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The Shortcoming of Space Startup Funding

Space technology could relate to anything under the universe, but when investors refer to space tech, they are referring to extraterrestrial businesses and the technology that empowers them. A burgeoning number of prospective entrants into the space sector have taken advantage of this significant and growing investor interest in order to pursue spin-offs, partnerships, and private-investment rounds. These newcomers have capitalised on a wave of private and public capital to fund these space startups’ product blueprints and become first movers in a growing range of commercial opportunities in space.

The Indian Space Research Organization (ISRO) has led India's space journey; however, the private sector has served as a strong partner incubated to be a supplier of components and sub-assemblies. Based on the Economic Survey of India, the count of new startups has elevated from 1 in 2012 to 47 by 2021, for a total of far more than 100 active space startups. Even though the year 2021 saw a rapid increase in the number of startups entering the space industry eventually, investors had seen a sharp reversal from such a record with $45.7 billion in funding, marking the most challenging period for space startups since the 2008 economic crisis. Investments in space startups have been more than halved to $21.9 billion by the end of 2022 as venture capitalists seek safer havens in the face of a bleak economic outlook, according to venture capital firm, Space Capital, which predicts more pain for the sector this year.

The good news for Indian space startups is that the majority have the capital to conduct their initial test launches; however, experts believe that attracting global investors will be critical to moving forward in the investment process. Investors in India and globally are currently looking for startups that can provide early proof of concept for their technology. "Once more startups begin to demonstrate their technologies, the Indian market should be profitable enough to attract global investments as well," Mazumdar said.

In general, there are far more startups than capital in this evolving industry. Due to the challenging environment, leading space companies have prioritised proven business models, revenue, and government contracts. The report also indicates that many Indian space-tech startups are facing an uncomfortable situation because they must attain space readiness (SR) before they can receive larger investments to scale up. Over 10,000 space tech startups are estimated to exist, the majority of which are seeking venture capital. Several funds have emerged to meet the demand. As well as private equity transactions and SPACs, there have been a large number of other transactions.

"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 are looking to markets such as the United States or the European Union, which have more favourable policies and regulations, to invest in space ventures," said Anupam Shukla, a space sector lawyer, and partner at Pioneer Legal. In light of the above, it can be advised that investors interested in space tech should weigh the pros and cons and consult with licensed advisors before investing.

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