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In the latest SpaceWatch Middle East interview series, Torsten Kriening speaks to Joerg Kreisel of JKIC. Joerg gives his perspective on NewSpace and whether it is hype or a serious investment opportunity?
The term NewSpace is all over the place. What is it in your view?
This is a valid question since the term NewSpace comes with different definitions and is partly confusing. I think, in simple terms, one could say: NewSpace describes a new generation of commercially-driven space and space-related companies that build value both on scalable business opportunities in a variety of markets and entrepreneurial cultures incorporating new processes and business models. Furthermore, they are generating public interest and reach investors formerly not familiar with space. Finally, they generate public interest, and hence are different from traditional space industry.
How about space finance in this context, and what does it involve?
Space finance is basically all funding related to space, the different types of finance and players involved. Since we are talking finance and not funding in the sense of government budgets, I would like to place the emphasis on corporate finance related to space. But one has to differentiate, because space business comes in different flavours regarding type of business and associated space finance. Satellite telecommunications is the most mature space-enabled industry and the oldest, having been around for decades now. Like the finance community and mechanisms in aviation, it has developed into a mature and fully-fledged satcom finance community providing end-to-end support focused primarily on later-stage and dedicated structured finance (i.e. high yield bonds, etc.). During the 1990’s especially, and driven by the BIG LEOs, this subset of space finance evolved.
But the space industry is more than satcom and the same applies to space finance. Businesses – like in other industries – can be funded via a range of different types of finance from straight equity to semi-equity or mezzanine capital to various debt-based vehicles. All that depends on the life-cycle and other status and prospects of an individual business venture, for example, its business nature, market specifics, risk profile, technology, timeframes, upside potential, financing needs, etc. On the other sides are the financiers which also cover a broad range of objectives and serve different financing needs, thus have requirements based on their focus.
This said, despite excess liquidity in financial markets, only a few investors fit an individual business opportunity and the commercial and investment or financing opportunities or challenges in the space arena differ a lot. This applies across the board, NewSpace included. So here is the challenge: who fits whom, and how can it be made to work for space? If we look at the growing number of space-related or space-enabled startups over the last few years – new or young companies by definition – then obviously, equity finance is key. And most of these new space business ventures require early-stage equity financing. That is where we are short.
While the visible, big name NewSpace companies – some of them tapping into terrestrial digital mega markets from the start – manage to attract big corporate or well-known venture capital as well as even big ticket private equity investors, most new space business ventures still struggle to raise money. There are only few equity investors entirely focused on such businesses, startups dealing with space in the one way or another. This is not surprising however, since there are not many space commercialization or finance professionals around and many of those making a difference now – great next generation leaders by the way – are in the industry for less than 15 years, which in turn is good, as new perspectives and culture come in. Nowadays we have – besides renowned venture capital firms that invest in the one or other space startup – only a couple of equity investors (or such activities in the making) entirely dedicated to space.
A more recent trend and an element of space finance today is crowd funding. Some large common crowd funding platforms have supported a few known space projects and companies and, in the meantime, a few space-focused crowd funding activities are on the move.
So, considering all this, space finance is complex and still needs to be understood better in the community. The flow of deals in terms space investment opportunities is very fragmented and individual deals differ in many respects – no mention of cultural differences, be it between space entrepreneurs and financiers or between continents. That is why there is no such recipe or straight forward way when it comes to financing an individual space startup.
How did early-stage equity investing for space develop then?
It is longer story, but in brief…Let’s leave out early-stage equity investment by large companies backing their own subsidiaries or joint ventures, and not talk satcom as it is quite different and follows other rules. Space equity investment by independent players, such as venture capital funds, started in the early 1990’s.
John Higginbottham– winner of the Space Finance Award 2007 (http://isdc.nss.org/2007/financeaward.html)- set up SpaceVest (in Reston, VA, USA) in 1993 and basically pioneered this field. AGI for instance was one of the SpaceVest investee companies. They set up follow-up funds, but they wind down activities second half of last decade. A few attempts to set up funds of a similar scope were made in Europe later in the 1990’s, but they failed for several reasons. One of those was my own activity, and it was quite an experience. In 1999, Iridium went belly-up and burned six plus billion dollars in one deal. Then, the internet bubble burst in 2000 and this made venture capital-type finance for space basically impossible, as even upper-quartile VC funds in Silicon Valley experienced difficulties raising money. This signaled a downturn in the entire VC market for a few years. So nothing left for space! However, based on developments around the BIG LEO hype during the 1990’s and with space agencies incorporating commercialisation into their policies, RapidEye was basically the first space-PPP and entrepreneurial setup for a commercial remote sensing satellite constellation. Space technology and entrepreneurship became a favourable and promising topic throughout the space community early last decade. Space commercialisation (interestingly, the term was used in the sector only since around the end of the cold war) became a standard element in space policies and strategies. Space entreprenuership evolved as an “in-word“ from 2000 onwards.
From 2000, for instance (besides commercial space industry projects primarily focused on space transportation at that time) NASA’s and ESA’s space technology transfer activities generated quite some public interest and benefits, and in Europe the space incubator projects delivered tangible outputs underlining socio-economic benefits associated with government space spending. The international space community started focusing more on satellite application downstream ICT and genuine technology transfer to terrestrial markets while space tourism came up in parallel – space transportation and lower space acess cost becaem other commercializaiton drivers. The space agencies tried to help and pave the way for startups and to bridge the financing gap in early-stage.
CNES was the sole space agency that entered direct equity investments so far and in 2003, ESA’s Ministerial Council enabled the agency to kick off a dedicated venture capital fund as the anchor investor. In the middle of last decade, NASA supported similar activities, and set up its COTS programme, which in one way or another benefited several of the pioneering NewSpace Companies. The space agencies therefore certainly played a significant role in paving the way for new space business ventures of all kinds, although none of the space agency-supported equity investment-related activities met expectations. Most of these no longer exist.
Anyway, SpaceX started in 2002 and the first paying space tourists went to the ISS and a couple of other exciting developments took place. Now, in retrospect however, during the middle of last decade, two special events had a major impact and were key to the evolution of today’s NewSpace industry and space finance or early-stage equity finance for space. Firstly, the privatisation of Inmarsat by the private equity funds APAX and Permira and other similar satcom deals that generated exciting multiples for investors and put space on the map of private equity. Secondly, the X-Prize and all momentum and activities it has kicked-off. Today we have Virgin Galactic and many more, who you all know, both started during the Ansari XPrize (http://ansari.xprize.org/) or afterwards. So, commercial space ventures gained attention in public and amongst investors. This was certainly supported by the new economy and the Internet, but also by generic space technology advancements such as increased compactness, lower cost access to space, higher performance of technology and systems, and so forth. In consequence, a new wave of space finance and early-stage equity investments was started earlier this decade. Even Kickstarter and others crowd funded a few known space startups and other stories – crowd funding is mostly not straight equity though.
Eras + Actors: Equity (+ Semi-Equity) Investment Vehicles Dedicated to Space (Credits: JKIC, 2016)
Now, for a few years’ equity investments in space startups have become much more visible and new players have come to the plate – some entirely dedicated to space. There are several different genres and it is difficult to go into detail here. However, Space Angels Network for example, played a significant role putting numerous deals together and recently setting up its own fund, thereby helping educate both space entrepreneurs and investors in visible way. So it all looks good, doesn’t it?
It should be mentioned that venture capital-type investments in the space arena have gained momentum already by middle of last decade with a growth trend, which means more and more space startups found investors. What we are lacking still is an appropriate number of successful exits and measurable financial returns to further develop both new space startups and space-focused early stage investment. But that will hopefully change soon as we see more and better deals as well as reach investors previously not familiar with space nor interested in our opportunities. All in all our industry had a steep learning curve when talking developing entreprenuerial startups. Obviousely some people from utside the space arena gave supported this.
Looks like there is a real history to it all, and it sounds like it takes some expertise to either invest or to raise funds. How do you see the near-term future and what can we expect from NewSpace investment?
2017 and the years ahead to 2020 will be crucial, and I believe we can build on what has been accomplished so far. However, we will need to keep an eye on what is in the making and what will come on top of all that, both in terms of space startups and investments. Certainly, the prominent and established NewSpace endeavours such as SpaceX or OneWeb, will trigger where the industry will be heading. Regarding space finance and early-stage equity investments in our sector, we will see what current and new actors will accomplish, since there are a couple of interesting new vehicles such as SpaceCrowd, managed by Space Ventures. This has an innovative model where curated investments are combined with sophisticated investors and crowd funding. Amongst others, some new venture funds as well as two crowd funding platforms (all dedicated to space) have entered the scene recently, which is good as it underlines the potential of commercial space. NewSpace is not just hype. As we see, it is serious investment opportunities and will see good returns – earlier or later. And some flops, which is normal.It is a period of change. So, we’ll see – interesting times for sure!
Joerg Kreisel (born 1961), is CEO of JKIC since 1991 and is a space commercialisation and finance expert. JKIC is an independent actor in the global space arena focused on space commercialisation, new business creation and early-stage equity finance supporting space industry, startups, space agencies and investors around the planet. With longstanding space sector intelligence and venture capital background Joerg is recognised for unique and instrumental support to numerous activities in the space arena and his proprietary international network.
SpaceWatch Middle thanks Joerg Kreisel of JKIC for the interview.
Original published at: http://spacewatchme.com/2017/01/joerg-kreisel/
