Europe’s cosmic dreams have a billionaire problem

Sinéad O’Sullivan is a senior researcher at Harvard Business School’s Institute for Strategy and Competitiveness.

Virgin Orbit’s Chapter 11 bankruptcy filing brought European ambitions for local space launch services back down to Earth, with a bang.

Despite great fanfare for the first rocket launch on British soil — subsidised by the UK government — the Richard Branson-founded startup failed to achieve its goal of reaching its required orbit, setting in motion a full shutdown of the business.

Sure, rocket failures are an inevitable part of a highly-risky, capital intensive industry surrounded by technical and business model unknowns. But if rival billionaire-backed space ventures SpaceX and Blue Origin have persisted despite such snags, why hasn’t Virgin Orbit?

But arguably, it was not Virgin Orbit’s failed launch in January that caused it to now cease operations — its days were numbered a long time before that. The executive team began putting nails in its coffin on December 30th, 2021 — the very day it went public via SPAC.

The problem with innovating in the public markets is simple: you can’t. And there’s a really good reason Elon Musk and Jeff Bezos, the two remaining billionaires in Space Club, don’t. Long-term, high-risk innovation in an extremely capital-intensive industry cannot be sustained by financing that is at the whims of retail investors looking for a short-term win.

Just recently, ESA’s High Level Advisory Group released its first report, which outlined the necessity for Europe to become a leader in rocket launching and human spaceflight. Neither capability looks technically feasible in the next decade. But if Europe is serious about its bold ambition of unlocking “Sovereignty in Space”, how does it plan to actually do this?

Much of the US space strategy relies on the private sector, financed by private markets, to spur rapid innovation. The well-documented rivalry between Musk and Bezos may well be the first and only time that a pissing contest has worked in the favour of US national security and defence.

While Musk, worth around $175 billion, has managed to finance SpaceX’s trajectory with venture and other private market debt financing, Bezos, worth around $125 billion, has managed to maintain full control of Blue Origin by not bringing in any external shareholders.

Branson, on the other hand, is the extremely (relatively) poor British cousin, worth only $3bn, a mirror of the UK’s falling global relevance. As such, the European equivalent of private capital innovation has, out of necessity, recently relied on the public markets via SPACs for much-needed liquidity.

The narrative that European billionaires are starting to take an interest in creating novel space or defence technology, whether for a return on investment like Musk or philanthropically like Bezos, is often misguided.

Most European wealth is not generated by large exits in tech industries, and therefore most European wealth does not seek to diversify into such high-risk endeavours. To date, Branson, Daniel Ek of Spotify and Niklas Zennström of Skype are the best known European billionaires in the deep tech startup world, but their net worths are between $1–3bn each — they won’t be financing an entire space sector any time soon.

The world’s richest person, Bernard Arnault (worth about $200bn), does indeed belong to Europe. However, there’s little indication that LVMH’s handbags-and-gladrags mogul aspires to become the next modern defence industrialist. Indeed, his failed attempt to bring private companies to the public markets via Europe’s largest SPAC has no doubt left a further scar.

And so Europe and the UK continue their decades-long struggle to manifest a space industry, in an economy that does not have the right billionaires. Unlike US counterparts which seek to create wealth, European family offices seek merely to preserve it.

More than twenty years after being founded, and despite being a top national security asset, SpaceX has still not shown that its launch services are anything but loss-seeking, heavily subsidised by venture capitalists in a zero-interest rate environment. NASA and the US Department of Defense’s partnership with the private sector is heavily de-risked by the robustness of private market capital flows and the desire of such VCs to invest, decade after decade, in The New Thing.

Europe doesn’t have that luxury. The risk for governments to create substantial infrastructure to enable private sector space companies, such as in the UK for Virgin Orbit’s Cornwall launchpad, is high. The closest thing to rocket launchers that European VCs invested in were scooters, much to the derision of the Parisians who have just banned them.

So what mechanisms are left to fund Europe’s goals of strategic autonomy? Could it be the government?

Potentially. But from which budget? Unlike the US, there is no mandate, neither intellectually nor from a single budget perspective along the lines of “European National Security and Defense”. As I was told by a member of the European Space Policy Institute’s Advisory Council recently, “The problem with national security is: whose national security? Because in Europe, we don’t even share a common enemy, let alone a shared strategy of how to defend ourselves against them.”

In Europe, the D(efence)-word is dirty. But if not for defence, then why build such high-risk, expensive infrastructure in the first place?

Which then leaves venture capital, private equity or billionaires.

NASA’s greatest innovation by far was not the Space Shuttle; instead, it was the mechanisms it created to unlock creative public-private partnerships and to engage the private markets. If the European Space Agency cannot afford to be bold in how it finances its ambitions, it’s time for it to be bold in how it engages with creating credible alternative solutions.

Failing that, Mr Arnault — how do you fancy a trip to the Moon?