Space start-ups jostle with defence giants for Nato billions
Companies hope military appetite for commercial services will revive fortunes but obstacles remain
Russia launched a military satellite this summer that began behaving in unusual and potentially threatening ways.
Instead of orbiting on a stable belt followed by most satellites, it began to see-saw above and below the normal path, edging close to spacecraft owned by foreign militaries and private companies. Days later, the satellite appeared to launch an unknown object, which continued to fly close by.
“We have never seen anything like it,” said Paul Graziani, chief executive of Comspoc, a space monitoring software company.
Such unexplained events are multiplying, with Chinese satellites also performing a growing number of alarming manoeuvres.
They come as a global rearmament drive is spurring a wave of excitement in space tech. S&P’s Kensho final frontiers index — which mainly tracks companies innovating in deep space — has jumped 35 per cent since April. Some businesses are pivoting from climate monitoring to security, while others look to buy established defence suppliers to tap into the new funds.
But success is far from guaranteed, as armies prioritise existing budgetary gaps, while early-stage space companies are forced to compete with defence giants such as Lockheed Martin and Northrop Grumman.
Many investors were burned by the buzz around the last promised space tech revolution. Of 13 companies that went public between 2018 and 2022, only four trade above their offer price, while some others have been acquired, gone bust or quit the market.
This time, their hopes are founded on pledges by governments from Washington to Berlin and Tokyo to tap commercial providers for faster, cheaper access to the latest technology.
Nato, the Pentagon and US Space Force have all published plans to invest in commercial services. The White House has invited “non-traditional” contractors into its $175bn Golden Dome missile shield, and Germany’s €650bn defence plan also seeks new, more agile suppliers.
“Commercial space is fundamental to our operations,” Major General Michael Traut, Germany’s Space Command head, said at a recent conference.
The money up for grabs is potentially enormous. If Nato countries meet their pledge of spending 5 per cent of GDP on security by 2035, that could add $2.7tn to annual defence and security spending, according to the Stockholm International Peace Research Institute.
Space companies are pivoting to take their piece. Elon Musk’s Starlink had already established dominance in satellite broadband when the technology became essential in Ukraine’s defence against Russia. In 2023, he unveiled Starshield, targeted specifically at military customers.
Earth observation companies, once focused on tracking the impact of climate change, now find ready demand for intelligence and reconnaissance services. In July, Planet Labs signed a €240mn contract with the German government for high-resolution images. That deal was struck in weeks — and defence now makes up half of Planet’s turnover, said chief executive Will Marshall.
Companies are pitching their services as off-the-shelf, lower cost options for militaries struggling with enormous budget gaps. “Countries can’t wait 10 years to put up satellites,” Marshall said.
Finland’s Iceye, which gained prominence for giving Ukraine access to a radar satellite, said it was seeing strong interest from other governments. “If you buy four satellites sovereignly, you will always have that minimum capability,” said Joost Elstak, Iceye’s head of missions. “By teaming with partners, you could get higher coverage.”
Private equity has taken notice. After Russia’s full-scale invasion underscored the importance of rapid imagery, Advent International in 2023 acquired Planet Labs’ competitor Maxar. “National security on earth extends to national security in space,” said Advent managing partner Shonnel Malani.
Yet the windfall may not be as big as some had hoped. McKinsey estimates that, by 2030, annual defence spending by European Nato allies will double to €800bn. Spending on space hardware may also double — but still make up only about 1 per cent.
After years of under-investment, there are too many “black holes” in defence budgets, from personnel to ammunition stockpiles — particularly in Europe, said Bruce McClintock of think-tank Rand’s Space Enterprise Initiative. “There is a whole long list of terrestrial problems,” he said. “Space is certainly important, but it is not at the top of the list for many European countries.”
Europe’s budget for military space might grow 10-15 per cent annually in the future, said Pierre Lionnet, director of research at trade body ASD Eurospace, “but that will not be transformational”.
Meanwhile, new entrants face incumbents with decades of entrenched relationships, said Graziani, whose company provides governments and other customers with software to monitor objects in space.
“The commercial guys are seen as invading organisms,” Graziani said. Procurement agencies “have this immune system that tries to kill us — it has no intention of allowing us to come in”, he added. “We’re all just getting table scraps.”
Luca Rossettini, chief executive of space logistics company D-Orbit, argues governments need to rethink risk-averse procurement practices, which require new companies to spend years proving themselves. “We cannot afford 10 years to test a new company,” he said.
Some firms hope to bypass those barriers by buying established local defence suppliers. D-Orbit and Canadian company MDA Space say they are scouting acquisitions. These could “open up new pipelines for us”, said MDA chief executive Mike Greenley.
Big defence players, meanwhile, suggest governments that lack the deep institutional expertise in space may be reluctant to rely heavily on commercial solutions.
“They are still sorting out what can be bought commercially, what must be kept under national control and what can be developed with allies,” said Nik Smith, Lockheed Martin’s Europe and UK regional director. “That uncertainty remains a challenge.”
Despite the obstacles, the commercial space industry believes its moment has come. Mark Boggett, chief executive of Seraphim Space, argues the sector could capture 10 to 20 per cent of the global increase in defence budgets — a figure he admits has been greeted with scepticism.
Those critics have failed to recognise the shift in defence needs, he said. “The past is not a guide to where this money will be required. Conflict will be less about tanks and helicopters and more about digital capability. There is a whole new requirement for where this money is going to be allocated.”