BY EMILIO COZZI

The European Space Agency’s (ESA) Commercialization Department initiatives aim to “match” ideas with capital. The role of the public, already a major funder, is emphasized now more than ever to guide development and innovation. A lesson in space finance by Luca Del Monte.

In half an hour of conversation, Luca Del Monte christened it the “new space”. Like the cosmos, it’s a rapidly expanding landscape in which the galaxies of the new space economy are taking shape. It’s a conceptual map with winding paths and highways, strategies, and risks, as outlined in a brief yet dense discussion on extra-atmospheric finance by the head of ESA’s Commercialization Department. The road, according to the ESA manager, often forks, but doesn’t deviate, except to become a dual-track: institutions and the market, public and private. There aren’t economic religions or confessions, but an awareness that, like a flywheel, one part provides the push that benefits the other. With institutions maintaining their guiding role in paving the way for innovation.

Straying from the metaphor, it’s best to start with the concept of “new space” before discussing the “new space economy.” It’s a realm, or rather a world, different from what it was just a decade ago: “In the past sixty years,” explains Del Monte, “the main goal of space activities was to maximize the performance and efficiency of services and minimize the risk of failure. With the new space, we started talking about return on investment, customer satisfaction, and time to market. The market is no longer exclusively represented by public institutions; instead, it’s the market that indicates the sustainability of a project or proposal.” This corresponds to a nearly radical rewrite of the rules.

In November 2022, at the most recent ESA Ministerial Council where member states allocate resources for the following three years, ministers committed a total of 117.6 million euros for the “Commercialization” sector, which aims to give a boost to companies creating value in the industry. This figure is 17% higher than the initial request, highlighting the topic’s significance. And that’s just a small part: “To start with, ESA was given the highest budget in its history: over 17 billion euros,” stresses Del Monte, “of which almost one billion is dedicated to programs promoting the development of products and services with commercial impact.”

To fully understand the ongoing processes and potential challenges or at least the hurdles, it’s crucial to return to the basics. “Globally, private sector investments have grown exponentially: from virtually zero at the beginning of 2010-2011 to 13 billion dollars two years ago, compared to around 100 billion in public expenditure,” notes Del Monte. “In Europe, where public spending was around 14 billion two years ago, private investments did not exceed 500 million euros.” Clearly, that’s not enough.

According to Del Monte, the boom of the last decade is also due to the ultra-low interest rates set by central banks. Rates that are now rising under the monetary tightening imposed by the Federal Reserve and, in Europe, by the European Central Bank. As a result, venture capitalists are more cautious: “We’ve seen a 30% decrease in global private investment volumes. In contrast, in Europe, starting from modest figures, growth continued, currently standing at an increase of 66%.” It would seem the time to push harder; however, the problem is that Europe isn’t America.

Cosmic Risk

The old continent has an age-old propensity for credit management. “There’s a risk aversion that seems to be part of European culture,” states Del Monte unequivocally, “we’re talking about old money, large capitals in the hands of large families and managed by so-called family offices, whose goal is to minimize risks and guarantee returns.”

The metaphor is apt: just as a space launch carries inherent risks, so does investment in the sector. But just as a mission can propel beyond orbit, invested capitals have vast growth prospects. It’s about “taking risks, but with potentially very, very significant gains. It’s an approach closer to that of the major Silicon Valley funds, for instance, more for those coming from the digital economy world.” And that’s where the focus lies: a space for private entities.

So, it’s “risk capital, where previously institutions were footing the bill. We’re talking about loans, though. Not all companies are looking to dilute ownership through equities.” Access to the kind of financing Del Monte refers to doesn’t happen overnight. Yet, urgency is crucial: speed is required to keep pace in a competition that for Europe, more than the U.S., is global. “The American space industry benefits from a robust institutional domestic market,” reasons Del Monte, “Europe can’t say the same: our companies compete on international markets.”

Educating Entrepreneurs and Financiers

Inevitably, the strategy must combine training with information and networking. Starting with institutions, and the European Space Agency itself: “we encourage our colleagues, our engineers, to work more with startups, to understand the new way of doing space.” Mainly, it’s about teaching investors about the growth and investment opportunities offered by an exponentially growing space economy. According to the most recent report from the non-profit Space Foundation, the global value exceeds 500 billion dollars, with projections surpassing one trillion within a decade.

Del Monte identifies two target audiences: the innovating entrepreneurs and the capital providers, those who finance and provide the fuel to get them off the ground. “The focus should be on building and nurturing a new generation of entrepreneurs, requiring skills beyond mere technical know-how. While technical knowledge is crucial, there’s a need for understanding market strategy, encouraging venture capital and investors, creating a business and business development plan. Training is already happening through various courses, including at universities.”

Regarding credit, there are efforts to work with major institutions to guide financing and attract capital. “We’re working with the Cassa Depositi e Prestiti, reflecting on how to create guarantee platforms to facilitate credit access for small and medium-sized enterprises,” continues Del Monte. Collaborating with the European Investment Bank, the European Union, and the European Union Agency for the Space Program, an educational campaign was launched last year to increase venture capitalists’ knowledge of these issues. Over 270 fund managers participated, who previously knew nothing about space and began investing. Six months later, 30 million in private investments were recorded in the European space sector.

Understanding for Mutual Growth

Del Monte suggests that initiatives serve mutual understanding: between engineers with significant funding ideas and financiers with considerable capital to invest. The ESA’s Head of Commercialization mentions the investor network gathered by the European Space Agency and the “Raising stars” – companies particularly interesting for their business potential. He also mentions the ESA Business Incubation Centres network and the Helios stock index, which aggregates space listings; the Phi Lab network across Europe, helping develop new products quickly with access to universities, industries, and ESA expertise. And then there’s the Marketplace.

Another dichotomy? It’s about “enticing and encouraging entrepreneurs outside the space sector to enter, and vice versa. Those already in the space sector need to strengthen, creating new business lines for their products adapted for non-space uses. They’re called spin-offs and spin-ins.”

All of this isn’t enough; there’s a need to accelerate, says Del Monte. The bureaucracy still burdens public expenditure processes, the so-called time to contract. Being aware of the importance for a competitive company to quickly reach the market, efforts are being made to streamline processes. “For the first time, the ESA has also proposed a program to reduce commercial risks, not just technological ones: it’s Scaleup, a small initiative immediately understood by the Agency’s member states.”

It’s a balancing act, or more precisely, another track to pursue: on one hand, the market; on the other, the institutional player guiding at least some choices of an increasingly strategic sector. “I believe institutions play an essential role in indicating both the direction and speed of innovation,” concludes Del Monte, “without major projects capable of inspiring new generations, European space is at risk of marginalization. It’s essential to nurture this plurality in the interest of both the private and public sectors. That’s the real reason why commercialization needs institutions, and institutions can’t do without the commercial aspect.”