Overview

Space technology plays an integral part in our everyday lives, enabling functions such as weather forecasting, air traffic control, global communications and broadcasting. These operations, along with many others, would be unthinkable today without satellite technology.

The space economy encompasses all public and private participants engaged in the development, provision, and utilization of space-related products and services. This includes research and development, manufacturing, and the operation of space infrastructure—such as ground stations, launch vehicles, and satellites—as well as space-enabled applications like navigation systems, satellite phones, and meteorological services. This sector also encompasses the scientific insights gained through these activities.

Market and Tailwinds

Currently, the Indian space economy is valued at ~$8 Bn with only a 2% share in the global space economy, despite being among the top 5 space-faring nations. India’s space economy has the potential to reach $44 Bn by 2033, capturing ~8% of the global market.

India’s space budget has more than doubled over the past decade. Department of Space, which leads both civil and military missions and oversees the Indian Space Research Organisation (ISRO) along with other space-related activities, has been allocated nearly INR 13,043 Cr (~$1.6 Bn) by the Government of India

On July 23, 2024, Finance Minister Nirmala Sitharaman announced the establishment of an INR 1,000 Cr (~USD 119 Mn) venture capital fund expected to accelerate the growth of space economy fivefold over the next decade. This fund aims to support approximately 40 startups with investments ranging from INR 10 crore to INR 60 crore, depending on the startups’ development stages.

The Indian space industry has experienced a revival over the past two decades: Indian space activities are no longer exclusively government-controlled. The Indian Space Policy 2023 seeks to create a collaborative relationship between the public and private sectors, fostering global partnerships and cross-border collaboration. ISRO will now concentrate on research and development, moving away from manufacturing operational space systems

In February of this year, the Indian government permitted 100% automatic foreign direct investment (FDI) in satellite component manufacturing and user ground segments, up to 74% in satellite manufacturing and operations, and up to 49% in rockets and spaceports. The removal of the angel tax is also seen as a move to reduce barriers to new investments. Additionally, on July 11, 2023, the Union government exempted startups providing satellite launch services from GST.

India’s Spactech Landscape (Source)

Use-cases in the downstream segment of Space Value Chain

Funding

Majority of Indian Spacetech Startup funding went into upstream startups

From 2016 to 2023, Indian spacetech startups attracted over $285 million, predominantly in the upstream sector

Source: Inc42

Downstream, Startups Make Up only 17% of Active Funded Startups

The downstream segment currently represents only 17% of active, funded startups, even though projections suggest that downstream services could make up two-thirds of the Indian space market by 2030. While India’s launch manufacturing and services sector has a strong foundation, the focus now needs to shift toward other upstream services, such as in-orbit and end-of-life services, as well as expanding downstream capabilities.

Source: Inc42

India’s Spacetech Landscape

Challenges

• Capital Constraints: Space startups are all deep tech, requiring significant investment without the prospect of immediate returns. These ventures involve long-term, high-risk investments with extended gestation periods, necessitating patient capital. One major challenge is the scarcity of seed-stage funding. Currently, no space startup in India has reached INR 100 crore (~USD 12 million) in revenue, which limits venture capital and private equity’s willingness to take on financial risks. This situation could improve if the government stepped in as a catalytic first-loss risk bearer, fostering trust within the ecosystem.
• Long path to growth and scalability: Dhruva Space, established in 2012, stands as one of the country’s earliest space-tech start-ups, yet it completed its Series A funding round only 12 years later, in April of this year. Among the roughly 200 space-tech start-ups in India today, only two—Ananth Technologies and MTAR Technologies—are publicly listed, and the sector has yet to see its first unicorn.
• High Costs and Infrastructure Limitations: Space systems are inherently complex and demand specialized testing facilities and infrastructure, which are currently in limited supply. Prolonged testing cycles impose heavy demands on time and financial resources, necessitating advanced expertise.
• Challenges in Justifying Return on Investment (ROI): Justifying returns on investment is a universal challenge across sectors, but it is particularly pronounced in the space industry due to the high costs associated with launching and maintaining assets in space.
• Concentration in Certain Segments of the Value Chain: The launch manufacturing and services sector is adequately populated, signalling the need to shift focus toward downstream services and other upstream services like in-orbit operations and end-of-life services.
• Escalating Cloud Analytics Costs: The cost of running analytics on the cloud is high and expected to increase. This presents an opportunity for companies specializing in data aggregation and fusion from various sources to provide actionable insights to end-users.
• Limited Access to Aerospace Testing Facilities: With the rise of private space companies in India, demand for aerospace testing facilities has grown. However, these facilities are currently limited to ISRO’s government infrastructure, creating a bottleneck for private enterprises.
• Talent Shortage in Specialized Skills: Founders and their teams must be well-equipped to navigate the challenging technical and regulatory landscapes

Growth Drivers

• Expanding Commercialization and Private Participation: The focus is shifting toward commercialization, with private companies leveraging space data and ISRO’s commercial arm, New Space India Limited (NSIL), enabling private sector involvement.
• Cost efficiency as a Competitive Advantage: India’s space missions, led by ISRO, have earned a global reputation for their remarkably low costs—often less than the budget of a major film. A prime example is the Mars Orbiter Mission (Mangalyaan), which cost about $74 million, far lower than Hollywood’s Gravity ($100 million) or Interstellar ($165 million). A major factor behind this cost efficiency is India’s focus on indigenous production and local sourcing. This approach reduces costs significantly while fostering a robust ecosystem of space-tech suppliers and manufacturers in India.
• Growing demand for Downstream applications: There are vast opportunities in downstream applications such as Earth observation, satellite communication, and positioning services. These sectors are expected to grow rapidly as demand for data-driven insights increases
• A Collaborative Innovation Ecosystem: Partnerships among startups, academic institutions, and government bodies have been crucial in cultivating India’s space tech ecosystem. Organizations like the Department of Space and IN-SPACe have provided essential support, including access to talent, testing facilities, and a supportive policy framework.
• Guidance from experienced experts: Many former ISRO scientists are now available to lend their expertise to startups, providing invaluable insights and guidance.
• Advances in Space Technology and Miniaturization: Innovations are making satellites smaller, more affordable, and more accessible. ISRO has demonstrated its capabilities with landmark missions like the Mars Orbiter Mission (Mangalyaan) and Chandrayaan.

Future state of space sector

1. Earth-Focused Sector: This segment revolves around space-driven applications and services that directly benefit activities on Earth, such as communication networks, Earth observation, and navigation systems.
2. Near-Earth Space Sector: Positioned between Earth-centered applications and space-based ventures, this economy includes space tourism, in-orbit maintenance, space-towing, satellite servicing, and advanced satellite constellations designed for Earth-based benefits.
3. Deep Space Sector: Encompassing ventures beyond Earth’s immediate surroundings, this sector includes activities like asteroid mining, interplanetary transport, space habitats, and ambitious exploration missions to celestial bodies, including the Moon and Mars.

Conclusion

Now is the ideal time for early-stage venture capitalists to invest in India’s spacetech sector. The industry is at a turning point, with factors like reduced entry barriers, increased foreign investment, government incentives, and a strategic policy framework fostering growth. Government support through GST exemptions and the removal of the angel tax further eases new investments. Collaboration between ex-ISRO scientists and startups is accelerating innovation and technical expertise. While patient capital remains a challenge, the potential rewards are significant. For VCs with a long-term outlook, India’s spacetech sector offers a unique opportunity to lead in a high-growth, high-impact field.

If you’re building in this space, reach out to me (nisha@kae-capital.com)