Time to Raise Money for a Space Startup?

Time to Raise Money for a Space Startup?

Sepatuads.com   Maret 10, 2011   Comment  

Lately, I have been getting questions from space entrepreneurs about a thawing Angel/Venture market and what that means for New Space firms seeking investment capital. Mark Suster over at Both Sides of the Table wrote a great post on:

8 Questions to Help Decide if You Should be Raising Money Now.

 Below are Mark’s eight questions with my commentary intermixed. Note, Mark is a Silicon Valley investor so many of his examples are focused in that area – still a lot to glean for New Space.


1. Are you in the “lean” phase?

Are you trying to figure out if your idea is an incremental improvement or a game-changer – if so, keep your capital needs small. Once you have proven (even if just to yourself) the world-changing worthiness of your idea than gather some investment money and ramp up capital use. When seeking seed funding – usually look for $500K to $1M initially from outside investors.

2. How much capital do I need to run my business effectively right now?

A good rule of thumb: an entrepreneur needs capital for 18 months of operations. I appreciated this nugget. As an entrepreneur, eighteen months feels like an eternity, but I should be striving for this!

3. How much dilution am I going to have to take now?

Expect 25-33% dilution per round. What does this mean? Each round your percentage ownership will be “diluted” as investors take a share of the value of the company. Here is a quick example:

An investor offers The founder of Acme Rockets a pre-money valuation of $2M for a $1M investment in Acme Rockets. Should Acme Rockets agree? Before the investment Acme Rockets owned 100% of company. If they accept the investment terms, the Acme Rockets founder’s ownership percentage will be diluted to 67%, a 33 percentage point reduction. Worth it? Maybe.

How about a $2M investment at $2M pre-money? 50% dilution in a single round. Probably not.

4. How many more rounds of capital will I need & what is my expected total future dilution?

Here is the spreadsheet (containing the table above) where I provide an interactive example of Founder Dilution with each Round of additional Investment (overly simplistic to make the point).  Fun to play with.

5. What things could I do with capital today that might improve my market positioning?

I hear the argument which goes – wait to raise capital until you can get a more favorable valuation. For New Space companies like Acme Rockets, this means winning government contracts, building demos, increasing customers for an NLV upper stage which is not yet built – anything to mature their technology.

But there is an opportunity cost in waiting. What could Acme Rockets do now with $1M dollars to grow their company? This is “make-the-pie-bigger-and-don’t-care-so-much-about-your-slice-of-it” argument.

6. What things might competitors do if I don’t raise capital that might impact me in the interim period?

The biggest nugget in this section was the psychological effect investors feel if another firm in an industry announces a large funding round. Who wants to invest in NLV upper stages from Acme Rockets after its competitor just took the oxygen out of the room by announcing a $10M investment to build a similar NLV upper stage? Raise capital so your competitor can’t – I agree with this in the short term, but I would rather focus on wowing customers than fearing competitors.

7. What might future markets hold in terms of valuations?

Try raising money right after September 11, 2001. When is the next market dip?

8. What might future markets hold in terms of ability to raise capital?

Mark ends by reminding us that 8 Questions to ask are nice, but don’t over think this, sometimes you take the deal because the money is available…and might not be tomorrow.

Thanks Mark for a great 8-Question post. Worth reading it in Mark's words over at Both Sides of the Table.  Space Entrepreneurs, I hope it helps.

Servicing Iridium's Satellite Constellation: Business Case (Part 3)

Servicing Iridium's Satellite Constellation: Business Case (Part 3)

Sepatuads.com   Desember 18, 2010   Comment  

In my last post, I described Part 1 of a business case for a tug service for LEO satellites.  In my post I described how Jon Goff and I had come to the conclusion that Iridium may make a powerful first customer for such a tug service. 

Jon Goff now has Part 2 of this Iridium Tug business case posted on his blog, Selenian Boondocks. 

Jon not only provides additional arguments for the value of Iridium as a first customer, but delivers a compelling argument for why an entrepreneur may want to consider pursuing such a service, and why Iridium might want to listen if they do. 

Additionally, call it perfect timing (too arrogant to call it a response to our post?), this spacenews article came out yesterday describing Iridium's belief their fleets CAN make it to 2017 (3X) design life.  A few interesting nuggets from the report (and my commentary):

• Fleet deemed “viable” with only 36 satellites (but Iridium did not describe what viable means).  Viable must mean less than optimal or they would have only launched 36 sats to begin with.  If fleet is productive with only 36 satellites, there may be even more value in selling the current fleet upon successful transition to NEXT.  This give Iridium a more "robust" constellation to offer to a buyer.
• Iridium says, "Now, once every couple of weeks we do a maneuver” to avoid orbital debris.  How much debris mitigation maneuvers was factored when calculating the hydrazine needed to make it to 2017?  How much is life shortened if maneuvers increase?
• Fleet can survive on current fuel until 2017 (and if there are launch delays beyond 2017?)
• 114kg of hydrazine on board each satellite (back in 1997 when they were first launched)

Good luck Iridium.  If you want a heck of a backup plan, read Jon's post on Part 2 of the Iridium Business Case.  Thanks Jon for your work on this.

Airplanes or Automobiles?

Airplanes or Automobiles?

Sepatuads.com   Desember 01, 2010   Comment  

Is Human Space Flight more like the airline industry or the automobile industry?

In a recent post at Space News, guest-blogger Gordon Smith, Ph.D., acknowledges  the reality that Human Space Flight has not been truly commercialized while other highly complicated and risky industries have flourished privately.  Smith believes those attempting to commercialize human spaceflight utilizing an airline industry business model could be more successful by changing models.

Might the automobile industry provide a better business model for Human Space Flight to be patterned after? Cars and trucks are specialized for the needs of their users and onboard redundancies are minimized through the use of AAA, tow trucks, gas stations, and other readily available "emergency services" that are easily accessible to motorists on the road. Smith argues in favor of:

• Rescue craft capable of reaching both space stations and free-flying spacecraft on short notice (perhaps already on-orbit)
• Maintenance craft (think spare parts)
• Rendezvous craft (think tugs)
• and of course depots

NASA could provide the rescue service or perhaps such a rescue service could be offered as a private venture:

• Added redundancy for NASA
• Like COTS, another way for NASA to stimulate the industry
• Lower Insurance premiums for Bigelow
• Lower Insurance premiums for all private manned launches

Note: for these to be a help to humans in space, these vehicles do not necessarily need to be manned themselves. This quote from his blog post sums up Smith’s position:

“The automotive industry operates similarly to human spaceflight, if one looks at the broad operational behaviors. A vehicle departs from a certain location, travels for a period of time that may be limited or indefinite (but the car may pause as needed), and can return to any number of locations. However, the automotive industry prevents DTD and redundancy costs from growing prohibitive using government or private means to render assistance in the form of ambulances and tow trucks.

We gain so much by adjusting the human spaceflight industry model to better support their operations. Creating a means by which aid may quickly be dispatched to space stations or vehicles on orbit is within the scope of the 2010 National Space Policy, reduces the costs associated with human spaceflight and makes it easier for private commercialization to grow. Instead of having to counter every possibility, known and unanticipated, private vehicles and stations need only ensure that if something goes wrong, their occupants will be able to safely wait for help. This is an improved response over escape pods currently under consideration, as it does not leave an abandoned asset worth billions of dollars to drift unattended in orbit, where it may easily be lost.”

Gordon Smith has also written this paper on the macro-economic impacts on the space industry where he strikes similar tones.  This paper warrants closer scrutiny.  Perhaps in an upcoming post.  For now, I like this quote from the paper:

"This emergency response capability, then, should be made a priority in forthcoming policy so that the long promised commercial sector may finally develop."

When It’s Darkest Men See the Stars

When It’s Darkest Men See the Stars

Sepatuads.com   November 26, 2010   Comment  

"When It’s Darkest Men See the Stars."  ~Ralph Waldo Emerson

Steve Blank is optimistic entrepreneurs have created the, "dawn of a new era for a new American economy built on entrepreneurship and innovation."  His excellent post focuses on why startups have fundamentally changed and are changing the business landscape by serving as the process incubator for the business world. 

Although Steve uses Silicon Valley for his examples, New Space can learn from and be encouraged by his perspective.  Read Steve's post for some rational optimism and insight on the coming decade of the entrepreneur.  I especially like this (long) quote from Steve (emphasis mine):

When James Watt started the industrial revolution with the steam engine in 1775 no one said, “This is the day everything changes.” When Karl Benz drove around Mannheim in 1885, no one said, “There will be 500 million of these driving around in a century.” And certainly in 1958 when Noyce and Kilby invented the integrated circuit, the idea of a quintillion (10 to the 18th) transistors being produced each year seemed ludicrous. 

Yet it’s possible that we’ll look back to this decade as the beginning of our own revolution. We may remember this as the time when scientific discoveries and technological breakthroughs were integrated into the fabric of society faster than they had ever been before. When the speed of how businesses operated changed forever. As the time when we reinvented the American economy and our Gross Domestic Product began to take off and the U.S. and the world reached a level of wealth never seen before.

It may be the dawn of a new era for a new American economy built on entrepreneurship and innovation.  One that our children will look back on and marvel that when it was the darkest, we saw the stars.

Both Sides of the Table

Both Sides of the Table

Sepatuads.com   Maret 22, 2010   Comment  

Both Sides of the Table is the exceptional blog from Mark Suster who has lived both the life of the entrepreneur and now the life of the venture capitalist. Mark has some great advice for both the Startup and those seeking to Raise Venture Capital. Just remember, his advice will be focused toward the high-tech entrepreneur who can bring his product to market for less than $10M (maybe much less). You aspiring Moon Base entrepreneurs should sift his advice appropriately. Below are links to some of my favorite posts.


Startup Advice includes 44 recommendations. A few of my favorites pieces of advice are :

• Flipping Burgers
• Most Common Early Mistakes
• Founders, Ownership and Prenuptials

Raising Venture Capital includes over 30 recommendations.  My favorites:

• Do You Really Even Need Venture Capital?
• A 6-Step Relationship Guide to VC 
• The “Triple Play” of VC Presentations

I love this quote from Mark:

“If you’re in the more likely situation that you can see how to get your business from $1 million this year to $3 million within 3 years and maybe $8 million within 5 years then VC may not be for you. VC’s aren’t looking for companies that are doing $15 million in sales in 8 years from their investment. In this scenario I advocate a combination of bank debt, venture debt, small equity raise ($1-2 million) from high net-worth individuals. These people would be thrilled with a company that could potentially double or triple their money. VC’s would not be happy with this outcome.”

For more on Angel Investing, here is own of my recent posts.

The Space Show's Classroom Series

The Space Show's Classroom Series

Sepatuads.com   Februari 25, 2010   Comment  

David Livingston over at The Space Show is offering a wonderful space primer called The Space Show Classroom.  Dr. Livingston teaches graduate Space Studies courses at UND and has joined forces with Dr. John Jurist (Physicist and blogger) and Dr. Jim Logan (NASA, Life Sciences, Space Medicine) to create the Space Show Classroom series.  20+ audio sessions (1.5-2 hours each) providing a significant overview of rockets, space business, and the challenges of developing the frontier.  In addition to each audio program, you will find course materials at Space Show Classroom Blog.

The series is still new. David is planning to mix in these programs in with the other Space Show content, about two per month.

So far, he has tackled:

1. An Introduction (you could probably skip this one and read the syllabus.)  His main point in this episode: the Classroom series would be more structured and on-topic than a typical program - structured similar to a graduate level course.
2. The Rocket Equation - Paul Breed as guest.  Go to this post of mine and play with the rocket equation spreadsheet if you are new the Rocket Equation.  Then listen to this Space Show.  The team does a GREAT job explaining.  The course material on the blog is also helpful!
3. Flight Dynamics - NASA's Dan Adamo as guest. 

I will try to listen to each one as they are available and will post comments germane to space business on this site.  But I highly encourage you all to get smart...even on this engineering stuff!

Net Present Value & Time Value of Money

Net Present Value & Time Value of Money

Sepatuads.com   Februari 08, 2010   Comment  

Each Monday, our Venture Capitalist friend, Fred Wilson, over at avc.com tackles an important term from business school. To get us caught up, I will post the first two MBA Monday posts below:

• The Present Value of Future Cash Flows: A business is worth all of the cash that business will ever generate discounted by the fact the business has not generated the cash yet (it is still in the future). In a spreadsheet, use the formula NPV.
• Time Value of Money: Money you have is worth more than money you will earn in the future. Thus, earnings in the future are discounted to account for the risk and delay.

MBA Mondays - ROI vs. IRR

MBA Mondays - ROI vs. IRR

Sepatuads.com   Februari 02, 2010   Comment  

Fred Wilson, Venture Capitalist over at avc.com is starting a great series on Business School lessons for those new to business terminology.  He got the inspiration for the series from the comments he got on this post about the difference between Return on Investment (ROI) and Internal Rate of Return (IRR). 

I am reminded of David M. Livingston's 1998 paper, "The Business of Commercializing Space."  In the paper, David survey's 600 venture capital firms asking them about about their expectations when completing an investment.  This quote from David's paper should give you an idea of the kind of IRR these VC's are looking for:

"Ten to one returns as a minimum; Returns ranging from >30% to >100% IRR; Greater than 30% IRR; Time period of 3-6 years needed; Hundreds of times the return of a normal business."

What I love from Fred's lesson on IRR - Fred actually imbeds his spreadsheets (complete with formulas).  I firmly believe you understand the concept better after you have built the formulas.  I am considering doing the same spreadsheet imbedding for some of my upcoming posts.  Great idea Fred!

Space Business Ideas from OOTC

Space Business Ideas from OOTC

Sepatuads.com   Januari 30, 2010   Comment  

Ken Murphy over at Out of the Cradle has some interesting space business ideas:

1. Vacuum Spheres: yep, bringing back "nothing" and charging for it.  Still need to better understand the market for this one.
2. MDL Boxes: reusing boxes flown previously to cut down on the re-certification process.  Although Ken admits his method won't work under the existing regs, I think NanoRacks and Kentucky Space may be able to help us there.  I have some ideas on this one, but I will wait to more fully lay out my case for standardized experiment containers.
3. Asteroid Data - satellite at EML-1 that maps the solar system in high-def and sells the results on a subscription basis to scientists, government agencies, and entrepreneurs.
4. GeoSat Forensics - This idea needs a manned station at EML-1.  Since it would use less Delta-V to travel from GEO to EML-1, gather the over 600 tons of GEO junk and analyze how the material has aged utilizing your station at EML-1.  Such knowledge would be valuable for understanding which materials to use on future long-duration missions. Long-Term Idea.
5. Emily Free Flyers - Launching Free Flyer platforms from an EML-1 manned station around the moon and back.  very low energy trajectory - selling space for experiments and product production runs.  Long-Term Idea.
6. Monocoque Modular Transport - Develop a common "caplet" that sits atop any of the world's launchers with the modular ability to customize external "bolt-on" components based o the requirements of the mission - from trips to station to trips to the moon.

What I liked best (other than his affectionate reference to EML-1 as "Emily") was his quote:

"The more that cislunar space is opened up to entrepreneurs, the more they’ll be able to put their capital at risk to try out their ideas and pave the way for others to follow."