Europe accounts for just one-fifth of global space investment

Seraphim Space, the leading global SpaceTech investor, has published its whitepaper, detailing several policy recommendations to unlock growth within the European and UK space sector required to solve Europe’s security crisis.

In response to President Trump’s demands that Europe increase its defence spending, the European Union has sought to mobilise up to €800bn in defence funding. The UK Government announced an increase in defence funding to 2.7% of GDP. This aims to accelerate procurement processes, develop new capabilities and promote a robust UK defence technology sector to strengthen national security. Meanwhile, Germany voted to increase defence spending with a €500bn infrastructure fund, and Sweden has pledged to increase its defence budget to 3.5% of GDP.

Much of this money will flow into the space sector. The Ukraine conflict has shown how rapidly modern warfare is evolving to exploit the latest technological innovations, emphasising the importance of SpaceTech through its growing use in cyber, drone and electronic warfare. The use of commercial satellites for both communications and intelligence gathering has been central to Ukraine’s defence in the war against Russia.

For years, European governments have underinvested in defence satellites, relying instead on America’s space-based intelligence gathering capabilities.

The same is true more broadly for Europe’s SpaceTech ecosystem. In comparison to America, less money is invested in more capital-intensive ‘upstream’ businesses, such as rocket launchers and satellite constellations. Whereas two-thirds of SpaceTech venture capital deals over the last five years in North America and Asia have been into upstream companies, in Europe, less than half of the investments have been in these strategically vital domains, with investment activity focused on more capital-efficient downstream areas such as data analytics.

The global SpaceTech sector continues to grow at an unprecedented rate, with a record number of companies raising money last year. The latest analysis from Seraphim reveals that 601 SpaceTech companies raised venture capital investment in 2024, representing a 50% year-on-year increase relative to 2023.

Europe still significantly lags behind both North America and China. Over the last five years, Europe has accounted for just one-fifth (19%) of the money invested in the sector, highlighting the continued underinvestment in European SpaceTech companies relative to the US and China.

Average deal sizes in Europe are much lower relative to North America and China. This is particularly prevalent in early-stage deals, where average European deals are approximately half the size of North American and Asian equivalents. Meanwhile, the size of later-stage growth rounds is 75% higher in America than European equivalents.

This points to several cascading issues that result from the difficulties European SpaceTech companies typically face when trying to raise large amounts of capital and scale operations quickly. Unlike the U.S, which has a venture capital ecosystem that has been developed over many decades, Europe’s venture capital market is much less mature. There are far fewer funds in Europe with sufficient scale to finance capital-intensive SpaceTech companies.

If European governments want to solve the current security crisis, a significant amount of budget allocation must support the rapid procurement of satellites and the deployment of sovereign secure communications constellations to support homegrown companies that can grow to become SpaceX equivalents, bridging gaps in defence capabilities.

On both a cost and speed of delivery basis, it is only by fully embracing cutting-edge technology from emerging SpaceTech companies that Europe can address the pressing deficit in its sovereign defence requirements.

The whitepaper sets out several key policy changes across three main pillars that the Government must make to deliver these ambitions:

Fast-tracking Procurement:

• Radical overhaul of procurement processes in favour of making fast decisions, levelling the playing field for innovative SMEs and avoiding parochialism of competing national champions.

• Significant weighting given in procurement processes to speed of delivery of required capabilities.

• Short-term prioritisation on procuring the most cutting-edge, cost-effective, market-ready space capabilities, irrespective of their country of origin. This is necessary to backfill the capability deficit as quickly as possible to reduce reliance on / compensate for US capabilities

• The objective of develop operational capabilities to boost European security within the next 24 months.

Capital Allocation

• Removal of existing impediments within investment policies of capital allocators for investing in both venture capital and defence-oriented companies that can help address Europe’s security / SpaceTech deficit. Currently, institutional investors in Europe (i.e. UK pension funds) are not allowed to allocate significant funds for higher-risk categories such as venture capital. Likewise, many European institutions are barred from investing in anything defence related.

• Mobilise private finance at scale for SpaceTech companies focused on developing dual-use technologies essential for European security by channelling government investment into fund managers with well-established sector expertise.

Government Co-operation

• Full implementation of the Draghi report’s recommendations to improve European competitiveness.

• Establishment of a pan-European (including UK) equivalent to the U.S. Space Development Agency as a procurement mechanism dedicated to maturing the European SpaceTech ecosystem, with prioritisation on strategically important areas for defence such as intelligence, secure communications, rocket launchers, and satellite manufacturing.

• Investment mandates for government-backed funds should shift away from strict geographic restrictions, like focusing only on British or European companies. Instead, the emphasis should be on addressing capability gaps in European security. This should include the ability to invest in international or non-European private companies that have market-leading technology aligned with the goal of achieving European security autonomy.

James Bruegger, Chief Investment Officer of Seraphim Space, said: “The prospect of Europe no longer being able to rely on American intelligence and communications capabilities for its security plays directly to the pressing need for Europe to develop more sovereign space capabilities as quickly as possible. Europe’s over-reliance on America for these highly strategic technologies goes right to the heart of Europe’s current security crisis. The $840 billion defence budget coordinated by European leaders reflects the lengths Europe is willing to go to build up its defence capabilities at speed to address such shortcomings.”

“Cutting-edge innovations from emerging New Space companies will have a critical role to play if Europe is to act decisively to try to address its current deficit in defence capabilities. The challenge now, and what this paper seeks to deliver, is several policy recommendations that can provide a much-needed boost to investment capacity and government support required to bolster the European SpaceTech market’s efforts to strengthen both Ukraine’s and Europe’s whole security.”