Why in News?

The Union Cabinet has approved a Rs 1,000-crore venture capital (VC) fund aimed at supporting about 40 space start-ups over the next five years.

This fund, launched under the aegis of IN-SPACe, is expected to attract private investment and drive innovation in India's growing space sector.

What’s in Today’s Article?

• Supporting India's Emerging Space Entrepreneurs
• What is IN-SPACe and its Proposal to Set-up a VC Fund for Start-ups?
• Financial Implications of Establishing a VC Fund for Start-ups
• Details/ Significance of the VC Fund for Start-ups

Supporting India's Emerging Space Entrepreneurs:

• Key initiatives:
  • Pre-Incubation Entrepreneurship (PIE) Development Program: The Indian government, through IN-SPACe, launched the PIE Development Program, for guiding startups from ideation to prototype development.
  • Financial and regulatory support:
    • The government has introduced tax incentives such as GST exemptions for satellite launches and income tax breaks for R&D.
    • Initiatives like the Startup India Seed Fund, DRDO’s Technology Development Fund, and Atal Innovation Mission are providing critical financial support to space startups.
  • World-class infrastructure: The GIFT City in Gujarat is emerging as a global hub for space technology, offering regulatory benefits and world-class infrastructure.
  • Collaborations: Amazon Web Services (AWS) has launched its space accelerator programme in India, in collaboration with ISRO and IN-SPACe, selecting 24 startups to receive mentorship and up to $100,000 in credits.
  • Incubation and mentorship: The Space Technology Incubation Centre (STIC) offers startups access to advanced labs, funding opportunities, and mentorship.
• Challenges faced by space startups:
  • Limited early-stage funding
  • Access to substantial government grants remains limited, and procurement processes are not always transparent.
  • Startups face difficulties in accessing testing facilities and standardised technology-sharing platforms.
  • The absence of affordable public liability insurance poses financial risks for startups.
  • Limited IP protection standards hinder innovations.
  • Export restrictions hinder the global expansion of Indian space startups.
• Future outlook:
  • Upcoming trends like space tourism, asteroid mining, and advancements in AI and ML are expected to revolutionise the space sector.
  • Startups are likely to play a significant role in future space exploration and commercialisation efforts, including major missions like Gaganyaan, NISAR, and Chandrayaan-4.
  • The introduction of a deep tech startup policy and continued strategic investments will be crucial for fostering growth.
  • It is essential for stakeholders to engage with startups and create a nurturing environment for technological advancements.

What is IN-SPACe and its Proposal to Set-up a VC Fund for Start-ups?

• As part of the 4th ‘Atmanirbhar Bharat Abhiyan’ stimulus, the Union Finance Minister announced the creation of the Indian National Space Promotion and Authorization Center (IN-SPACe) in 2020.
• IN-SPACe was set up as a single-window, independent, nodal agency to authorise, promote and supervise space activities of private non-governmental entities (NGEs).
• Since its establishment, IN-SPACe has signed 45 MoUs with NGEs to support them in space activities.
• IN-SPACe has proposed a Rs.1000 crore VC fund to support the growth of India's space economy, currently valued at S8.4 billion, with a target to reach $44 billion by 2033.
• With nearly 250 space startups emerging across the value chain, timely financial support is crucial to ensure their growth and prevent talent loss overseas.
• The fund aims to address the critical need for risk capital, as traditional lenders are hesitant to fund startups in this high-tech sector.

Financial Implications of Establishing a VC Fund for Start-ups:

• The deployment period of the proposed Rs.1,000 crore VC fund is planned to be up to five years from the actual date of start of the fund operations.
• The average deployment amount could be Rs 150 - 250 crore per year, depending on the investment opportunities and fund requirements.
• The indicative range of investment is proposed to be Rs10 - 60 Crore, contingent upon the stage of the company, its growth trajectory, and its potential impact on national space capabilities.
• Indicative equity investment range could be:
  • Growth stage: Rs 10 Crore - 30 Crore 
  • Late growth stage: Rs 30 Crore - 60 Crore
  • Based on the above investment range, the fund is expected to support approximately 40 startups.

Details/ Significance of the VC Fund for Start-ups:

• The proposed government-backed fund will boost investor confidence, attract private capital, and signal the government's commitment to advancing space reforms.
• It will serve as an Alternative investment Fund under SEBI regulations, providing early-stage equity to startups and enabling them to scale for further private equity investments.
• The fund is strategically designed to advance India's space sector, aligning with national priorities and fostering innovation and economic growth through the following key initiatives:
  • Capital infusion
  • Retaining companies in India
  • Growing space economy
  • Accelerating space technology development
  • Boosting global competitiveness
  • Supporting Atmanirbhar Bharat
  • Creating a vibrant innovation ecosystem
  • Driving economic growth and job creation
  • Ensuring long-term sustainability
• By addressing these points, the fund aims to strategically position India as one of the leading space economies.