When Courting Capital, New Space Companies Should Stress Competence Over Coolness

DALLAS, Texas ? As the International Space Development Conference (ISDC) wounddown Sunday, business practices were on the mind of many speakers. ?There?s toomuch reliance on the ?coolness factor?,? said Tom Olsen, a partner in ExodusConsulting, a firm that specializes in performing due diligence investigationsfor venture capitalists.

Instead, hesaid entrepreneurs need to concentrate on knowing what they are trying to doand solve specific problems, from providing lunar oxygen to future explorationmissions to building solar power satellites to approaching venture capitalists.

TheISDC, the 26th conference of its kind, was sponsored by the National Space Society ran here from May 25 to 28.

While the SpaceVenture Finance Symposium , held Thursday, May 24 in conjunction with ISDC, describedhow venture capitalists could help space business founders, Olsen went a stepfurther, suggesting behaviors to avoid and tactics to attempt whenentrepreneurs meet with investor ?angels? or venture capitalists for the firsttime. One of the biggest challenges for due diligence investigators like Olsen isthe lies people tell in their business plans, from claiming that a largercompany is about to make a purchase to ?Some other group is interested in us.?

Spacebusinesses can kill deals with venture capitalists in other ways, like usingbogus or questionable market studies, claiming one?s management team isexperienced despite lack of past performance, or assuming that one?s companyposition is unassailable because it has patented intellectual property.?Mention patents once, and leave it alone. If there?s a dispute with a largercompany, they have deeper pockets,? meaning they can fight legal battleslonger.

Olsenoffered a ?top ten? list of items new space businesses should have ready forwhen making a presentation to investors or when the investors? due diligenceinvestigators come calling. This documentation includes a description of theproblem the business is trying to solve, and its solution; the business modeland market plan; and reasonable revenue projections based on specific, knowncustomer markets.

Instead oftrying to gain leverage through storytelling, Olsen suggests demonstratingsimple business savvy by doing one?s homework, going to offices and gettingintroductions, and showing success. He believes that arm-twisting ortruth-stretching are unnecessary, though he has heard or read them in most ofthe space business plans he reads. ?If the VC knows it?s a good deal, they?llwant it all to themselves and will try to keep everyone else away.?

This duediligence approach is seeping into the space advocacy community at large. Otherpresentations on the two-day business track at ISDC concentrated oncost-effective or profit-minded ways to execute satellite launch services,solar power satellites, and lunar propellant services. This business-mindedshift from technology to business models reflects the greater influenceentrepreneurship is having over future space ventures.

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NOTE: Theviews of this article are the author's and do not reflect the policies of the NationalSpace Society.

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Bart Leahy is a technical writer at Schafer Corporation in Huntsville, Alabama.