Written evidence submitted by Space Forge (IGR0003)
1.1 Space Forge is a Cardiff based, advanced materials start-up of scale and one of the first companies to seek to commercialise in-space manufacturing activities. Our goal is to exploit the extreme temperature, microgravity and ultra-high vacuum conditions available in low earth orbit (LEO) to manufacture novel semiconductors that cannot readily be grown terrestrially. The ‘novel’ aspect of these semiconductor materials resides within their enhanced crystal structure (lower defect density, higher purity, larger grain size). These properties could allow a marked change in the performance of the end devices, from a 50%+ reduction in power consumption through to a vast increase in component lifetime amongst other benefits. The result of this will be significant savings in cost, energy demand and carbon emissions from critical national infrastructure combined with an improved performance from those systems, such as telecom towers and defence systems such as radars.
1.2 Space Forge has developed 4 key technologies to enable the production and return of materials from space.
1.3 Space Forge has developed its business in Wales, typically an underserved part of the UK when it comes to tech and innovation. In the space of 3 years we have grown from a company of less than 20 people to now more than 70 and are on the cusp of closing our Series A round, bringing in significant private investment from the US, Europe and notably the NATO Innovation Fund (NIF). Space Forge has also been in receipt of significant public funding in the form of grants and contracts. The most significant of these are contracts with ESA to develop various aspects of our space technology and a £7.9m award from the UK Space Agency’s Space Cluster Infrastructure Fund (SCIF). As such we are in a unique position in being a Wales based deep tech company, straddling two industries (space and semiconductors) and being in receipt of significant public and private funding.
2.1 In Wales, companies have access to the range of innovation grants and loans available across the UK, such as from Innovate UK, DASA etc. But there are also Welsh Government initiatives and support. These include the development bank of Wales for loans and equity investment and direct Welsh Government support through programmes such as SMART Cymru and The Economy Futures Fund. Non-financial support is also available from the Welsh Government in terms of introductions, events, trade delegations etc and through organisations such as Business Wales for more general business support and advice.
How effective are the government’s policies in supporting the innovation ecosystem across the UK’s nations and regions, particularly though commercialisation initiatives?
2.2 The way funding is deployed is crucial, currently too much is spent on small low TRL projects. Developing a strategic framework that could support companies developing a key national capability from concept through to commercialisation would be a more effective way to spend public funds. Examples of how the current landscape works and some suggestions of improvements are outlined in the below paragraphs.
2.3 Current support programmes have a narrow focus on moving from one Technology Readiness Level (TRL) to another on a very specific piece of technology. Furthermore, the majority of the support programmes are very small scale (a few £100ks at most, the average UK Space Agency grant was below £100k last year according to the NAO) and aimed at the bottom of the TRL scale (Levels 1-5). This creates a very disjointed landscape and encourages the existence of micro companies whose sole focus is to win small grants to move a piece of technology from TRL 1 - 3, who then either move abroad or sell their IP once it reaches a point where it can be scaled into commercial production.
2.4 Larger companies (and many SMEs) will often not even apply for these programmes as the cost of submitting a bid alone outweighs the benefits. The effect of this is that in highly complex, knowledge and capital intensive industries the UK has become an IP farm, creating lots of ideas and products, but is not able to seize on the opportunity to commercialise them.
2.5 This effect can be easily seen in the UK Space industry landscape. According to the 2023 Size and Health Report of the UK Space Industry, there are approximately 1700 space companies operating in the UK employing 52,000. However, 40% of these employees are with BSkyB, with a few other large companies supplying a significant portion of the rest (TAS, Airbus etc). This means that the vast majority of the 1700 reported organisations are very small operations with their business models set up to service the landscape as it has been crafted by the funding available. Space Forge became the largest space company in Wales at around 20 employees and is, at the time of writing, the largest majority British owned, British Headquartered company operating in the sector at around 70 employees.
2.6 The approach taken towards public funding therefore does not and will never lead to the development of scaled companies who can commercialise a capability / suite of technologies while being headquartered or carrying out the majority of their operations in the UK.
2.7 The only way to achieve the above outcome (especially in the industries in which Space Forge operates - space and semiconductors) is for government support to be provided across the whole development cycle. It would not take an increase in funding available necessarily, rather a more effective use of the current funding available.
2.8 The starting point to redesign this system would be to shift focus from technology to capability. If the government can provide a clear steer to industry on what capabilities it has identified as a requirement for the UK to possess, then private industry would move to fill that gap by developing the relevant technologies and partnerships. These activities could (and should) be structured and catalysed by the government. With a clear UK Government backed programme of strategic support in place to ensure a company is able to grow, develop and deploy those capabilities within the UK.
2.9 An example of this could be a clear policy decision identifying X capability as crucial to the UK. Company A being identified as developing a technology and service that would provide X capability (this could be through a number of routes of entry, such as Innovate UK programmes or DASA for example). Once this company has been identified, then a bespoke package of support can be developed to provide a pathway to successful commercialisation in the UK. Failsafes can be built into this package of milestone achievements needed to be hit before unlocking the next level of support. This package would also need to include non-financial support, such as policy and regulation development.
2.10 Grant funding vs Contract
2.11 Grant funding is only effective up to a point, it is easy for grant funding to become a burden for SMEs and start-ups. Procurement contracts are much more effective at facilitating scaling and commercialisation as well as catalysing private investment.
2.12 Though grant funding from the government is effective, especially in the early stages of development. It is limited in what it can achieve and when badly designed, can place undue burdens on small businesses. This is usually due to a combination of factors including, the level of grant funding provided being too low, the application process being too lengthy with too many stages to pass, too many restrictions placed upon how the funding can be deployed, restrictions on how the grant is paid (i.e. mostly in arrears) combined with the match funding expectation placing undue strain on cashflow. This list is not exhaustive, but highlights the key issues.
2.13 Space Forge has experienced this effect, where the burden of finding private match funding and administrating the grant funding contract has been more costly than the value of the grant itself. Indeed, Space Forge has also decided not to apply for funding in the past as it was deemed that the cost of securing the programme would outweigh the value of the funding to the business.
2.14 Targeted grant funding to raise technology from TRL 1 through roughly 6 is effective if well designed and deployed. However, beyond this point the technology is at a stage of early commercialisation and grant funding becomes increasingly less effective. This is the point where UKSA or another body having the ability to procure products and services would be of great value. Allowing the government to act as an anchor customer would not only secure business operations in the UK, but also act as a signal to private investors and likely catalyse further private capital. As a rough rule of thumb, investors value procurement contracts to a value of about 10 to 1, as opposed to grant funding which is seen as 1 to 1 at best, and sometimes less.
How should devolution be harnessed to support innovation across the regions and nations, and what role should local government play in supporting research and development?
2.15 Devolution can be harnessed to provide more flexibility and on hand support for businesses, especially fast growing start ups and deep tech SMEs.
2.16 A vibrant innovation funding and support landscape already exists at the UK level (as well as access to some EU level programmes, although this is still limited and difficult in practice to access for UK companies.) so devolved administrations replicating this would be counterproductive. However, where devolved governments can add value is in providing infrastructure, access and to a lesser extent support for more niche industries.
2.17 One of the biggest challenges for fast growing start ups is accessing infrastructure at the right time in their development cycle. Doing this right can mean the difference between success, survival or failure. The inability to access testing infrastructure can delay development timelines and the inability to expand a company’s footprint to expand production can hinder commercialisation, however being forced into a position to expand too quickly (for example taking over a property that is too large for current needs) can also hurt business. Devolved administration can support in this regard with programmes to promote and develop testing infrastructure (for example wind tunnels and testing centres for the development of satellites) as well as provisioning for the building of industrial stock and commercial properties (combined with programmes to support SMEs and Start ups operating in these properties).
2.18 Devolved administrations are also very effective at providing a first point of access for start ups and innovative SMEs. They can improve this approach by ensuring there are clear front doors for different sectors and then acting as a catalyst for extra support across the UK ecosystem.
2.19 Although devolved governments providing broad innovation support would be duplication of already existing, where they could add value to this part of the funding landscape is by providing bespoke innovation support for highly targeted areas. For example in Wales there is significant talent, knowledge and an established cluster of compound semiconductor expertise. Welsh Government providing bespoke and targeted support to specific elements of this sector would provide real value add and make the most efficient use of the funding available to devolved administrations.
3. How does research and innovation in our regions drive growth and prosperity in those regions?
3.1 Research and innovation in our regions has the potential to massively impact growth and prosperity in those regions, but only if the research and innovation is able to develop into commercialised and scaled companies still in those areas. This can only be achieved by reforming the system through suggestions such as those made in section 2. For example, Space Forge at a relatively small scale and still in our R&D phase, we are supporting roughly 3 jobs in our supply chain for every 1 job at Space Forge and have invested several million pounds into that supply chain, much of this into businesses within our region. With the opportunity and ability to scale, there would be a compounding effect to this, providing for further job creation and investment in the region.
Would unlocking investment at scale for innovative science and technology companies support regional growth, and how could this be done?
3.2 Yes, this is the only way to drive effective, sustained and sustainable economic growth. This could be done by following the strategy outlined in section 2.
Should there be region-specific innovation and growth policies and what should local government’s role be in this?
3.3 Where there is a specific niche that can be more effectively fulfilled in a specific region, then region-specific policies should absolutely be pursued, this should be even more the case where a devolved administration is present.
3.4 Devolved governments should design, implement and oversee any region-specific policy as well as control any funding allocated to it. This should be done in partnership with local government as closely as possible. As a rule of thumb, the power to design, implement and oversee any region-specific policy and control any funding allocated to it should sit with the body closest to the region where the policy will be implemented as far as is practicable.
4. How is research and innovation diffused or supported to drive productivity and growth in the regions, wherever it may come from?
To what extent do Catapults support technology diffusion, and drive both national and regional growth?
4.1 In theory Catapults should provide plenty of support to achieve these objectives. However, the model by which they have been established often means that they have a dampening effect on innovation and regional growth. This is for 2 reasons; the obligation on them to secure a level of funding for themselves to operate, rather than being entirely reliant on public funding, means that they often compete with industry for grants and contracts (and can do so with more resources and reputation than many start ups). Somewhat counter intuitively, due to the public funding they receive, Catapults are also often able to outbid SMEs and start ups in terms of salary offer and so their existence in a region or industry can mean that talent is pulled away from innovative businesses.
6 January 2025