The space sector is undergoing a Copernican revolution, moving from what Rolando Grandi of La Financière de l’Echiquier calls “space 1.0” to “space 2.0.”
The first era of the space industry began in the 1960s with the race between the United States and the Soviet Union to conquer the Moon. The companies active in the sector were public or private companies linked to the defence sector. They were “companies that delivered very expensive solutions and therefore investor access was limited,” Grandi said.
Space 2.0, “which is emerging today and which allows investors to become fully involved,” is characterised by the emergence of private companies “founded by entrepreneurs and financed by private capital” which sell their solutions to governments as well as to private clients in various sectors (shipping, insurance, agriculture, transport, logistics, etc.). LFDE launched its Echiquier Space fund to take advantage of this transition.
Industry in transition
Between these two eras, there was an intermediate moment with the development of companies such as SES, Eutelsat and Iridium--private companies generally created at the instigation of public authorities which develop commercial solutions for rather private clients. Companies at a crossroads are seeking to enter the world of space 2.0 by making external acquisitions (such as SES with OB2 or Eutelsat with OneWeb) and by capitalising on the intermediate orbit, Medium Earth Orbit, the region of space located between 2,000km and 35,786km above the Earth. Iridium is expected to announce by the end of the year a partnership with a smartphone manufacturer to integrate direct connectivity between the satellite and a mobile phone, as Apple has just done with GlobalStar.
This transition is reshuffling the cards of the space business model. “If private space stations, space data centres, in-orbit factories and space mining projects are emerging today, it is because something fundamental has happened over the past 15 years: players are working to reduce costs through innovation and economies of scale. The players of the first age charged much more for access to space because their rockets were not reusable and there was no desire to reduce costs because this had a direct impact on their profitability. That logic has been reversed and as a result we have a more robust ecosystem,” Grandi said.
Another striking contrast with Space 1.0 is a responsible development approach. That approach is seen with the reuse of launchers, the adoption of less polluting fuels such as methane and hydrogen, and the fight against the proliferation of space debris. “All of these new players are pursuing this responsible development logic that we, as investors, seek and favour.”
With regard to these sustainability requirements, LFDE has defined an ESG charter specific to space issues “in line with the desire of the new players in the space industry to integrate sustainability issues.”
Space tools, satellites as well as the ground bases that take images and analyse them, are fundamental elements in understanding how our planet is evolving.
The social aspect of the space industry is not forgotten. “In particular its capacity to fight against the new digital divide that is being created between populations and to fight against climate change. To understand what is going on, more than half of the indicators used to monitor climate change come from satellite imagery. Space tools, satellites as well as the ground bases that take the images and analyse them, are fundamental elements in understanding how our planet is evolving.”
Space has always made people dream. But what makes investors dream? To answer this question, Grandi uses two different time scales.
“The long-term goal--and this is where dreams are most fanned--is to make human life multi-planetary. The Moon, Mars... Major interplanetary development projects are underway and a race is on between the US, Russia, China and other powers. But if these projects have a long-term horizon, the companies involved have an activity, a current materiality. There is a whole ecosystem in full effervescence. The difficulty is to combine this very long-term opportunity with a materiality present in the short term for these companies. In the short and medium term, companies are already helping to make life better from space by observing the Earth and offering applications--useful solutions for Earthlings--that have a concrete outlet and therefore immediate benefits. The parallel can be drawn with the rise of artificial intelligence. We are dealing with universal technologies that are supposed to benefit the entire economy. To different degrees of course... but which are destined to be adopted on a large scale.”
The fund invests in companies “that have activities in space, that operate between Earth and space, that work on Earth to develop the space ecosystem, as well as in companies whose universal technologies allow this new space conquest to flourish.” All this without sectoral or geographical constraints, but companies need a capitalisation of more than $1bn.
Read the original French version of this interview on the Paperjam site. This article was published for the Paperjam+Delano Finance newsletter, the weekly source for financial news in Luxembourg. Subscribe using this link.