Skybox Gets Creative To Raise Capital from Wary Investors

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WASHINGTON — Startup satellite Earth imaging company Skybox Imaging has been able to raise more than $90 million in equity from an otherwise sheepish market by crafting a business model that permits capital investment to be spent in increments as the project proves itself, Skybox Chief Executive Tom Ingersoll said.

That has allowed investors to buy into the project on a piecemeal basis, waiting for initial market adoption before more money is needed, he said. This runs contrary to the usual space project business model, wherein a large commitment to capital spending is needed long before cash flow begins.

Addressing the Satellite 2013 conference here March 18, Ingersoll also credited Space Exploration Technologies Corp. (SpaceX) of Hawthorne, Calif., and its founder, Elon Musk, with helping to create an environment in which commercial space spending has become acceptable in Silicon Valley.

“Elon Musk is giving credibility and buzz to the commercial space sector,” Ingersoll said. “People are at least willing to have the conversation.”

SpaceX is developing a line of launch vehicles for government and commercial use and in its 10 years of development has begun launching cargo to the international space station under contract to NASA. The company plans to begin launches for commercial customers this summer.

Mountain, View, Calif.-based Skybox’s early talks with prospective investors demonstrated the lack of interest among venture capitalists in satellite projects.

“Nobody we talked to was excited to invest in satellites,” Ingersoll said. “In fact it probably was an impediment.”

Financial analysts attending the conference here March 18-21 said the vast majority of the money raised for satellite projects in the past couple of years has been bank or export-credit agency debt, mainly from the U.S. Export-Import bank and its French counterpart, Coface.

Equity investors, they said, remain gun shy about startup commercial space projects and will probably need several more months of economic recovery before they begin taking a fresh look at the sector.

Startup satellite companies, or companies using satellites to access terrestrial wireless radio spectrum, have delivered less-than-stellar performance to equity investors in the past decade.

A notable exception is Asia Broadcast Satellite of Hong Kong, which is developing from scratch a classic satellite telecommunications business using equity investment that was secured before export-credit agency support was secured.

NewSat of Australia, a startup satellite operator whose first satellite will provide Ka-band services in a wide swath of Asia, is another example of a company that raised both equity and export-credit agency financing.

Jonathan D. Singer, managing director at investment bank Credit Suisse, said NewSat was able to reassure its investors by showing firm contracted backlog for its first satellite. James Murray, managing director of Morgan Stanley & Co., said NewSat was able to demonstrate — in advance of the satellite’s launch — sufficient demand for Ka-band among Central Asian military customers to reassure its investors.

“Debt markets [for satellite financing] are so strong because people are so risk-averse,” said Clifton Marriott, a managing director at investment bank Goldman Sachs.

Marriott speculated that one element supporting the stock of established satellite fleet operator SES of Luxembourg is the company’s equity investment in O3b Networks of Britain’s Channel Islands. O3b is building a fleet of satellites — 12 to start — using an unusual medium-altitude equatorial orbit to deliver broadband connectivity to corporate and government customers.

Skybox is building two small satellites to provide video imaging from low Earth orbit and plans a constellation of around 12 satellites. Ingersoll declined to be pinned down on the constellation’s exact architecture, but he was clear that being able to start with a relatively small investment to launch two satellites before proceeding with the rest of the constellation was a plus for investors.

Skybox has contracted for its first two satellites to be launched this year as secondary passengers aboard Russian Soyuz and Russian-Ukrainian Dnepr rockets.

How many satellites ultimately will be built for Skybox — and whether they will stay in-house or be built by an outside contractor — will depend on the market’s reaction to the early spacecraft and other elements of Skybox’s business plan, Ingersoll said.

Building more satellites means offering customers less time between overflights of a given area — a plus. But it also means stepping up capital spending.

 

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