Investing In The Future: Why Venture Capitalists Are Eyeing Space Tech

The Indian space tech sector is at the centre of attention from various sides, including investors, governments, and private companies. The past decade has seen a revival of interest in space travel and the technological innovations allowing it. 

Over the past few years, challenges related to manufacturing, launching, and running satellites and other space-based assets have decreased significantly. Many remarkable start-ups are emerging to serve this emerging new space technology—whether for communication, spaceflight, or spaceborne photography. 

The sector is no longer just limited to governmental entities. Private companies are now investing heavily in space exploration and technology, making it a highly lucrative industry for investors. 

Eye On The Sky 

Space tech encompasses various areas, including satellite technology, launch systems, space exploration, earth observation, communications, and more. VC firms are showing a growing interest in space tech start-ups due to the sector’s potential for disruption, innovation and commercialisation. 

There are several reasons investors are keen to invest globally in space tech. While the US has traditionally dominated space-related venture capital (VC) investments, other regions, including Europe and Asia, also witness increased VC interest in space tech start-ups. 

Bucking global VC trends, space start-ups in Europe are on track to raise all-time high levels of VC investment in the year 2023. Europe accounts for over 20 per cent of global upstream (things that go into space and how they get there) funding. The region has created five downstream (earth applications of technology in space, e.g., something that relies on satellites) unicorns. 

VC investment typically targets early-stage and growth-stage start-ups developing cutting-edge technologies, products, or space-related services. These start-ups often focus on leveraging advancements in miniaturisation, low-cost satellite manufacturing, data analytics, space-based applications, and new business models in the space industry. 

According to a Pitchbook report, VC funding for global space tech companies has reached $6.2 billion across 112 deals till 2022. The global satellite industry is expected to grow to $368 billion by 2026, according to a report by MarketsandMarkets.

However, investments in space start-ups more than halved to $21.9 billion in 2022 as their backers sought safer avenues in the face of a grim economic outlook. 

Nonetheless, the outlook looks bright for crucial domains in the sector. These include start-ups working on innovative launch systems, such as small satellite launchers, reusable rockets, or alternative propulsion technologies. 

Those involved in developing small satellites, satellite constellations, satellite components, or satellite data analytics platforms and leveraging earth observation data for applications like agriculture, climate monitoring, disaster management, and urban planning are equally attractive to VCs.

Another cohort gaining attention from investors are start-ups focusing on space-based communication systems, satellite internet connectivity, and related technologies, attracting a lot of investment. Recently, companies engaged in deep space exploration, lunar and planetary missions, asteroid mining, and space tourism have garnered interest from the investing fraternity.

Where Start-Ups Fly In 

Space tech start-ups typically go through multiple funding rounds as they progress from ideation to development to commercialisation. VC firms participate in seed funding, Series A, Series B, and subsequent rounds, providing capital to fuel start-up growth, research, product development, and market expansion. 

Several funds are industry-specific and specialise in space technology investments. These funds focus exclusively on space start-ups and have domain expertise and networks within the industry. 

In addition to financial investments, VC firms often provide start-ups with strategic guidance, mentorship, industry connections, and business development support. This helps start-ups navigate the space industry's complexities and accelerate their growth. 

The space tech industry is gaining momentum globally, with the private sector playing an increasingly significant role. VC investments in the sector are growing, indicating a positive trend highlighting the potential for innovation, disruption, and commercial success in the space tech sector. 

While start-ups in this sector often face unique challenges, including regulatory frameworks, complex technology development, high upfront costs, and long development cycles, the growing interest from VCs indicated a positive trend. 

Investors are betting big on the space tech industry, and the latest industry insights and recent data around the industry suggest that this trend will likely continue. 

-        Ajay Jain, founder and managing partner at Silverneedle Ventures