T
he resounding success of the Space Venture Finance Symposium hosted
in May in Dallas by the National Space Society and Innovarium Ventures offers an important snapshot of the current state and future direction of commercial space finance and investment in the United States
and Europe. Taken together with XCOR’s June 7 announcement of the
investment by a major angel network in a launch startup –
Boston Harbor Angels
– these two milestone events indicate a growing potential to attract investors toward commercial space ventures, and improved maturity and professionalism by space entrepreneurs.
The May 24 conference addressed core issues related
to successfully attracting capital to space-related enterprises at all phases of development, and focused particular attention on funding constraints faced by space startups during the critical formative stages.
In 2006 approximately 234,000 angel investors in the United States invested $25.6 billion
in 51,000 deals across all industries. Total
seed-stage
angel funding for new space ventures, however, amounted to at most $10 million spread over approximately 10 deals, which were sourced entirely from individual investors.
The disparity in these figures clearly demonstrates both the absence of an educated and space-savvy angel investor community, as well as a pressing need for companies to show
potential investors
better business models and more experienced management teams. U.S. venture capital investment in 2006, in contrast, reached
$25.8 billion
, and was spread over slightly more than 3,000 deals with no known investments in core space infrastructure startups.
Many commercial space entrepreneurs seem confused about whether they are
pre-seed
,
seed-
or
early stage
startups, and if they should be seeking angel or venture capital
funding. One goal
in Dallas was
to have each participating entrepreneur
leave the conference with a clear understanding of where they fall in the technology startup financing pipeline;
which investor community might be best matched to their particular financing needs;
how to present information to these investors;
and where they might find investors such as individual angels and angel networks.
Most space startups can be classified as
seed-stage
companies, which means
they are at an early point in their development where angel investors – and not venture capital – are typically the more appropriate source of equity investment. Few entrepreneurial space companies are
ready today for venture capital, and are unlikely to attract
venture capital investors at this stage of their development due to their long-term business models and uncertain exit strategies. The overwhelming majority of the
17 featured companies in Dallas were seed-stage startups in need of angel investors. Addressing the persistent bottleneck in funding for
seed-stage
space companies requires the commercial space industry to focus its attention on educating – and listening to – angel investors and angel networks.
Another major theme that emerged in Dallas is that the commercial space community – and U.S. space advocacy groups in particular – need to rethink how they present the industry to domestic and international investors. Traditional definitions of “NewSpace” and “alt.space” tend to emphasize high-risk Earth-to-
space
and
space-to-
space
applications, such as
space tourism, rocket launchers, on-orbit refueling facilities, on-orbit servicing and space solar power.
These definitions ignore the wider expanse of lower-risk
space-to-Earth
and Earth-to-Earth
startups such as
telecommunications,
Earth observation, navigation and mapping, telemedicine, space-themed attractions, and many other mainstream applications
. JoergKreisel, a financial advisor to the European Space Agency
and European space startups, suggests that although
space-to-Earth companies may be less sexy or far from the cutting edge of moving humanity into space, they do offer superior investment prospects and a track record of successful exits that are well understood by the mainstream investor community around the globe.
Improving the image of commercial space with investors can be achieved by demonstrating a broader range of investment opportunities that offer a variety of entry points and risk-return profiles. Presenting sound space-to-Earth
deals to angel network and venture capital investors with the goal of educating them about space – and bringing them on board for riskier
Earth-to-space startups down the road – offers a credible path to attracting new capital to our industry.
Keynote speaker Lon Levin is an
excellent example of a savvy investor. He
cut his teeth on
lower-risk
satellite telecom
as co-founder of XM Satellite Radio
and now
has
moved to
higher-risk
launch vehicle development and
space station resupply markets as chief strategic officer with Transformational Space Corp. (t/Space)
. We need to replicate this model with other investors.
Focusing dialogue with the investment community around
convergence themes
appears to be an excellent way to bridge current mainstream technology investment trends with important segments of the space community. Space-and-information technology (IT), space-and-aviation, and space-and-nanotech convergence all found resonance with investors and entrepreneurs in Dallas. This approach was strongly supported by veteran
venture capitalists
, including SpaceVest and Astrolabe Ventures, as well as new entrants Atrium Capital and E-Synergy Ltd. of London, all of whom broadly define the range of
aero
space-themed investment opportunities and markets
.
The Dallas conference also achieved several notable milestones. Th
is was
the first time
Microsoft financially sponsored
a commercial space investment conference.
Bill Gail, director of strategic development, provided a riveting tour through Microsoft Virtual Earth, a competitor to Google Earth. Cisco senior executive Rick Sanford also presented his vision for extending mobile Internet protocol
communications and networking infrastructures into air and space applications. The presence of Microsoft and Cisco talking IT-space-aviation convergence did not go unnoticed in venture capital
, Silicon Valley, IT and aerospace industry circles.
Additional “firsts” included the first-time participation of five major angel investor networks from
California, Texas and New York,
as well as a panel on state equity investment in space startups and spaceports, featuring state officials from Texas, New Mexico and Florida. States now are
entering the aerospace sector as major players, with significant equity funds at their disposal with which to influence manufacturing and headquarters location decisions.
Unfortunately,
media coverage crystallized the image challenge facing the industry. One veteran space blogger reported that the primary achievement of the symposium was the
dubious
creation of a new acronym
– and regrettably passed over the eight hours of solid content, commentary
and lively question and answer
sessions. Many national and financial media leaders were absent, underscoring the need for better outreach to communicate the events, merits
and potential of the industry.
Upcoming commercial space finance symposia are expected to focus on aggregating and educating the angel investor community and networks in key U.S. and European technology clusters; improved coaching and presentation formats for space entrepreneurs; bringing in
new blood
in the form of more
space-to-Earth startup companies and investors; sustained support for
convergence
themes with other key technology sectors such as IT and software, semiconductors, alternative energy, cleantech, greentech, nanotechnology and biosciences; the use of prizes in space startup financing; and improved finance media awareness and representation.
All in all, the Dallas symposium represented a milestone space finance conference that set a new professional standard and benchmark for future events scheduled for later this year and beyond.
Burton Lee
is managing partner of Innovarium Ventures
and served as conference chairman and organizer of the Space Venture Finance Symposium, along with co-Chairs John Higginbotham, SpaceVest; and
Peter Banks, Astrolabe Ventures.
