COLORADO SPRINGS – A few words of wisdom from Wall Street to the space industry: If you want to attract venture capital to build your business, get a solid business plan.
That message came from a panel of financial analysts and venture capitalists who gathered Tuesday at the 2000 National Space Symposium to discuss where the aerospace industry will be heading in the next decade and what companies can do to meet the challenge. SPACE.com is the official web sponsor of the event.
The panel pointed out that potential space industry investors now look for experienced management teams and a smart approach to the market before deciding on whether or not to open their wallets. Financiers are also becoming savvier at evaluating projects, separating ambitious plans from those ideas that have a better chance of becoming commercially successful.
"The name of the game as far as investing [in aerospace] is bullish," said Frank DiBello, a partner at SpaceVest -- a venture-capital firm for space-related companies. (Editor's note: SpaceVest is an investor in SPACE.com.) "But weak and unproven business cases will face more difficulty getting financing."
Another challenge for the space industry will be cash flow. "Financing will be a key competitive factor" in deciding which companies succeed and which fail, DiBello said.
Reston, Virginia-based SpaceVest said that global revenues of about $90 billion were generated by the space industry in 1998, of which 60 percent came from commercial ventures. For the year 2000, those revenues are expected to exceed $120 billion with almost 70 percent generated from commercial activities.
But while growth in the space sector is expected to flourish, there have been failures in the past that have caused investors to hold on to their purse string a little tighter.
"Iridium and other satellite failures have seriously damaged the public’s image of the satellite industry," said Douglas Humphrey, CEO of Cidera Inc. in Laurel, Maryland. Cidera is in the satellite broadband and content business and has filed recently with the Securities and Exchange Commission to go public.
Humphrey, who likened the proposed deorbiting of Iridium’s failed necklace of 66 satellites to "a cosmic game of skeet shooting", said "the magnitude of Iridium’s failure has yet to be felt."
But others downplayed the effects of the financial crises that continue to haunt the industry, including the failures of Iridium and ICO Global Communications.
Rather than close their wallets, investors have become more careful with their money, they claim.
"Iridium has hurt the industry, but Wall Street is over it," said Hoyt Davidson, satellite-investment banking partner at the New York-based investment firm Donaldson, Lufkin and Jenrette.
"Look at the volatility with the NASDAQ," Davidson argues. "Yet tech stocks bounce back.
This past week the tech-heavy NASDAQ composite got a whiff of the bear market, plunging as much as 500 points. The average NASDAQ stock is now about 40 percent off its high, according to financial analysts.
SpaceVest Chairman John Higginbotham welcomes wild market gyrations. "It forces greater scrutiny in the fundamentals of the business model and management team," he says.
Davidson points out that there are about 50 to 75 private equity funds looking at the aerospace industry for strategic investment. "There has been a lot of concern about money flying out of the aerospace industry sector to the internet," Hoyt said. "But the reality is that it’s still flowing to commercial space."
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