DALLAS, Texas – The Space Venture Finance Symposium held here Thursday provided non-millionaire space
entrepreneurs a full-day primer on how to woo investors.
The event,
held in conjunction with the International Space Development Conference which opens today, placed
its focus on the business of space, with attendees—including venture
capitalists and aspiring entrepreneurs—hoping to build business knowledge and
contacts. Two schools of thought about the space industry emerged from the
day-long series of panels: entrepreneurs and investors still have much to learn
about each others' needs, and the budding space economy is becoming more diversified
and sophisticated.
Learning
the Language
"It's just
like any other business," joked Joerg Kreisel, CEO of German space finance
firm JKIC. "Just that space stuff is tricky." While being humorous, he made a
simple point: space entrepreneurs, regardless of how exotic their technology
is, need to have sound business fundamentals—including management credibility,
tangible assets, and sound financials—if they want to turn their inventions into
investments.
Burton Lee,
founder of Innovarium Ventures, explained the five financing phases businesses
experience: "family, friends, and fools," seed money, early investment,
expansion, and later.
After
tapping "FFF" investors to get started, entrepreneurs need to start talking to
individuals with bigger pocketbooks and more practical concerns, like return on
investment (ROI). Individual investors, called "angels," look for ROI, but also
might invest because they believe in the effort or individual. Venture
capitalists (VCs) are professionals who make their livings on smaller
investments (up to a million dollars, but usually around $500,000). Angels and
VCs usually invest in the early phases of a business.
Once
proven, a business enters the expansion phase and can approach more financially
conservative firms like private equity investors and investment banks. The
Symposium included presentations and panels by angels, venture capitalists, and
equity investors, as well as large businesses like Cisco or Microsoft that are
willing to invest in small businesses, and state governments like New Mexico,
Texas, and Florida, which are trying to improve local economic development.
John Tidmarsh,
an expert in corporate finance and private equity, explained some of the
reasons venture capitalists do not invest in space, including unfamiliarity
with space; perceived "low deal flow" (meaning lack of people investing in it);
and a perception that space-related businesses are not yet "investment-ready," due
to high costs or low ROI.
Kevin Leclaire
of ISDR Consulting provided a "top ten" list of signs that a space venture will
be able to raise capital, which included a large market opportunity, an
experienced management team, and a customer-driven, not technology-driven market
plan. In short, most of the financiers concentrated on business, not
technological fundamentals. Tom Pickens, President and CEO of SPACEHAB,
shrugged off the technology problem: "That's just money. That's just
engineering." Engineers might be taken aback, but it does demonstrate how
differently investors look at space businesses.
The
government representatives touted their state-level programs for fostering
space-related businesses, each of which had different strings attached. Michael
Lyon, Managing Director for Spaceport Singapore, explained that even more complex restrictions exist overseas.
In
describing next steps, the speakers emphasized the need to expand "angel
networks" and connect with other potential space investors.
A
Diversifying Space Economy
Most of the
new companies do not just concentrate on launch services, though some, like
XCOR Aerospace and TGV Rockets, do. Seventeen businesses (out of an original
group of 80) were invited to join the event based on projected revenues,
corporate background, company reputation, management experience, and other
qualities looked for by investors. They ranged from Orbital Outfitters of
California, specializing in developing space suits; to Orion Propulsion of
Alabama, providing engineering test services; to Alsatis, of Toulouse, France, developing low-cost IP networks for rural broadband
internet users. Several speakers emphasized tying space-based technologies to
familiar investment markets, like telecommunications, healthcare, or
entertainment.
Lon Levin,
co-founder of XM Radio, delivered the keynote address. He advised space
businesses not to depend on government contracts, but to use a blended approach
instead: developing capabilities that government might want but which the
private sector could pick up quickly. He also counseled patience to the more
idealistic space advocates who believe "the grandeur of space is incompatible
with commercialization." Levin took a more pragmatic view, saying, "If we can
have a sustainable economy in space, we can have the grandeur, too."
NOTE: The
views of this article are the author's and do not reflect the policies of the National
Space Society.
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news, views and scientific inquiry from the National Space Society.
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