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.?
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