An interview with Joerg Kreisel (CEO, JKIC – Independent Space Business + Finance Advisors)
Joerg Kreisel specializes in technology commercialization – with a strong focus on space – and has been involved in numerous international activities in both space and early-stage equity finance since 1987 (i.e. RapidEye). After pursuing a first career in space business he became venture capitalist in the early 1990s. Joerg serves as board member of several high-tech startups and investment vehicles. He holds a degree in aerospace engineering from RWTH Aachen University (Germany) and is an ISU alumnus, acts as lecturer at different universities, and is a frequent speaker at international events. His firm JKIC is a recognized label in the industry supporting space agencies, industry, startups and investors worldwide in matters related to commercialization, strategy, partnership, investment and technology transfer.
We interviewed Joerg about his longstanding experience and perspectives regarding early-stage equity funding for new space ventures, with special emphasis on cases requiring investments of 1-20M€ to fly.
Astropreneurs: What are the main differences in fundraising between a space company (suborbital, orbital, deep space) and terrestrial space-enabled companies?
Joerg Kreisel: Typically, such core-space business ventures involving flight hardware and launch, hence going to space, have an entirely different profile compared to those developing business in terrestrial markets, from an investor’s perspective, I mean. See, when looking at investment opportunities in general, they differ by business nature, funding needs, risk level, timeframe, market specifics, and the technologies or systems involved, besides common measures such as scalability, return potential and so forth. Having said that, key differences are the scope of upfront investments and lead times, both driving risks, too.
On the contrary, most space-enabled startups addressing markets on Earth, typically fall under two generic types: satellite applications downstream ICT, and genuine space technology transfer. They are typically very similar to startups in other sectors, when applying the above mentioned characteristics.
What does that mean for fundraising then: clearly, for space startups, very few investors – looking at the entire investment community – are eager to take such risk. Indeed most are not at all familiar with space and its issues, and these new core-space ventures need a lot of money and take quite some time to deliver financial returns. The other space-enabled terrestrial startups should normally find it easier to attract investors, and they are many more by number. However, we see, that both groups have been and are still facing difficulties in raising funds, although things have gotten much better over the years. While new space ventures of whatever nature were basically not able to raise any money until the end of the last millennium, since the beginning of the last decade more and more funding appeared, and nowadays quite a number of space-related startups successfully raised funds. So, we – the space industry and space entrepreneurs – somehow manage to attract financiers, but we can still not show many successful financial exits, where investors made superior returns, and we as an industry are lacking facts and figures to allow for benchmarking, both tools commonly used by investors in other industries and markets. Anyway, this will surely change and improve over time!
Astropreneurs: What are some of the key funding sources and where do you find them in the different cases?
Joerg Kreisel: Good one! Upfront: when we talk funding, we should solely think of equity, straight equity, and nothing else. There is still some confusion about that, and some people even talk debt finance or research grants. Firstly, new business ventures should be exclusively financed via equity. Debt vehicles or so may be considered once the company is profitable or in select situations where revenues are generating cash flow and needs to grow faster, etc.
Back to your question: the generic four funding sources of any business are equity (provided by investors), debt finance (e.g. loans via banks), grants or subsidies and of course, revenues. These are essential basics and rather simple. However, regarding early-stage equity investors for the two distinct cases as per your previous questions, things are not that simple.
But let’s simplify this context a bit based on extremes, taking the examples of a new launcher business (core-space) and a space imaging big data mesh service (satellite application downstream ICT & IoT). Investors fitting the first one must understand the subject and have deep enough pockets and stamina, or follow other investment drivers: vision, pride, you name it. There are not many of those, but we see more super angels and some select investment groups entering the scene though still far from being and easy home run for Astropreneurs.
In the other case, in principle all common early-stage equity investors can be considered, provided there is a fit in terms of investment focus.
So, how to find them? I think for core-space ventures it takes a fascinating story and marketing, so that the right guys or groups become aware, and there are ways to get there, as the recent NewSpace hype proves. Certainly, some bucks to start – maybe from FFF or Business Angels – help to set the scene and to get started. Then the question remains, who gets rewarded and when, as exiting is always an issue when talking long-term stories to get to profit.
In the other case, venture capital funds, corporate investors, business angels and even crowdfunding are suitable options. There are plenty of all of those, and the challenge is, who to talk to and how. See, all in all, there is excess liquidity in the global financial markets, but most of our Astropreneurs (globally) still find it difficult to get going in terms of getting equity investors on board.
Astropreneurs: How is the early-stage equity funding industry organised and how does one search for company-investor fit?
Joerg Kreisel: This is very important to understand! In essence: Equity comes as public or private equity. Since public equity basically means the stock markets, one needs to look at private equity, but also at early-stage! Venture Capital (VC) funds are a subset of private equity and are typically focused around early stages of a business and pre-IPO. Such VC funds are either independent, captive (belong to a bank or insurance company) or corporate (investment arm of a large industrial group). Moreover, we have family offices (of midsized companies or wealthy families), High Net Worth Individuals (HNWis or Super Angels like the Bransons of this world),and, last but not least Business Angels (BAs). The “industry” or investment community is quite large and diverse, and almost infinite funds are underway worldwide. Above mentioned potential investors may have distinct objectives, however, usually all of them want to see returns – good returns – looking for “sexy” deals. So in the end, any startup in search of early-equity investment must fit its investor.
Typically, not many investors fit a deal per se. When looking at their investment focus, it becomes obvious, that the pool of potential investors – those worthwhile to contact – shrinks to rather small number. Investment focus? sure! That can be simplified as follows: investors have preferences, and they differ. Typical criteria are: geography (country of region of company and markets), stage of investment (seed, early-stage, growth , different definitions exist), size (and number) of investment (min/max), industry and technology sector, risk profile, holding period (how long can/want they to stay in), return potential, exit options, plus further individual criteria depending the investor. There are multiple sources listing such investors and e.g. different VC associations even provide such details of their members. So far on the institutional side.
The business angel community is less organized, although it is nowadays much more transparent than ten years ago, mostly on a regional basis. Individual BAs have a wide range of objectives and possibilities and can be active or passive investors. I think some are good, other are not really fitting many cases it all depends. A special, dedicated and quite successful player is certainly the Space Angels network, no need to get into detail here as they are well known and they do a good job for Astropreneurs (and for their investors).
Crowdfunding is not yet developed to an extent that is it really an instrument for astroprenuers, but it could be, and even today some activities are in the making. So we’ll see. I think you already got it: there is desktop work to do to identify the right (potential) investors, both not to waste time and resources as well as to be prepared. Such effort is mandatory, but also limited – usually some sector intelligence is useful to get on board. I personally think, you should rely on people who understand the investment landscape and have a certain link to a new space business venture or the Astropreneurs, not any third-party intermediary.
Hence, it is possible to come to a shortlist of potential investors, it’s not always easy but keep in mind: a good concept always finds its money!
Astropreneurs: How can startups improve their chances of being selected by an investor?
Joerg Kreisel: Well, assuming relevant investors have been identified, a few standard expectations should be met: a convincing story with a great team (btw: it is not true that all investors call for management, management, management – some can live with a suboptimal team and will complement it), good chemistry, a balanced risk-reward ratio for the investor, clear implementation roadmap, but most of all, of course, short time-to-profit, already existing or early revenues, strong IP structure, a scalable business case, leadership approach (no matter if you are a big or niche player), superior return potential (or other synergies for the investor), realistic valuation or deal proposition, readiness for partnership, business acumen of the founders and more. And here is the problem: in 30 years I have seen many space-related business plans, teams and investment opportunities from around the world, and by far most don’t match such expectations, frankly speaking. Awareness of some of the basic boundary conditions we just discussed here in our talk is still not at the level it should be, but I am very happy and confident, since things are much better than they were in the past. Nowadays we see quite a number of good investment opportunities and Astropreneurs. Of course, space has not yet brought up a story like Apple, and we are still lacking showable financial exits (by number and size, and growing over time), however, it looks like particularly the next generation of space leaders is about changing the game.
Astropreneurs: How do business angels intervene in space funding, what are the advantages and disadvantages?
Joerg Kreisel: OK, let’s aside the (space) super angles for now (as they do not really invest elsewhere other than funding their “babies”).
Business Angels (BAs) are typically somewhat wealthy individuals who have some professional background in a relevant sector or experiences of other value to a young startup. Keeping in mind that most VC funds would not consider investments below one million Euros or Dollars, BAs can fill the funding gap between the small Friends-Family-Founder investments and VC funds, while some BAs can go up to several million as well. So far on the funding scope.
How they intervene depends a lot, and there is really no rule or recipe. Some are active, some are rather passive, so differs their value-add, some have worked hard to make their fortune, some are just blossomed, some are easy and a gift, and others are quite difficult characters and problems grow. What shalI I say? We have seen it all. Chemistry is key and complementary skills sets help. Beyond that, much of the dealing with an BA is stipulated in the additional shareholder agreements. On the latter, specialized lawyers can be good help.
Advantages of getting a BA on board are clearly hands-on dealings, flexibility and value added, as they are often much quicker and less complex than VC fund investments. Disadvantages CAN be or become, for example due to later investment rounds with VC funds and associated structuring and conditions, changes in a BA’s personal life, initial contractual agreements with the BA if not professionally done.
Astropreneurs: How do you see the future of funding for space ventures? What are the most interesting models emerging and what should startups look out for?
Joerg Kreisel: Cool question, and seriously nobody knows really! But there are some pointers in my view: we see increasing investment activity around the globe, I mean equity investments in new space business ventures, backing Astropreneurs. There is almost a hype, we have seen that before, about ten years ago, when space investment and conferences boomed, but five years later things calmed pretty much down though. I am not saying that this will happen again, especially because over the last 3 years a lot has happened and some big-name investors, both venture capital funds and corporates have entered the scene and great companies got funded – we all know them – but a space bubble would not be a good thing to happen for any of us.
Some companies will disappear, that is normal. Nevertheless, I see a future for early-stage equity investment in space-related startups, both for Astropreneurs and for investors. Of course, the right people need to run the show, which was one of the shortfalls in the past. I am not talking bigger stake later stage equity investments once a company is on the rise, that will happen anyway and will not need special attention, there are the right folks out there anyway then.
“Interesting Emerging Models” that is what everybody wants to know and have, for sure. No, seriously, indeed, new business models will be important drivers in a new space economy, if you will. The internet and the so-called the IoT, big data, meshing, mobile communication, social media, and the Millenials have changed the world. And some of that is enabled by space, satellites as we all now. What I just mentioned, refers at first sight to businesses on Earth and we see new business models all over or existing business models applied elsewhere, but I think we will see even the core-space industry change. How about moving to leasing, pay-as-you-go, servicing and self-construction of space infrastructure elements?
Let’s leave the answer to this to the astropreneurs, this should be their playground, visions involving space is what they are good at, and where investors can make money … isn’t it?
For more information contact JKIC via firstname.lastname@example.org
Posted by Paola Belingheri