Breaking the Shackles!

Two questions surmount any investment or entrepreneurial interest in Defence & Space –

1.????Is now the right time (era, regulatory framework, consumption appetite) to invest in the sector ?

2.????Who will own the IP and Assets in this sector – the government or the start-up?

Before we seek answers to these two pointers, its essential that we understand the history of India’s desire to open … Till 2001, there were 4 sectors that were under the control of the state in India:

1.????Defense

2.????Space

3.????Nuclear Energy

4.????Currency

-??????Defense opened up in 2001 …

-??????Space sector came in entrepreneurial prominence in 2020 …

-??????It’s a certainty that the Nuclear will open in the next few years …

-??????Currency is probably one which will remain under state control for long time to come

Today, ground realities are emerging. India’s space sector still needs the legal passage of the space activities bill to enable it to be opened to the private sector – policies defining FDI participation, role of ISRO and opening private sector participation are dependent on this, and with the Union cabinet. While it was initially expected to be released in March’22, it is now expected to be passed towards the end of the year.

Having said so, what impresses me is the fact that the policies that are being drafted for this ecosystem stand to be the most open in nature, as compared to other advanced ecosystems.

-??????Establish mechanism for authorisation and licensing of space activates for private sector participation

-??????Create mechanism for private sector to access & use department of space infrastructure, testing facilities, while also providing authorisation to build, own and operate their own satellites and launch vehicles

-??????Spacecom Policy 2020, Remote Sensing Policy of India 2020 and National Geospatial Policy 2021 will open up these markets and remove regulatory hurdles for usage and commercialisation of space data

… These can allow the Space ecosystem to achieve all that was achieved in Defence over 20 years

The defense sector first opened up in 2001 for Indian private sector participation … this was slowed with bureaucratic red-tape and not backed with projects and capital infusion …. only in 2006 did we first announce Make scheme, which allowed the private sector to fully design and develop systems, with 80% of the development cost incurred by the government… post 2014, the opening of FDI and the Make in India push has now accelerated the participation of the private sector in defence.

Learning from global models – DARPA’s role in driving US defense R&D?

US DARPA stands as the most successful & effective R&D programs run by a state till date. Funded through the department of defense, it’s innovations include the internet, RISC computing, global positioning satellites, stealth technology and unmanned aerial vehicles.

When DARPA was established in 1958 it was set up as an independent R&D agency that was explicitly separate from other R&D organizations of the military services. DARPA did not directly perform R&D, but was tasked with supporting the same through contracts with various performers across universities and industries. The greatest probable showcase of public-private partnership came in 1988-89 when DARPA signed the MoU for project Sematech, committing 50% of cost in the $1B vision - which laid down the foundations for the US to build it’s dominance in the semi-conductor industry. DARPA considers this connection to R&D and entrepreneurial community as a critical factor to driving innovation and risk-taking within the agency’s activities.

This construct has allowed DARPA to support R&D and technology efforts that are not tied to formal military requirements or to the specific roles or missions of the military services – infact, in FY2020, 62% ($2.3 billion) of DARPA’s R&D was performed by the industry itself.

Split of DARPA R&D by performer FY20, source: National Science Foundation

All DARPA projects are headed by program managers, who are either university faculty members, entrepreneurs, or industry leaders that are ready to immediately leverage their deep technical knowledge and professional networks to drive the creation of new products by leading programs.

They work with R&D communities and stakeholders to establish the?rigorous and aggressive program goals (including detailed technical milestones and other program activities) needed?to manage a portfolio of sophisticated R&D projects. This “bottom-up” approach is deemed effective by DARPA because its program managers, who are seen as the individuals closest to the technical challenges and potential solutions and opportunities in a given field are actually calling the shots and leading development.

DARPA ?projects funding is appropriated through the Defense-wide Research, Development, Test, and Evaluation (RDT&E) account which includes 19 other DOD organizations. ?All projects follow the same code to develop technologies:

DoD code that is followed on all DARPA projects

DARPA’s funding only supports budget activities from 6.1 to 6.3 — basic research, applied research, and advanced technology development — and not the further levels of technology maturation in 6.4 and 6.5 — advanced component development and prototypes and system development and demonstration—which could be used to overcome a military service’s resistance. However, within this, the funding is focused on applied research and technology development, allowing researchers to aggressively work towards taking disruptive concepts to development stage.

Evolution of DARPA funding split by character of work

What makes DARPA stand out is its ability to ensure that it can collaborate with private sector researchers for the development of these technologies. They do this with great agility – the average DARPA project timelines are between 3-5 years.

Through programs such as Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR), DARPA?has continued to support private sector research and development. In 2019, DARPA also announced an accelerator program (EEI) to support start-ups with an additional $250K grant. The goal was to provide resources to accelerate their journey from lab to commercialisation. In the first 2 years, the program had helped 30 pre-seed research teams raise over $100M, taking them to commercialisation and helping a dozen establish corporations. Today, the program has now been expanded to include 150 start-ups …

Creating India’s framework for global leadership in Space and Defense

To create the global leaders of space economy in India, it is crucial to create a framework that supports research focused deeptech companies to be born and grow independently in India … Today, ISRO has been the fundamental technology developer in the Indian space ecosystem. The integrator and vendor ecosystem has been built around ISRO as a result, with over 600 participants. While this created small industries, true & free innovation is still restricted in a integrator/vendor role – the focus of the business remains on supplying to ISRO and not on research and development.

This is where disruptive young start-ups can bring life to open up the space sector. As start-ups grow, it is necessary that the framework is in place to allow them to independently evolve into large organisations – and not be moulded into a vendor relationship. This, requires the set-up of 2 key pillars –

1.????The support of policy to create pathways is crucial - ensuring IP is independently owned by a start-up will be crucial to aid free innovation, while lowering business restrictions will be essential for creation of new markets

2.????Access to funding and capital for start-ups so that they can continue to independently research and develop technologies while growing. One avenue for funding is of course the private investor pools, but another necessary channel is through government grants and supports. This today, will have to come through the department of space, which needs to be empowered with the resources to fund technology development in the sector

Here, in India agencies like IN-SPACe, NSIL and?Indian Space association are tasked with creating the ‘right’ environment for space start-ups and to create the necessary partnerships with corporates that can fuel commercialisation and adoption.

Mr. Jayant Patil, Chairman of ISpA, has been leading these efforts as the torchbearer for privatization in the defense and space. At Kalaari Connect Delhi, he spoke about the importance of devising the right policies and resources in order to see large companies emerge in this ecosystem. The upcoming space policies have aggressively pushed to ensure IP rights remain with innovators and founders, and have included fundamental infrastructure support to accelerate commercialisation. Along with the growing participation of private investors, I also expect government allocations to grow. Grants for SpaceTech and defense start-ups have already started rolling out through programs like iDEX.

With the upcoming policies, the Department of Space will also allocate further capital to back start-ups …?the right mix to create globally competitive companies. Given where we are today, I truly believe that this is the best possible time to invest in the defense and space ecosystem!!