SpaceX Valuation, Starlink, AI, and India's Downstream Space Opportunities

Last week, SpaceX listed on Nasdaq at a $1.77 tn valuation, and the stock closed at a 19% premium on its listing price. One would expect that a company launching rockets would make its money from rocket launches. However, SpaceX's SEC filings show that 'space-enabled solutions' will account for only $370 bn while Starlink Internet will bring in $1.6 tn. Meanwhile, the major value creation is projected to emanate from AI solutions, at $26.5 tn.

Space tech's value chain has three sections:

Upstream: Anything that lifts off from Earth into orbit.

Midstream: Payload and satellite operations in orbit.

Downstream: Using satellite services-ranging from Earth observation to positioning, navigation and communication.

Indian space tech startups have raised about $600 mn in the last 5 years. This represents a more than 5x increase in the capital deployed compared to the previous 5 years. GoI initiatives like Research, Development and Innovation Fund (RDIF) are also sending the right signals.

Over 60% of the VC funding for Indian space tech startups has gone into upstream companies, and rightfully so. Boosting upstream capabilities will strengthen India's sovereignty while creating long-term advantages for the private sector.

However, building in upstream space tech is capital-intensive and global turmoil is compounding supply chain risks. While over 40 upstream space tech startups-including Agnikul, Skyroot and Dhruva-are building momentum with VC and GoI-backed funding, major opportunities remain in improving launch economics, precision, satellite manufacturing, energy optimization and streamlining ground networks.

Ultimately, a large part of value creation and value capture happens downstream, where services are consumed. SpaceX is a classic case: launch services are provided by SpaceX and downstream utilisation services are delivered via Starlink. Starlink already boasts 10.3 mn subscribers with an average revenue per user (ARPU) of $66.

While the number of startups and VC funding downstream does not yet match the upstream sector, there is already a large, existing demand for space data in India. For instance, India ranks third globally in the number of users of Sentinel-3 data. In fact, among the top 5 countries utilising Sentinel-3 data, India was the only one where the user base grew between 2022 and 2023.

The downstream sector is also where the unique Indian context will play a massive role. For example, India's average farm landholding is just 1/100th of an average US farm. Current models, developed by US-based space tech startups, operate with a 3% margin of error. Given India's small landholding sizes, adopting these exact models could cause severe errors in critical use cases, including the assignment of property rights, insurance payouts, and climate adaptation and resilience measures.

Identifying paying use cases for Earth observation data and tailoring models and service designs to the Indian context is where the next big opportunities lie downstream. Consider satellite services for the Northeast as an example.

A World Bank study estimated that a 10% increase in broadband penetration increases GDP by 1.38%. Yet, Trai's latest quarterly data puts the Northeast at 11 mn internet subscribers-making it one of the smallest telecom circles. Rural penetration sits at 55 subscribers per 100 people while urban penetration touches 91, largely due to the extreme geography. Building extensive physical infrastructure for a sparse population does not make economic sense.

A Low Earth Orbit (LEO) constellation spanning upstream, midstream and downstream components to deliver affordable satellite internet makes this feasible. With no towers to build and no right-of-way disputes to navigate, you deploy the constellation once, and the marginal cost of adding subscribers in a remote valley is low. Deployment time shrinks from years to weeks, unlocking regional development.

A primary health centre in a remote Arunachal district can gain live video consultations with specialists in Guwahati, and a rural classroom can access the exact same content as a student in a metro. Moreover, when monsoons sever roads and fibre lines, satellite internet can keep communication seamless, reducing disruptions and improving the outcomes of disaster management measures.

The world's largest IPO to date belongs to a space tech company that is roughly 25 years old, has raised more than $15 bn in private capital and has disrupted the industry. Indian space tech startups should take heed.

Khemchandani and Sharma are vice-president and partner, respectively, IIMA Ventures

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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