Why U.K. Spaceports Are Attracting VC Capital

As the world’s space agencies continue to send headline-grabbing probes and landers to far-flung corners of the solar system, it’s easy to forget that a big part of the space industry revolves around sending satellites – often relatively small – into Earth orbit. Some are put there by governments, others by research organizations and a great many are commercially operated. Regardless of their purpose, they all need launchers.

Until relatively recently, launch options were limited to a few big suppliers, such as Europe’s Arianespace or SpaceX. But the market is changing, not least here in the UK where the government has actively been encouraging the development of small “spaceports” and launch businesses.

Orbex is one such business. Established in 2015, it designs and manufactures a launcher – Orbex Prime – and in a relatively recent development, it also operates the Sutherland Spaceport in the far north of Scotland. To get its project off the ground, the company has raised a total of £100 million, with the latest tranche coming in the form of a £40.4 million Series C round in the Autumn of 2022. According to CEO Martin Coates, the first launch is not very far away, so when I caught up with him earlier this week, I was keen to find out more about the realities of taking a VC-backed space company on the road that leads from drawing board to commercial operations.

A Well Established Space Industry

The space industry contributed around £7 billion in added value to the U.K. economy in 2022 and currently employs 48,000 people. But while Britain has a well-established satellite manufacturing sector, it hasn’t had any operational launch facilities.

That looks set to change. The Department of Transport lists seven spaceports around the country. Three of them are designed to facilitate ground-launched rockets and the remainder are created to host launch-from-the-air systems. For its part, the British government has introduced a new regulatory framework designed to support innovation in the launch sector.

All well and good, but space is a tricky entrepreneurial play. In January this year, the first launch from British soil – conducted by Virgin Orbit from Spaceport Cornwall – ended in failure. As a result, the company continued for just a few months before ceasing operations.

Prospects For A New Industry

So what are the prospects for this nascent – at least in UK terms – industry?

As Martin Coates sees it, there is a real requirement for new launch capabilities. Putting satellites into orbit in the “traditional” way – as part of a big payload – isn’t always ideal. “Your satellite goes with the main payload. It will be launched where that payload is going,” he says. “We can send your satellite directly to where you want it to go.”

In addition, a satellite owner who has booked onto a large rocket may find their launch is rescheduled if the rest of the payload is changed. Smaller launchers can offer a more bespoke, if admittedly more expensive, service.

Another driver of the market is the state of the world in 2023. As the war in Ukraine and continuing tensions between the West and China illustrate, access to components – and indeed, the ability to secure launch facilities – can no longer be taken for granted. Coates believes the Orbex system is relatively immune from any geopolitical problems that might emerge in the near or medium term.

“An important part of all this is having as short a supply chain as possible. We think there’s only one component – and it’s a fairly generic component – that we won’t be able to source within Europe or the UK by the time we are launching. Very much a short supply chain so we are not at risk from geopolitical tensions occurring that would delay a launch,” he says.

The Investor Perspective

That’s the business case, but is it one that attracts or excites investors? The fact that Orbex has raised £100 million to date, suggests there is an appetite on the part of VCs, but there are some caveats. As Coates acknowledges, the company probably wouldn’t have been able to fulfill its mission without grant funding, particularly from the U.K. and European Space Agencies.

The first VC Funding arrived in 2018. “We’ve tended to raise rounds when we pass technical milestones,” says Coates. “What we’ve had to do for a vehicle of this particular size is make it lighter, more efficient. We don’t have the luxury of being able to carry a lot of excess fuels knocking around.”

The company also has a number of patents, including for a 3D-printed turbo pump and coaxial tanks and the materials for them. “There were problems that had to be solved before we could get into orbit. We had to clear these problems to be attractive to a broader range of funds,” adds Coates.

Nevertheless, securing the latest tranche of funding did not prove totally straightforward or easy. Even with VCs on the board, closing took longer than expected. “There has been a lot of interest, but closing the round was challenging,” says Coates. It’s hard to perceive how much of that was due to the perceived risk and how much was down to a slowdown in the wider market.”

But as he sees it, space is attractive. “It is an interesting, high-profile sector,” he says. More specifically, he says Orbex could offer a skilled experienced team that had already solved a series of technical challenges.

Ultimately the Series C was led by the Scottish National Development Bank along with BGF, Heartcore Capital, High-tech Gruenderfonds, Octopus Ventures and others.

So what does the emergence of a launcher/spaceport industry mean for a U.K. space industry that has until now, been largely focused on building satellites? “There are lots of dimensions,” Coates says. “The more people who understand the challenges and the technical skills of working in the sector, you get the density effect of more and more skills – the cluster effect. If we can build satellites, build launchers and operate spaceports, we are a good go-to destination.”

In addition, there is the impact on the local areas. Well paid jobs are created around non-technical requirements such as security, accommodation and catering services. In addition, there are opportunities for local people to learn high-end technical skills. “We take 12 interns a year,” says Coates. “And even the ancillary jobs like quality assurance. They have to learn what quality means for a spaceport or a launch vehicle. So you take generic skills and build on them.”

The rockets have yet to start launching from Britain’s handful of designated spaceports, but if the experience of Orbex is anything to go by this is an investible industry providing opportunities for startups and scaleups that can master the technical challenges of providing reliable launch facilities.