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A New Business Opportunity on the Horizon
The space economy, which was the playground of the government organisation, is no longer theirs. The burgeoning growth of the economy has attracted new-age entrepreneurs like Elon Musk and Jeff Bezos. This paradigm shift, driven by technological advances and the entry of private players, has opened up many opportunities in space tourism, satellite services, resource mining, and even the ambitious prospect of planetary colonisation. However, this uncharted territory comes with unique financial challenges that traditional finance systems struggle to address.
Rise Of Space Economy
According to McKinsey, the space economy accounted for $630 billion in 2023 and is projected to be a staggering $1.8 trillion by 2035 if we account for inflation. The report further mentioned that these figures include support applications like GPS, satellite launchers, television, and more, as well as space technologies that help companies generate revenues. In 2023, these support technologies were valued at $300 billion, more than 50% of the global space economy.
“According to McKinsey, the space economy accounted for $630 billion in 2023 and is projected to be a staggering $1.8 trillion by 2035 if we account for inflation.”
According to Business Standard, Space Startups raised $1.9 billion in the third quarter of this year, 20% more than the previous year, in capital-intensive businesses such as rocket making. The report further mentioned that venture capital firms used to focus on data analytics and satellite imagery-related startups in the space sector. Now, they are focusing on capital-intensive companies like rocket makers and hardware suppliers, indicating that dominance in the space economy remains the number one reason for investments.
The Price of Space Ambitions
Despite the unparalleled growth of the space economy, the industry continues to face financial difficulties. High upfront costs remain one of the biggest concerns of space companies. The initial capital investment needed for space ventures is immense. Developing and launching even a single satellite can cost millions of dollars. This financial barrier limits entry to only the most well-funded players.
Moreover, the risk of mission failure still looms on the companies in the space economy. Unlike most Earth-bound industries, space ventures deal with extreme environmental conditions and high-risk missions where a single malfunction can lead to total capital loss. This uncertainty complicates securing loans and insurance.
Another major difficulty these companies have to face is limited insurance options. Space insurance is a specialised field with limited players, resulting in costly premiums. According to the data centre dynamics, the insurance premiums for space companies were around $550m. Moreover, traditional insurance models do not cover many of the unique risks in space, such as those posed by space debris or cosmic radiation.
Fintech As The Rescurer
Fintech companies are stepping in to address these unique challenges, leveraging innovative technologies and creating tailored financial products for the space economy. To tackle the high upfront cost related to the space industry, fintech companies are providing alternative funding options like Tokenisation and Crowdfunding. For example, SpaceFund, a venture capital firm, uses blockchain technology to allow accredited investors to buy tokens representing shares in space-related startups.
Also, fintech companies like AXA are exploring coverage solutions that address issues like launch failures and orbital debris damage, helping to make insurance more affordable and accessible for space companies. With these rising fintechs, companies in the space economy might get more claims. According to the same report, the insurance company used to pay out on smaller claims and maybe a large failure or two every year.
“SpaceFund, a venture capital firm, uses blockchain technology to allow accredited investors to buy tokens representing shares in space-related startups.”
The Next Big Partnership
As fintech adapts, collaboration between space tech companies and financial innovators is expected to deepen. Strategic partnerships will likely emerge, with fintech firms working alongside space startups to develop tailored solutions. Joint ventures between fintech and insurtech companies could create more accessible insurance models, while collaborations with regulatory bodies may help streamline compliance for space companies. Fintech is adapting to space demands and helping democratise access to this new economy.
However, continued investment in fintech innovations is crucial to fully achieving these solutions. In their report, TechCrunch mentioned that in 2022, fintech received $75.2 billion from the venture capitalist. A portion of this investment is being funnelled into space finance projects. These funds are essential to propel fintech solutions that make space entrepreneurship more feasible for a broader range of players.
