Expert Speak Space Tracker
Published on Feb 26, 2020
The absence of any perceptible shift in Chinese VC enthusiasm for Indian space startups requires explanation, given how optimistic Chinese VCs have been regarding the other sectors of the Indian startup economy.
Indian startups gets a surged Chinese VC investment; space startups remains neglected

Globally, there has been a surge in Venture Capital (VC) investment in space startups; however, Indian Venture Capitalists (VCTs) have still been reluctant to invest to the same extent as their counterparts outside India. To be sure, the Indian startup sector and more specifically the space startups have witnessed growth in recent years. Indian VC investment in the period 2015-2019, for instance, in the Indian space startup sector stands at USD 21 million, yet the global figure for VC investment at 2.3 billion in 2018 dwarfs the in-flows into the Indian space startup sector. Indeed, 80 percent of all global VC investment went to the US private space sector with the remaining 20 percent of the investment almost entirely going into the space technology startup sector of China and the United Kingdom. Given this background, let us look at Chinese VC investments in the Indian startup economy and ascertain if there is any Chinese investment in the Indian space technology sector. But before that an overview is necessary for Chinese VC inflows into Indian startup sector.

Chinese VCs into the Indian startup sector has increased exponentially from USD 3 billion in 2017 to USD 5.6 billion in 2018. In recent years, Chinese VC investments have flowed mostly into what are known as early stage ventures. They include several examples such as lifestyle community platform Trell, Leverage Edu, which is uniquely an AI-based market mechanism to help students secure admissions to global universities, and a human resources startup called Kredilly and salary-related loan provider PerkFinance. This would also conform to generic data supplied by the Reserve Bank India (RBI), which pegs VC investment, but not specifically from China to 50 percent for VC investments into early stage ventures. Among 24 activity sectors, according to RBI data, startups were concentrated foremost in Data Analytics at 14.1 percent, secondly health at 8.7 percent and thirdly education at 8 percent. Space startups do not even figure in the list released by the RBI based on survey data prepared by the central bank at the end of 2019. In addition, there are several big Chinese investors, such as Alibaba, Xiaomi, Tencent and Shunwei Capital have been bullish about Indian startups investing in Financial Technology (FinTech), surprisingly in disruptive emerging technologies such as AI, Internet of Things (IoT), logistics, food delivery and retail.

The space startup sector, nevertheless, remains an exception to Chinese VC. The absence of any perceptible shift in Chinese VC enthusiasm for Indian space startups requires explanation, given how optimistic Chinese VCs have been regarding the other sectors of the Indian startup economy. Big Chinese investment banks such as the Industrial and Commercial Bank of China and the China International Capital Corporation Limited have been the key source of funding for the largest Indian startups and their smaller counterparts from the mainland are also emulating them by investing in startups that are early stage. RBI data also confirms that over 50 percent of Indian startups are 1 to 3 years old, 19.9 percent are under a year, 20 percent are 3 to 5 years and 8.5 percent 5-7 years. Based on the data it is clear, the age profile of the Indian startup sector is young and evolving.

Venture Capital investment, Bellatrix Aerospace, Pixxel, Small Satellite Launch Vehicles, SSLVs, space programme Indian VCTs remains reluctant to make substantially greater investments due to the lack of sufficient returns on their investments. © CSA Images/Getty

The space sector is also anomaly for several reasons. Firstly, as we noted, Indian domestic VC investments in Indian space startups has remained very low, because venture capitalist themselves have been unenthusiastic in their responses to the emergence of space Indian startups. Indian VCs have at best provided seed capital to get the startups moving. Among the beneficiaries are Bellatrix Aerospace and Pixxel. The former promises to be a substantial developer of technology satellites propulsions systems and even Small Satellite Launch Vehicles (SSLVs). The latter is working to microsatellites to generate imagery using Artificial Intelligence (AI). Despite these developments, Indian VCTs remain reluctant to make substantially greater investments due to the lack of sufficient returns on their investments. Typically, VCTs seek returns within 8-10 year period and very importantly want to see some revenue growth among startups to place a bet, which is not particularly compatible with capital-intensive industries that have a protracted gestation period, such as the space technology sector. Due to the inherent volatility in the space startup sector may in part explain why China’s VCs have not moved in rapidly to pump money into Indian space startups. Further, if Indian VCTs are tepid, why should the Chinese exhibit more enthusiasm in what is otherwise a sensitive high-end technology sector demanding sustained capital investments.

In addition, apart from being capital intensive despite the cost of launching spacecraft and developing satellites dropping significantly, due increased miniaturisation of satellite technology, Chinese VCTs lack sufficient incentives to invest in the Indian space startup sector. China has its own burgeoning and dynamic space startup sector and there are several Chinese space startups attracting VC investment, which also explains as to why Indian space startups have yet to benefit significantly from infusions of Chinese VC.

Finally, there is another consequential factor and it is strategic. Space technology is strategic because it is dual use, which no country with an active space programme and a robust space private sector such as China would want to invest in the space startups of a rival and competitor country such as India. The Chinese runs the risk of undercutting themselves commercially, technologically and potentially militarily. The Chinese government has already been cracking down on capital outflows, if not successfully in preventing Chinese VC flowing into the Indian startup sector, the Indian space startup sector receiving cash infusion is more likely to evoke harder measures from the Chinese state.

Thus, despite Chinese VCTs being flush with capital and investing in the Indian startup economy, there will be limits on the extent to which mainland VC can become a source of funding for Indian space startups.

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Kartik Bommakanti

Kartik Bommakanti

Kartik Bommakanti is a Senior Fellow with the Strategic Studies Programme. Kartik specialises in space military issues and his research is primarily centred on the ...

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