NEW DELHI: The Centre’s proposal to set up a Rs 1,000-crore venture capital (VC) fund for the space sector will give a major boost to the new entrepreneurs and non-governmental entities or NGEs, said Pawan Goenka, Chairman of Indian National Space Promotion and Authorization Center (IN-SPACe).

“At IN-SPACe, we look forward to supporting the growth of the space economy and nurturing an enabling ecosystem for NGEs. The fund along with the existing policies for the space sector will fuel technological innovation and create a fertile ground for NGE’s to thrive,” Goenka said, according to a media statement released on Tuesday.

Union finance minister Nirmala Sitharaman while presenting the Union Budget 2024-25 in Parliament today has proposed the establishment of a Rs 1,000 crore VC fund with the overarching objective of boosting India’s space economy by five times in the next 10 years – a move that has been hailed by industry body Indian Space Association (ISpA), startups, and investors.

“With our continued emphasis on expanding the space economy by five times in the next 10 years, a venture capital fund of Rs 1,000 crore will be set up,” Sitharaman said.

According to AK Bhatt, Director-General of ISpA, the announcement demonstrates the government’s strong commitment to the space sector, and added that increased financial incentives to support the burgeoning space sectors in the country has been one of the key recommendations of the association.

“The announcement of a Rs 1,000 crore VC fund is a step forward, addressing the funding challenges faced by these nascent ventures in this capital-intensive domain,” Bhatt said.

The Delhi-based association said it hopes the proposal for the establishment of 12 industrial parks across India will include the space sector, too, as it will boost the space and satellite manufacturing industry, which has long called for the creation of space parks.

According to the economic survey document tabled by Sitharaman on Monday, a limited demand and pricing-related constraints are among the key challenges that are impeding the commercialisation of space technologies in the country. It, however, noted that the space sector reforms announced in 2020 have been pivotal in enhancing the participation of private players in the Indian space program.

Spacetech startups welcome announcement

Space technology startups welcomed the announcement, but called on the government to sign a letter of intent (LoI) to become a consumer of their products and services, and estimated that a larger fund may be needed in the future as the sector grows.

“This fund will provide crucial financial support to innovative startups and companies, enabling them to scale their technologies and contribute to India’s space ambitions,” said Awais Ahmed, Founder and CEO, Pixxel. “While we recognise that even larger funds will be needed as the sector grows, this is an excellent start and a vital stepping stone.”

Ronak Kumar Samantray, Founder of TakeMe2Space, noted that the actual challenge lies in the evaluation criteria of investors, who often focus on incremental improvements to existing technologies rather than backing “disruptive or first-time innovations”.

“To truly support the growth of the space tech sector, the government should consider showing interest by signing Letters of Intent (LoI) to become customers of space tech startups, especially in the early stages when the product is being developed. This would enable entrepreneurs to raise capital from private investors more easily,” said Samantray.

The Hyderabad-based startup, building artificial intelligence (AI)-driven storage and compute satellite infrastructure, counts AI chip major Nvidia, ISRO, and homegrown Skyroot Aerospace as its partners.

According to Arpan Sahoo, Co-founder and Chief Operating Officer, KaleidEO, the funds will enable startups to attract talent, establish local facilities, and develop export potential for the next decade.

Anirudh Sharma, CEO of space situational awareness (SSA) startup Digantara said the space industry needs more domestic customers, especially as space is a strategic sector. “It is crucial for the State to act as a primary customer, driving demand and fostering a robust ecosystem. Additionally, there must be a mandate for the state to invest in research, capacity development and high-risk areas.”

“Challenges remain in attracting private investment due to the sector’s nascent stage, limited market, availability of indigenous materials, and commercialisation hurdles. A government-supported VC fund of Rs 1,000 crores proposed in this Union Budget would be a significant step toward fostering industry growth and seems sufficient to meet the immediate innovation investment needs of private participants,” said Rahul Saxena, Co-Founder, AiDash. The startup makes critical infrastructure industries climate-resilient and sustainable with satellites and artificial intelligence.

What the investors say

Chirag Gupta, Managing Partner, 8X Venture stated that building and launching satellites is costly due to the innovation and precision engineering required.

“All missions involve extensive research, development, and demand advancement in sectors from material science and additive manufacturing to data processing, solar energy, and advanced propulsion systems,” Gupta said.

Establishing and maintaining ground stations and control centers for satellite communication and data analysis can be expensive, investors estimate.

“We strongly believe that a Rs 1000 crores fund for space startups and space economy will catalyse India’s dominance in the global space market,” said Vishesh Rajaram, Managing Partner, Speciale Invest. “We believe the trust and focus from the GoI combined with the FDI policy announced earlier this year will lead to more investment participation in the sector from India and internationally.

Specialè Invest’s portfolio includes investments in launch vehicles (Agnikul Comos), satellite manufacturing and earth observation (Galaxeye Space, Kawa Space), communication (Astrogate Labs), and in-orbit economy (InspeCity).

“The VC fund will also support viable and sustainable public-private sector collaboration, which could be an important step in identifying and developing critical major technology and building competitive and resilient space capabilities,” said Sanchit Agarwal, Partner, Khaitan & Co.

“With about 190 private spacetech businesses, current capital mostly only meets a wide spectrum of early-stage and growth-stage capital needs in several deeptech fields. More investments and focused financial support will absolutely be required to fully maximize the spacetech sector’s potential to enable it to realize its long-term growth potential,” said Sandiip Bhammer, Founder and Co-Managing Partner, Green Frontier Capital.

“By supporting private sector-led initiatives, India is well-positioned to increase its share of the global space economy and drive significant advancements in satellite manufacturing, launch vehicle production, and satellite services. It’s a solid step towards achieving our target of a 10% share in the global space economy by 2030 and a 15% share by 2047,” said Siddharth Mody, Partner, J. Sagar Associates.