’t expect commercial demand to improve any time soon, which means the commitment of European public and military entities will be key for the private space sector’s growth in the foreseeable future.

Removing regulatory obstacles and speeding up procurement is at the top of many executive’s wish lists.

“Companies often talk about a desire to see a simplified and shorter process associated with government procurement and initiatives to include smaller or newer non-prime companies in those supply chains,” Potter says. “There are a significant number of initiatives and programs to do that in different countries with different agencies and different government customers, but I think there is always a perception, rightly or wrongly, that more has been done in the U.S. than in Europe to effectively engage with the commercial startups.” VS

Tereza Pultarova is a science and technology journalist