Space economy 2024: Earth Observation grows in Italy. Still little support for startups

The report from the PoliMi Observatory paints a mixed picture. Non-space companies are increasingly open to the sector, but Europe is too dependent on public funds, and venture capital in our country does not support emerging businesses. The effects of the Space Bill and new policies are awaited.

BY EMILIO COZZI

The space economy is growing and will continue to grow, and the Italian sector still boasts many promises along with a new law that, hopefully, will yield results in the coming years. However, in our country, investments and venture capital are still not providing enough support to startups, which are the sprouts of innovation in a forest of sequoias. In Europe, the main source of funding remains, by far, public funds.

The overall climate is fairly good, according to the 2024 report from the Observatory on the Space Economy of the Politecnico di Milano. The Earth observation market is making a leap, with more focus on services. This indicates that everything is maturing rapidly. Meanwhile, “non-space” companies are increasingly looking to the sector with growing interest.

Figures are always fluctuating when it comes to measuring the space economy, especially on a global scale. The uncertainty comes from the extent to which the impacts of space data are analyzed and labeled as economy generated by extra-atmospheric activities. For example, the Novaspace report, published in January, estimated the sector at $596 billion, with a projected growth to $944 billion by 2033. Meanwhile, McKinsey & Company’s analysis for the World Economic Forum already marked it at $630 billion for 2023, with a projection of $1.8 trillion by 2035.

Numbers that are open to interpretation. In fact, this margin is a clear indication that everything is becoming fluid, hybrid, and integrated. It is no coincidence that the driving sectors in these forecasts are primarily solutions in telecommunications and satellite navigation. This is a process set to strengthen, and the PoliMi analysis provides a fairly clear picture, especially for our country.

There is space

The data collected by the Space Economy Observatory shows the picture of an Italian ecosystem that is growing aware of the opportunity represented by the combination of the space and digital revolution: “The space sector is taking on an increasingly important role, moving from a niche field to a strategic sector for technological and economic development, even in traditionally distant industries,” it reads.
It is worth noting that 89% of the Italian Space Industry consists of companies that also operate in other sectors (63% in aviation, 44% in the metalworking industry, 38% in the automotive industry, and 35% in ICT and electronics). The majority claim to have undertaken innovation initiatives, but there is still no single, consolidated approach, according to experts from Polimi.
The number of “non-space” companies that have heard about business beyond the atmosphere is growing (now 85%, 25 percentage points more than in the last survey), and so is the number of companies following with interest. However, only 7% of “end-user” companies, those using space data and the applications derived from it, have active projects in the space economy. This is also where the latest transformation in the global space economy is taking place and has already become established.

From hardware to services

It is called servitization, and its definitions from various sources are generally in agreement: it refers to “the transformation processes through which a company shifts from a business model focused on products to one focused on services.” The most striking example is SpaceX, which doesn’t sell rockets, but a transportation service to Nasa, the Defense Department, foreign governments, and private companies; here in Italy, D-Orbit does the same in the final segment of the launch, delivering the nanosatellites it takes on to their orbits. At the same time, those who build bridges and produce space data sell them as services to end-users who only want the processed product. Part of the strategy of the Leonardo group also moves in this direction, well exemplified by the head of the new Space division, Massimo Comparini, in a recent interview with Radiocor (Sole24Ore).

The report summarizes it as follows: “About 40% of companies have embraced or are considering servitizing their space assets, particularly for managing and developing space assets or in satellite signal and data processing applications, because a demand largely of an institutional nature prefers ad-hoc developed solutions and customized services.” This refers to upstream activities (the complex processes to launch and deliver satellites to orbit, from the launch to deployment) and downstream activities, such as data collection and processing of information that translates into services and innovative applications, ranging from weather to precision agriculture, from navigation to communications (see the mega-constellations taking shape in low Earth orbit, from Starlink to Kuiper).

It is primarily these last two applications, navigation and communication, that are driving the utilization of orbit in the coming years, according to the report. However, Earth observation is also gaining value and importance. What we see from above is becoming strategic for climate, economic, emergency support, territorial control, and military defense reasons. Its importance is also growing in Italy.

Earth Observation Pays Off

In 2024, the market for this type of application skyrocketed to 290 million euros, a 29% increase compared to 2023. However, the demand mostly comes from institutional clients, accounting for a full 77%. The sector driving the revenue is Defense and public security, which, in today’s geopolitical context, sees orbital monitoring as a strategic stronghold, with 30% of the total (a 20-point increase).
Next in line are environmental and wildlife monitoring, followed by agriculture, forestry, and fishing.

The impact mainly comes from the resources allocated by the National Recovery and Resilience Plan (Pnrr). This, however, raises doubts that, especially for our country, it could be a bubble inflated by an extraordinary availability of capital. Without explicitly stating it, the PoliMi report sums it up this way: “Private demand will be needed to ensure long-term sustainability and prevent the opportunities for growth currently supported by PNRR investments from being wasted.” For Italy, much of this investment is allocated to the Earth observation constellation Iride, with a budget of 1.1 billion euros assigned to Esa, which then returns in the form of contracts for national companies.

The challenge, as noted by industry experts, will be strengthening the capabilities of SMEs and large companies so that they can compete in international markets. In this sense, the research reveals a positive trend: in order to process services, despite 75% of data coming from public satellites and assets, the use of private “sources” is increasing because there are “needs that the public asset alone is often unable to satisfy, and that require integrating opportunities with data offered by commercial missions.”

“In today’s Space Economy, Italy must create concrete development opportunities for startups and SMEs, which represent about 80% of the sector’s companies,” notes Paolo Trucco, scientific director of the Observatory. “Additionally, it must involve an increasingly broad audience of potential end-users with whom to develop innovative solutions and services that will boost the private market. From a legislative point of view, our country is a trailblazer. The first framework law on Space, approved by the Chamber and under discussion in the Senate, places us at the forefront among the major global players, strengthening the sector with the National Space Economy Plan and the multi-year fund for Space Economy. The hope is that it will further support the Italian space ecosystem, promoting greater openness to the private market and new development opportunities for startups and innovative SMEs.”

Public Investments, Europe Lags Behind

In a global context where public funding is the primary fuel for space companies elsewhere as well, the Observatory highlights the gap that separates not only Italy but the European system as a whole from the major powers in the sector. A few examples: “The European public budget for space is around 13 billion dollars (2023), the U.S. budget is 73 billion, while China is expected to surpass the current European value by 2030 with a projected spending of 20 billion dollars.”

This last overtaking may already have occurred. In the future, private demand will make the difference. In the meantime, public funding must grow because it is indispensable. It seems to be a cycle that will have, if all goes well, a positive outcome in the form of cost reduction on a large scale, or, conversely, the bursting of the bubble if the system does not mature.

Italian Startups, an Alarming Figure

The PoliMi report particularly focuses on what is happening around startups within the Italian system. It emerges that Italy must bridge some significant gaps to keep up, not so much with giants like the United States or China (which are unreachable due to their critical mass), but within Europe, where venture capital financing startups is lagging behind compared to competitors. The United Kingdom leads the ranking (244 million dollars raised), followed by Germany (233 million), and Italy with 170 million (though this figure also includes a monstrous round by D-Orbit: 150 million, though one could debate whether D-Orbit should be considered a startup). Then come Spain with 167 million and France with 139 million dollars.

The alarming and striking figure emerges from these numbers: the median round in Italy is 1.58 million. For Germany and France, the value reaches 9 and 5 million, respectively. This indicates, as noted, that the financing system for Italy’s startup ecosystem is “concentrated on a limited number of companies.” It is clear: in addition to public funds and the PNRR, there is a need for injections of confidence and venture capital.

“The international context of the Space Economy is in great turmoil, with rapidly changing geopolitical dynamics: the United States and China confirm their leadership roles, but emerging nations such as the United Arab Emirates and India are making great strides forward,” notes Michèle Lavagna, the scientific director of the Space Economy Observatory. “Europe, which has a tradition of excellence with cutting-edge technical skills and leading industrial capabilities, must identify new areas of intervention to remain competitive globally. In this context, the future growth and competitiveness of the Space Economy in Italy will largely depend on our ability to fully exploit the value of our technological and industrial heritage in order to innovate business models and supply chain processes.”

The experts from Politecnico write: “If we consider the investments raised since 2016, Italian startups have raised a total of 469 million dollars, French startups 853 million, German startups 677 million, and Spanish startups 626 million. These are by no means negative figures: on average across sectors, Italian investments in high-tech startups are 4-5 times lower than those in France and Germany, and half of those in Spain. In the Space Economy, Italy shows a smaller gap.”
Put simply, Italy is (still) not a country for startups.