Isar Aerospace, a start-up that makes innovative micro-rocket launchers, is named after the river that flows through its home city of Munich. It’s an appropriate homage to the fact that the city has become Europe’s space start-up hub.

But, as the business weekly Wirtschaftswoche reports, Isar Aerospace investors have been encouraging the company’s 28-year-old co-founder and chief investor, Daniel Metzler, to relocate his business to the US.

Nasa funding and access to launch pads in Virginia have been mentioned. It doesn’t take a rocket scientist to work out why the US is trying to snap up Germany’s cutting-edge space start-ups.

Damaging

Potentially, it is also a more damaging threat to US-German relations than President Donald Trump’s decision last month to pull nearly 12,000 US troops out of Germany. These are tantalising opportunities for German businesses.

Even though Germany has venture capital and government funding (Isar Aerospace enjoys both), the US can offer more. Not least since the US’s new Space Force received its first budget: a hefty $15.4bn.

“Germany’s space start-ups are truly world-leading,” said Matthias Wachter, who leads defence, security and space at the Federation of Germany Industries, BDI. “Recently one of them received a collaboration offer from a Chinese firm, which the German government blocked.

But many are also being offered opportunities in the US.” Since the creation of the Space Force in December as the sixth branch of the US military, American venture capitalists and government agencies have been recruiting space start-ups more aggressively. American entities have also shown interest in Germany’s HyImpulse and Mynaric, which has a US office.

Contracts

Morpheus Space, a Dresden-based propulsion start-up, has met with Nasa’s chief technology officer. In-Q-Tel, the CIA’s venture capital arm, is said to have stationed a talent-spotter in Stuttgart.

“The Americans want to be the best in space, and in cases where other countries’ firms are the best, they bring them to America,” Mr Wachter said. “For many companies the offer is not unattractive. The US space budget is so huge that countries like Germany can’t compete.”

New Zealand’s Rocket Lab is now an American company — US incorporation is often required to bid for US government contracts. There is nothing underhand about attracting companies to move. Many governments have foreign investment departments focused on doing that.

VCs can invest as they wish; Rocket Lab’s first US backers included Khosla Ventures in California’s Menlo Park. But at a time of already frayed transatlantic relations, US attempts to woo away Germany’s most promising start-ups in a vital sector can aggravate poor diplomacy at the government level.

Investment

While the US troops that have been pulled out of Germany can be sent back any time, start-ups that have decamped across the Atlantic won’t return. That will weaken German national security and the economy.

Innovations that start in the space and defence sectors often become civilian success stories: think of GPS, Teflon or the internet. But Silicon Valley VCs won’t stop wooing German start-ups simply to soothe political relations.

And the US Air Force, Nasa and other government entities will keep courting the best talent, wherever it comes from. So what should Germany do? For one thing it needs to provide domestic support.

State investment for a domestic spaceport would help so that German companies do not have to rely on slots in other European countries. It also has to focus on co-operation with other European and western nations.

If Nato allies can operate a joint naval fleet, as Belgium and the Netherlands do, it should be possible to jointly collaboratively fund space start-ups. Those start-ups just might yield the next GPS technology.

(This article first appeared in the FT, August 2020)

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