Op-ed | Russia Offers Startups ‘Space’ for Growth

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In a year’s time we will celebrate the 30th anniversary of one of mankind’s boldest achievements — the launch of the first manned orbital space station, Mir, on Feb. 20, 1986. Exploration of the final frontier has been making headlines in recent months, with increasing public interest in this subject.

Recent achievements of the Philae lander gained plenty of attention in Russia, not least because the comet on which it touched down was named after Soviet astronomers. This European Space Agency project showed that government organizations are still among the most capable when it comes to groundbreaking achievements beyond Earth’s atmosphere. Furthermore, the lander reached the Churyumov-Gerasimenko comet only a few weeks after a remarkably low-budget Indian satellite was launched into orbit around Mars, demonstrating that the industry is now a truly global race, not the old two-sided competition which was the norm during the Cold War years.

The number of private players in the Russian market remains relatively small, but promising developments are afoot.

Nevertheless, despite recent progress in many countries beyond the traditional rivals, India and China in particular, the legacy of the 20th century has left both Russia and the United States with an enviable heritage of spaceflight achievements. Russia, heir of the Soviet space program, has been at the forefront of the industry from the onset: the first to launch a satellite into space, put a human into orbit, perform a spacewalk, send a woman into space and launch an orbital station, to name a few. The United States has also accomplished a great deal over the years, most notably having the first man walk on the moon, running robotics missions to Mars and launching the Hubble Space Telescope.

The expertise and experience built up since the Soviet period has fed into a Russian industry that today remains a world leader. Over the past few years, especially following the retirement of NASA’s space shuttle, Russian rockets have been the only spacecraft capable of taking passengers to and from the International Space Station. A new cosmodrome is under construction in Russia’s Far East, and in May the Russian government announced the injection of 1.8 trillion rubles ($52 billion) to boost various programs for the federal space agency, Roscosmos. In the newly global business of cosmic exploration, Russia has not hesitated to cooperate and share its capabilities with other countries. The Sea Launch program, established in 1995 as a consortium of four companies from Norway, Russia, Ukraine and the United States, and managed by Boeing, is the most vivid example.

More recently, Russian rockets took U.S. and Italian astronauts to the International Space Station on Expedition 42, despite suggestions that such collaborations could be threatened by recent geopolitical issues. The space industry and scientific community are likely to continue to look beyond politics, and rightly so.

Private Interest
Against the backdrop of achievement, particularly under governmental support in Russia, it is hardly surprising that the space sector is attracting greater interest from the private sector. Noting NASA’s past successes in arranging private-sector partnerships and generating spinoffs that are attractive to investors, the notion of private investment in the space industry is becoming increasingly popular.

Planet Labs management team
The Planet Labs management team, as well as investor Steve Jurvetson. Credit: Steve Jurvetson

Planet Labs, a San Francisco-based satellite imaging company operating dozens of tiny satellites that photograph Earth several times a day, announced Jan. 20 it had raised $95 million in funding to expand the sale of its satellite images and data. In the same week, Google, along with Fidelity Investments, made public a $1 billion investment in SpaceX, the Hawthorne, California company specializing in building and launching rockets and spacecraft. The deal reportedly has valued SpaceX at around $10 billion and is viewed as a move by Google to spread the reach of the Internet to more remote areas of the planet. This private investment in the United States, particularly by a multinational with a tech focus, shows the potential returns offered by this sector.

Of course, current efforts to see increasing private involvement in the industry are not without their skeptics. Recent accidents involving U.S. and European projects, including the crash of a Virgin Galactic craft, have raised questions about the viability of the industry and whether private operators can truly be trusted with such potentially risky technology. In response to concerns, Russia is taking a gradualist approach to private involvement, which is unsurprising considering the country’s long history of cosmic success has been state-backed. The number of private players in the Russian market therefore remains relatively small, but promising developments are afoot.

Most significant so far has been the progress of Dauria Aerospace and Sputnix, two private companies affiliated with a new Space Technology and Telecommunications Cluster at Moscow’s Skolkovo innovation park. Between them these firms have made several launches for commercial use, with Dauria already operating three satellites designed to provide data that can be integrated into both new and existing software applications. Dauria’s technology is used to bring benefits to other spheres, from agriculture to natural disaster response and construction in remote locations (of which Russia has many!).

Even if Russia has so far struggled to generate investment-worthy spinoffs from its state program, these private efforts will make any number of corollary benefits more likely as the sector develops. While Teflon, for example, is not a NASA product (contrary to popular belief), thousands of other technologies used on Earth have sprung directly from aerospace companies. As entities with business and market sense get involved in the industry, such innovations are only likely to increase.

All of this points to an exciting future for the Russian space industry, and it is one that the Russian government appears to recognize and wants to encourage. Roscosmos itself has long since stated its intention to transfer responsibility for putting the innovative outcomes of space activity into private hands, while Vasily Belov, senior vice president for innovations at the Skolkovo Foundation, has said that Russian startups are likely to be especially sought-after in the space sector. Skolkovo’s aerospace cluster, which currently has over 100 companies present, gives Russia a strong presence in what will increasingly become the normal model for progress in the industry.

Competition between states drove innovation during the previous century, but the “new space economy” is likely to see similarly rapid progress driven by commercial competition, a fact that will greatly interest investors. As the number of those involved around Skolkovo increases, a whole pool of investment-worthy Russian companies is likely to form.

With increasing global interest in the space industry and appetite for private investment growing, not only for space exploration but for innovation in space-related products and services, this industry is one to watch.

 

Andrey Yakunin is a London-based investor who runs VIY Management, a private equity growth capital and real estate investment firm.