Space exploration as a lucrative financial opportunity
The space sector, long considered the realm of science fiction, is rapidly transforming into a lucrative investment opportunity. While Europe, including the UK, still has some catching up to do compared to the US, some European countries are setting the pace, with Luxembourg leading the charge.
Luxembourg's initiatives like 'Space for Finance' and its leadership on space resources are setting a precedent. On the other side of the Atlantic, NewSpace Capital, a seven-year-old venture, is making it easier for large institutional investors to enter the space market.
NewSpace Capital focuses on growth-stage companies that have proven technology, real customers, and solid revenues. The venture capital firm invests in firms generating substantial commercial revenue, usually at least €10m, a move that indicates a shift away from technology risk and towards execution risk.
This shift is significant because technology risk has largely dissipated in the space sector. Companies are now operating as real businesses with real products and growing demand. Space-derived data is increasingly being used by traditional industries like insurance, agriculture, energy, infrastructure, and logistics, further solidifying the sector's position as a viable investment.
The space sector is now a $600 billion market and is expected to triple by 2035, reaching $1.8 trillion. This growth is fuelled by the sector's diverse landscape. Companies have different backgrounds, areas of expertise, applications, and levels of commercial readiness and development.
Many of NewSpace Capital's investments are in firms providing critical components, systems, or software used by satellite operators, data platforms, and downstream users. Other investments are in firms that turn raw data into valuable insights for industries like insurers, energy companies, logistics firms, and others.
Institutional investors are beginning to recognise the centrality of space. The 'bet' is on the data platforms, analytics firms, component manufacturers, and application providers with strong recurring revenue. Space intersects with climate, food, energy, mobility, security, supports ESG goals, improves supply chain resilience, and offers stable long-term returns once the early-stage technology risk has gone away.
However, European capital markets treat space as too exotic and state-dependent. For a serious space economy in Europe, governments must signal demand and de-risk investment. The European Union has not yet developed a comprehensive industrial space program due to challenges such as regulatory complexity, funding priorities, coordination difficulties among member states, and the evolving nature of space data applications in European industries.
Despite these challenges, the space sector's potential is undeniable. As such, space is fast becoming a must-have investment and will increasingly become a requirement for any strong diversified portfolio due to its size, future size, relevance to other key sectors, and potential for stable long-term returns. Institutional investors need to disaggregate the space sector according to risk profiles to capitalise on this opportunity.
In California, insurers use geospatial technology to assess wildfire risk in real time, predict fires with startling accuracy, and track their spread, making the industry viable with space technology. This is just one example of how space technology is revolutionising traditional industries, and the extent to which AI will supercharge the growth of the sector remains to be seen.
In conclusion, the space sector is no longer just about rockets and satellites. It's about data, insights, and returns. As the sector matures and becomes more accessible to institutional investors, it's an opportunity that's hard to ignore.
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