India’s space startups are poised for a liftoff with Finance Minister Nirmala Sitharaman announcing the government’s plan to set up a sector-focused Rs 1,000-crore (about $120 million) venture capital fund.
“With our continued emphasis on expanding the space economy by 5 times in the next 10 years, a venture capital fund of Rs 1,000 crore will be set up,” Sitharaman said while presenting the country’s Budget 2024-25.
India’s space economy, traditionally dominated by government agencies, has been seeing significant participation of private players in the last few years, with the number of spacetech startups going up from just 11 in 2019 to over 100 by the end of 2021, per the Economic Survey 2022. The number has further increased, say analysts tracking the sector, as companies gear to tap the enormous growth potential projected for the sector.
According to Indian National Space Promotion and Authorisation Centre (IN-SPACe) estimates, India has the potential to reach $44 billion in the next 10 years from the current $8.4 billion, expanding the country’s share of the global space economy by 4x from the current 2% to 8%.
“We strongly believe that the new fund for space startups and space economy will catalyse India’s dominance in the global space market,” Vishesh Rajaram, Managing Partner, Speciale Invest, whose portfolio companies include Agnikul and GalaxEye Space.
“The FDI policy announced earlier this year will lead to more investment participation in the sector from India and internationally,” Rajaram added.
Earlier this year, India revised its FDI policy for the space sector, thereby relaxing some provisions to enhance private participation. The country now permits up to 100% FDI in peripheral areas dealing with satellite manufacturing and operation, satellite data products, and ground segment and user segment.
The sector has gained global attention with the recent achievements of the Indian Space Research Organisation (ISRO), with the successful landing of the Chandrayaan-3 near the Moon’s South Pole, and space tech startup Agnikul Cosmos’ successful launch of its maiden rocket.
The announcement comes as a welcome move as space tech is a capital-intensive business due to the high upfront costs of building and launching satellites and the long development timelines. Regulatory requirements, and high compliance costs coupled with limited funding resources make it a difficult environment for startups.
“This [the proposed fund] will certainly help space tech companies seek much needed early stage capital to get started,” said Anil Joshi, Managing Partner of Unicorn India Ventures.
Breather for startup ecosystem
In another significant announcement that is slated to benefit the entire startup ecosystem, Sitharaman announced the abolition of angel tax for all investors. This tax was introduced by the Indian government in 2012 in a bid to prevent money laundering through investments in unlisted companies at inflated valuations.
However, its removal in the current times amid marco market headwinds will help reduce the financial and regulatory burden on startups, encouraging more angel investors to fund innovative ventures.
Founding partner at 3one4 Capital Pranav Pai said “This is a huge relief to all founders and investors and will lend strong support to the recovery in private capital funding as the global markets recover from the funding winter. Emphasis on continued support to research, innovation, MSME, agriculture, space tech, and urbanisation is welcome. The SIDBI fund of funds has been a huge success, and we expect the new announcements for investment support in innovation areas like manufacturing, logistics, and space tech will continue this trend.”
Pratip Mazumdar, co-founder & partner at Inflexor Ventures, said, “The abolishment of angel tax is a landmark decision for the Indian startup ecosystem. It removes a major hurdle for early-stage startups seeking funding and will undoubtedly unlock a new wave of innovation and entrepreneurship across the country.”
The local startup ecosystem has been under pressure due to a prolonged challenging fundraising environment that began in the latter half of 2022 as a result of global economic uncertainties, market volatility, and a tightened monetary environment. As wary investors slowed their pace and prioritised profitability among portfolio companies, many Indian startups were forced to carry out significant cost-cutting measures, including mass layoffs.
“The angel tax abolition is a definite game-changer for our entrepreneurial ecosystem… This move will not only boost the flow of capital into early-stage startups but also foster a more supportive environment for entrepreneurs to thrive,” said Somdutta Singh, First-Generation Serial Entrepreneur, Founder & CEO Assiduus, angel investor & ex-member Niti Aayog.
Echoing the thoughts, Aditya Sarda, Sr. VP – Investments at BlackSoil added: “While the tax’s genesis was to prevent money laundering in certain cases, it had morphed into a more significant issue for the startup ecosystem. Genuine startups and investors were collateral damage by this law.”
