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Short-term pain but long-term opportunities: How Indian space tech ecosystem is tackling global inflationary trends

There has been a rise in launch prices globally, driven by a tight launch market. For Indian space tech start-ups, which are facing difficulty in obtaining funds from foreign VCs, new financial mechanisms could prove to be the saviour.

April 11, 2023 / 07:37 AM IST
Last week, the Indian government approved the Indian Space Policy 2023, which the government claims would boost private participation in the space industry.

Last week, the Indian government approved the Indian Space Policy 2023, which the government claims would boost private participation in the space industry.

With worldwide inflation and high demand for rockets playing its part in increasing the prices of launches and ridesharing, the Indian space tech ecosystem is looking at increased cost of operations, difficulty in obtaining funds from foreign venture capitalists (VCs), and attracting clientele from international markets, said experts.

However, the commencement of commercial operations of Indian space tech start-ups Skyroot Aerospace and Agnikul Cosmos, and at least four such others, would help in addressing the increasing demand for launch services, said Vishesh Rajaram, Managing Partner of deep tech VC firm Speciale Invest, whose portfolio includes Agnikul, GalaxEye Space, and Astrogate, among others.

The difficulty in obtaining funds from foreign VCs will also stimulate the formulation of new financial mechanisms, said Chaitanya Giri, a space scientist and associate professor at FLAME University.

Giri said that in the long run, this will stimulate domestic investments in Indian space tech start-ups, and also help in formation of new financial mechanisms such as dual-purpose equity-traded funds in the aerospace-space sector, or defence-space sector.

This look at the impact of inflation on the Indian space tech start-up industry comes at a time when the Indian government has approved the Indian Space Policy 2023. While announcing the same, Jitendra Singh, Minister of State for Science and Technology, said that the policy would boost private participation in the space industry.

The demand impact

There has been an increase in launch prices worldwide, driven by a tight launch market, a Space News report said. The tight launch market refers to the limited number of launch service providers compared to the massive demand for satellites waiting to be launched into space.

Last year, SpaceX increased prices for both its Starlink broadband service and for dedicated and rideshare launches, in some cases by up to 20 percent, citing inflation.

For Indian space tech start-ups like Pixxel, which last year launched satellites aboard SpaceX's Falcon and an Indian Space Research Organisation (ISRO) launch vehicle, it has automatically resulted in an increase in their prices.

"We will continue to work with both ISRO and SpaceX. I think, those are the only two that are in the cost range that works for us, and that have shown enough reliability to make it work," Awais Ahmed, Chief Executive Officer (CEO) and Co-founder of Bengaluru-based space tech start-up Pixxel, told Moneycontrol.

"Of course, it (the price rise) affects us. We would have planned a certain budget and now we have increased that budget by 25 percent or something that they (SpaceX) increased it," he said.

"However, the current SpaceX prices are still very low compared to what it was four years ago," he said.

Also read: Bengaluru-based Pixxel eyes India's defence for application of its hyperspectral imagery satellites

Awais explained that for SpaceX, the earlier cost of launch was $20,000 to $30,000 per kilogram (kg), but it was later reduced to $5,000 per kg. "Now they have increased it to $6,500 per kg," he said.

"So, I think overall, it's kind of like four steps forward, one step backwards," he said.

Hyderabad-based Skyroot Aerospace and Dhruva Space declined from commenting on the matter. Moneycontrol is still awaiting response from Agnikul Cosmos and GalaxEye.

Inflation woes

"Inflation in the Euro zone, and North America, in the short run is definitely going to dent the financing mechanisms, especially the venture capitalists, which have been vying to invest in Indian start-ups. So, valuations will be corrected tremendously. They won't be any overvalued start-ups, at least for the foreseeable future," Giri of FLAME University said. He is also the editor of the recently-launched space news platform Interstellar News.

However, in the long run, Giri said that this would drive domestic investment in Indian space start-ups. As of now, he pointed out, most domestic investments in Indian space start-ups have been in the seed and pre-seed funding rounds.

For instance, Skyroot Aerospace last year secured $51 million in a series-B funding in a round led by Singapore's GIC. Pixxel too, last year raised a significant sum led by Toronto's Radical Ventures.

"Apart from that, start-ups that are seeking clientele in the international markets, may face trouble because of weak business scenarios, especially in Europe and the United States," Giri explained.

The opportunities

For Vishesh Rajaram of Speciale Invest, the increased prices due to tight demand will be a temporary phenomenon.

"In our view, the increase in cost of launch is a temporary phenomenon as a result of the current demand for launch far exceeding the current launch capacity. The good news is that we expect to see Agnikul and at least four more companies start commercial launch operations between 2023 and 2024 in addition to SpaceX likely testing the SpaceX Starship soon. All these developments will serve the increasing demand for launch," Rajaram told Moneycontrol.

With the possibility of Indian space tech start-ups facing hardships in securing international clients due to inflation, Giri of FLAME University also sees an opportunity for the Indian government to tap into Indian space tech start-ups.

"Perhaps the government will look inwards and see whether various ministries, such as the Ministry of Road Transport and Highways, Ministry of Aviation, and Ministry of Education, can use some of the satellites and whether they could have their own satellites serving the line ministries’ purposes?" he said.

Apart from finding applications of space tech in government, Giri also explained that rocket manufacturing start-ups like Agnikul and Skyroot Aerospace will have to explore newer markets in developing economies. The geopolitical situation in the US and China will provide opportunities for Indian space start-ups in this regard, he added.

"Developing economies are coming up with their own space agencies. They will have a plethora of small satellites to be launched. So, these two companies will have to explore markets in Africa, Oceania region, Southeast Asia and South America," he added.

Aihik Sur covers tech policy, drones, space tech among other beats at Moneycontrol
first published: Apr 11, 2023 07:37 am