Global investors keep away as startups struggle with space readiness

When Indian space-tech startup Pixxel raised $25 million in March, it appeared to be modest fundraising by all standards except two. First, it was the largest amount raised by any Indian space company; second, it was the first time an overseas venture capital fund invested in the Indian space industry.

Pixxel is, however, an exception in the Indian private space sector, which has seen lukewarm interest from foreign funds.

Many Indian space-tech startups are in a somewhat uncomfortable position where they must work towards achieving space readiness (SR) before they can attract larger investments to scale up.

SR is a scale measuring from one to nine that is used by most space agencies and companies worldwide to understand how mature or proficient a company and its services are.

The National Aeronautics and Space Administration (NASA) defines SR level one as the conceptualization of a basic business or application idea, and level nine, the highest level, when a startup is “space-proven” and has achieved after a company proves its products through multiple demonstrations or flights to space. Because of this criterion, any new space mission always has multiple technology demonstrations (TD) missions first—be it for satellite deployments or rocket launches.

Pratip Mazumdar, co-founder and partner at Inflexor Ventures, an early-stage venture capital fund, said the highest that Indian startups have achieved in terms of space readiness is the penultimate stage.

While no international bodies or a central organization assigns a space readiness number to companies, based on the official descriptions of NASA and the European Space Agency, Pixxel would fall at level eight, or the penultimate level, of the readiness scale. Industry stakeholders state that startups such as Digantara and Dhruva would likely rank at level seven of the readiness scale since they have both launched prototypes or tested satellites in space.

Awais Ahmed, founder and chief executive of Pixxel, said that while the company has launched only one satellite so far, it has already begun offering the satellite-sourced data to its early commercial clients. It will become ‘space proven’ once its service is available to all commercial clients around the world, which Ahmed said may begin as soon as next month after it sends another satellite up in space with an ISRO mission.

“Once more startups start proving their technologies, the Indian market should be lucrative enough to attract global investments as well,” Mazumdar said.

“While Indian ventures have pitched the ‘low-cost’ value propositions in terms of the space operations that they are building, just focusing on the cost aspect will not be enough to draw eyeballs. As a result, global investors look at markets such as the USA or the European Union, which have more conducive policies and regulations, to invest in space ventures there,” said Anupam Shukla, a space sector lawyer and partner at Pioneer Legal.

Delays of launches are a regular affair in the space sector due to many factors such as prevailing weather conditions during a launch, technical glitches building up to a launch, and so on. Pixxel, for instance, launched its ‘Shakuntala’ satellite aboard a SpaceX Falcon 9 rocket on 1 April. While this launch was on-time, this was supposed to be the second Pixxel satellite to be deployed as part of its constellation. ‘Anand’, which was supposed to be Pixxel’s first satellite in space, is yet to be launched as the company awaits a launch timeline for ISRO’s next PSLV mission.

Agnikul Cosmos and Skyroot Aerospace are both yet to announce dates for the launches of their super-lightweight satellite launch vehicles, Agnibaan and Vikram-I, respectively. However, both maintain that they should be able to match their promised timelines of end-2022. 

Matching this should catapult them to level eight on the SR scale. However, if the first mission fails, the companies will need to start afresh with their attempt to space-prove themselves.

To be sure, Indian space-tech startups are fairly new as well. According to the Economic Survey earlier this year, the country has surpassed 100 startups in this sector, but 47 were established just last year, while an additional 21 were established in 2020, and 11 companies were set up in 2019.

According to investment tracker Tracxn, India’s space sector has seen 54 funding rounds since the first publicly acclaimed Indian space startup, Team Indus, raised its angel round in November 2013. However, in the nine years since, only $155 million has been raised by the sector.

In comparison, SpaceX raised $250 million in a new round of equity funding in July alone — 61% more than the total amount of funding that India’s space startups have raised, ever. However, firms like SpaceX and Rocket Lab began in 2002 and 2006, respectively. According to the funding tracker service Index by The Next Web, SpaceX raised around $350 million in its first decade, followed by a $1 billion funding round led by Google in January 2015.

The good news for Indian space startups is that most have the capital to conduct their initial test launches, but experts believe that attracting global investors would be key to getting to the next level. India’s investors are presently looking to invest in startups that can offer early proof of their technology. Sheetal Bahl, a partner at GrowX Ventures, said that as a firm, their goal is “to invest in startups that can reach space within a few million dollars.”

Vishesh Rajaram, managing partner at early-stage venture capital firm Speciale Invest, which has invested in firms like Agnikul, said that having a capital of around $25 million would give an average Indian space startup a runway of “about three to four launches”.

While this could give India’s space startups the runway to climb up the space readiness scale, the such scope could be restricted by the fact that only a limited handful of them have the amount of funding that Rajaram discussed. As of now, only Bellatrix Aerospace, Pixxel, Agnikul Cosmos and Skyroot Aerospace have funding upward of $10 million. Experts state that this could leave the nascent industry crunched for funds in the near future unless foreign funding routes are eased up.

Other than being ‘space proven’, global investors are also discouraged because of India’s foreign direct investment (FDI) rules for the sector. While 100% FDI is allowed in the sector, approvals take a long time, said Lt Gen (Retd) Anil Kumar Bhatt, director-general Indian Space Association.

“The FDI regulations are also not clearly defined for everything related to the space sector, and the law presently covers only satellite-based companies. The government is actively considering that the space FDI policy must be liberalized to inject global funds into India’s space industry,” he added.

Such complications and restrictions, according to Shukla, are likely to play a major deterrent for global investors from entering India.