“To the moon”? Why venture capital investors are betting on growth in space

    • Launch of the Isar Aerospace “Spectrum” rocket from the Andøya Spaceport in Norway. Image source: Isar Aerospace

  • October 28, 2026

    Just a few weeks ago, recent events surrounding the Starshield/Starlink network once again starkly revealed how dependent Europe is on the United States when it comes to security-critical and strategic key technologies. Sovereignty in space and secure communication solutions there are no longer just “nice-to-haves,” but are vital for survival in an increasingly interconnected world. Yet just a few months ago, the financial markets were eagerly awaiting SpaceX’s initial public offering, which brought a great deal of attention to the New Space sector this year. The growing demand for proprietary solutions is just one of the reasons why private investors—particularly venture capitalists—are currently pouring large amounts of money into this technology sector. The following text provides an overview of the opportunities they see, as well as the risks involved in this bet on space.

    From a Pioneering Project to a Commercial Infrastructure Market

    Ever since the successful launch of the Isar Aerospace “Spectrum” rocket and a record-breaking Series C funding round for The Exploration Company totaling over 450 million EUR in early September, one thing has become clear: private spaceflight has finally left the phase of pure pioneering behind. A sector that for decades was the exclusive domain of governments and national space agencies has rapidly evolved into a highly commercial infrastructure market with numerous providers and applications.

    • Example Application: Detection of Forest Fire Outbreaks and Spread Using OroraTech Satellites.

  • The need is urgent: All in all, this market could grow to nearly $2 trillion in annual revenue by 2035, according to McKinsey’s forecast. This enormous growth potential is linked, on an economic and technological level, primarily to the following factors:

     

    Drastic reduction in launch costs: Reusable launch vehicles exponentially reduce transportation costs per kilogram of payload, making access to space significantly more economical. Specifically, launch costs have fallen by 90% over the past 20 years, a trend to which SpaceX has contributed significantly.

    Industrialization of satellite manufacturing: Miniaturization and standardization of electronic components are replacing cost-intensive custom-built parts. This means that satellites are increasingly being mass-produced and are therefore also becoming more affordable.

    Scalable downstream applications: While the upstream sector provides the physical infrastructure in orbit, the greatest commercial potential lies in the downstream sector—that is, the use of data, signals, and connectivity on Earth. The processing of satellite data into B2B applications enables highly scalable Data-as-a-Service and software models. As a result, the sector is tapping into broad markets beyond the space industry itself—such as agriculture, the energy sector, logistics, and the finance and insurance sectors.

    • Cambridge University's presentation on the historical costs of transporting 1 kg of payload into orbit. Source: *From Sputnik to Starship: Estimating the Experience Curve of Space Launch Technology* by Alession Terzi and Francesco Nicoli, 2026

  • In addition, economic and security policy considerations create a need for action: Germany’s space security strategy attaches growing importance to issues such as space surveillance and space domain awareness. And rightly so, as we are currently seeing: Earth observation, navigation, and satellite communications constitute critical infrastructure, form an important pillar of European sovereignty, and are increasingly relevant to security and defense as well. In a crisis, soldiers’ lives may depend on it. European initiatives are therefore also pushing for their own capabilities in space.

     

    Startups as Drivers of Innovation Along the Value Chain

    Young technology companies are harnessing and accelerating this new momentum by bringing innovations to market significantly faster. They rely on agile development processes, standardized components, and often a high proportion of software. This further reduces development times and production costs.

     

    • Suborbital rocket from the Munich-based scale-up HyImpulse. Image source: HyImpulse Technologies

  • At the same time, startups and scaleups are developing new business models across the entire value chain. These include, among others:

    • Components and subsystems for rockets and satellites
    • Microlaunchers for small payloads
    • Satellite platforms
    • Earth observation
    • Space situational awareness (Space Situational Awareness)
    • Communication solutions
    • In-space services such as maintenance or resupply of satellites and space stations.
    • New materials

    As a result, many of these companies are serving markets that barely existed a few years ago or could not be addressed by private companies. Others are replacing existing technologies with significantly more efficient, specialized solutions.

     

    Huge Capital Requirements and High Risk of Failure: Not a Case for the Local Bank

    Despite the sector’s political significance, these SpaceTech startups rely on venture capital. Development costs are high and, in many cases, tied to intensive research, extensive testing, and complex certification processes. Extremely long sales cycles are to be expected, particularly with public and military clients. At the same time, high costs for personnel, prototypes, and production capacity arise early on. Depending on the business model, capital requirements can total several hundred million euros across the various growth phases.

    Furthermore, many SpaceTech startups initially carry out individual development projects in the early stages before scalable mass-produced products are created. Consequently, significant revenue is often deferred to a later stage in the company’s development. As is typical for DeepTech, debt instruments are not an option until later phases due to unpredictable cash flows and the lack of valuable collateral. Given the risk involved, venture capital—that is, equity—is therefore the only financing option, especially in the early stages.

    Investors, for their part, must understand that SpaceTech—especially hardware-focused SpaceTech—is, like all DeepTech applications, extremely capital-intensive and involves long development and commercialization phases. Capital may therefore be tied up for longer than in other asset classes. Technical setbacks, failed launches, or damaged satellites have significant financial implications. Even if everything goes according to plan, the exit risk remains: strategic buyers are limited, and the often high valuations can make a potential acquisition unattractive. As a

    result, the stock market is often the only viable exit channel; depending on market sentiment, this poses a risk for venture capital investors, who are not permitted to sell their shares until after a lock-up period has expired.

     

    Astronomical Valuations? Venture Capital Follows Clear Return Expectations

    There are sound economic reasons why substantial amounts of capital are flowing into the SpaceTech sector despite high capital requirements and long development times:

    • High Barriers to Entry & DeepTech Moats: Specialized expertise and complex certifications create significant hurdles for new market entrants. Sustainable competitive moats in the SpaceTech sector arise primarily from deep lock-in effects: Anchoring a company’s technology in multi-year public procurement programs, space missions (such as SPOCK2, Schild&Schwert, GISMO), and defense-related infrastructure secures startups highly protected market positions with predictable revenue.
    • Rising demand in the high-margin downstream sector: The demand from companies and governments for orbital data and services is steadily increasing. Downstream data products and value-added application services offer the greatest economic leverage: By transforming raw satellite data and signals into ongoing Data-as-a-Service or software subscriptions, highly scalable revenue models with attractive margins are created.
    • Strategic Importance and Public Contracts: Europe is working intensively to reduce technological dependencies and expand its own capabilities in areas such as launch capacity, Earth observation, and space security. Public contracting authorities and defense institutions are increasingly acting as anchor customers that build trust. This mix of civilian, public, and military applications secures early revenue for startups and ensures effective risk mitigation for venture capital.
    • Rendering of the Nyx space capsule by The Exploration Company. Image source: The Exploration Company

  • To ensure the right risk-reward ratio for venture capital investors, they focus not only on technological excellence but also, and above all, on the following criteria in the SpaceTech sector:

    • Clear B2B and B2G scaling logic (dual-use): Successful startups focus early on use cases that appeal to both commercial customers (agriculture, energy, logistics, insurance) and governments for defense and reconnaissance. Only when a solution delivers reliable added value to both target groups can the market potential be fully realized.
    • Hybrid business models: Selling hardware alone is rarely sufficient to meet the multiples expected by VCs. Successful SpaceTech companies combine their physical infrastructure with recurring revenue from software, analytics, or services.
    • Strategic ecosystem partnerships: Collaborations with established Tier-1 system integrators, industrial companies, and international space organizations play a crucial role in market entry. They reduce a company’s own sales efforts and significantly accelerate commercialization.

     

    Regional Factors: Germany and Bavaria as Leading Space Hubs

    In Germany, Bavaria in particular has established itself as a hub for NewSpace technologies. And for good reason: With IABG, Bavaria serves as a technological hub in Europe for space infrastructure, particularly in specialized testing. The GSOC control center at the DLR in Oberpfaffenhofen is one of the most modern in the world. By 2027, the construction of the HECC Human Exploration Control Center there is also set to establish a new standard for robotic and crewed space missions. The AZO Application Center and initiatives by the Bavarian state government, such as bavAIRia, are also based there.

    Also worth mentioning is the Bundeswehr Innovation Center in Erding, which provides companies with access to the defense market, as well as the University of the Bundeswehr, which promotes a high level of research in the space sector. Furthermore, few locations in Europe offer comparable access to engineers with expertise in manufacturing—such as in plant engineering and production planning—who are essential for the production of complex high-tech systems. It comes as no surprise that Rocket Lab, one of SpaceX’s biggest competitors, recently announced its intention to establish a presence in Munich through the acquisition of Mynaric.

    • Rendering of the SIGI satellite by Reflex Aerospace. Image source: Reflex Aerospace

  • Given the specific dynamics of the region, Bayern Kapital, as a public venture capital investor, is also mindful of its responsibility to invest in this important market of the future. As one of the most active VCs in the DACH region, we already have a broad SpaceTech portfolio and possess the necessary expertise and network—such as our collaboration with the German Air Force through joint events—to help companies in this sector grow. In doing so, we invest in various companies across the entire value chain to substantially strengthen Europe’s autonomy “from the launchpad to orbital deployment” and to secure market share with as many domestic companies as possible:

     

    • Isar Aerospace is developing the “Spectrum” launch vehicle to deliver small and medium-sized satellites as well as constellations into orbit flexibly and cost-effectively. Investment thesis: Providing independent European launch capabilities to meet the high global demand for dedicated launches for modern satellite networks and to secure technological sovereignty.
    • HyImpulse develops and operates launch vehicles capable of orbital and suborbital flights, based on proprietary hybrid propulsion technology (solid propellant and liquid oxygen). Investment thesis: Providing highly flexible, cost-effective, and significantly safer access to space for small satellites by combining the performance of liquid-fuel systems with the simplicity and inherent safety of hybrid propulsion.
    • The Exploration Company develops reusable space capsules and high-performance engines designed to transport cargo—and, in the future, crews—to space stations. The Nyx capsule is designed to dock with any space station, while the Storm engine is intended to power future heavy-lift launch vehicles. Investment thesis: Building an expanded European and globally competitive transportation infrastructure in low Earth orbit, from the capsule to the engine.
    • Reflex Aerospace focuses on standardized, customized satellite buses with drastically reduced development and delivery times. Investment thesis: Scaling satellite production through platform strategies to significantly shorten time-to-orbit for commercial and security-related customers.
    • OroraTech operates its own constellation of thermal satellites and fuses their data with third-party sources to create thermal intelligence—ranging from near-real-time wildfire monitoring to temperature data for insurers, energy providers, and government agencies. Investment thesis: Vertical integration of proprietary satellite infrastructure and data fusion into a highly scalable B2B/B2G subscription model.
    • constellr also uses its own satellite constellation to generate thermal imagery of key regions. The company focuses on high-resolution and precise measurements for the defense sector, the energy sector, agriculture, and cities. In addition, constellr offers a scalable downstream data model based on thermal data for a temperature-based early warning system across all industries.

     

     

     

    • constellr: Thermal image of a solar farm in the United Arab Emirates—captured from orbit. Image source: constellr

  • For Bayern Kapital: Given the sector’s immense strategic importance, we intend to continue investing in promising startups in the NewSpace sector.

    Conclusion: SpaceTech is a challenging but financially promising VC segment

    SpaceTech has crossed the threshold from a niche market to a key industrial sector. High barriers to entry, the growing need for geopolitical resilience, and highly scalable data models make the sector complex, yet also attractive to venture capital investors.

    Startups that combine technological depth with hybrid business models and focus on commercialization early on through strategic partnerships have a great opportunity to position themselves as profitable companies of the future in one of the most important growth markets of our time. Bavaria plays a decisive role in this future market as a location with outstanding space infrastructure in the heart of Europe.