Venture Capital in the Newspace Economy
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VENTURE CAPITAL IN THE NEWSPACE ECONOMY Global trends and facts SIMONE SPINELLI Intern – Space Industry and R&D Collaborations, Defence SA Università Commerciale Luigi Bocconi Nicola Sasanelli (Supervisor) Director – Space Industry and R&D Collaborations, Defence SA Government of South Australia May 2017 ‘This report has been reviewed by Mr Michael Davis (Space Industry Association of Australia), Ms Flavia Tata Nardini (Fleet Space Technologies) and Mr Jeff Kasparian (KasComm Pty Ltd).’ Venture Capital in the NewSpace Economy 1 Venture Capital in the NewSpace Economy Disclaimer While every effort has been made to ensure the accuracy of the information contained in this report, the conclusions and the recommendations included in it constitute the opinions of the authors and should not be taken as representative of the views of Defence SA and the South Australian Government. No warranty, express or implied is made regarding the accuracy, adequacy, completeness, reliability or usefulness of the whole or any part of the information contained in this document. You should seek your own independent expert advice and make your own enquiries and satisfy yourself of all aspects of the information contained in this document. Any use or reliance on any of information contained in this document is at your own risk in all things. The Government of South Australia and its servants and its agents disclaim all liability and responsibility (including for negligence) for any direct or indirect loss or damage which may be suffered by any person through using or relying on any of the information contained in this document. Any liability of the Government of South Australia, its servants or its agents in any way connected with the information contained in this document, whether or not such liability results from or involves negligence, will not exceed $100.00. 2 Venture Capital in the NewSpace Economy 3 Venture Capital in the NewSpace Economy “Two things fill the mind with ever new and increasing admiration and awe, the oftener and the more steadily we reflect on them: the starry heavens above me and the moral law within me.” Immanuel Kant, Critique of Practical Reason, 1788 Translation by Lewis White Beck 4 Venture Capital in the NewSpace Economy 5 Venture Capital in the NewSpace Economy Table of Contents Acknowledgements ................................................................................................................................. 7 Executive summary ................................................................................................................................. 8 Introduction .......................................................................................................................................... 10 1 VENTURE CAPITAL: AN OVERVIEW ............................................................................................... 12 1.1 Rise and Dynamics of Venture Capital Funding .................................................................... 15 1.2 Limited Partnership ............................................................................................................... 19 1.3 Ownership Structure ............................................................................................................. 20 1.3.1 Corporate Venture Capital Firms .................................................................................. 21 1.3.2 Bank-owned Venture Capital Firms .............................................................................. 23 1.3.3 Government-sponsored Venture Capital Firms ............................................................ 24 1.4 Investment criteria ................................................................................................................ 26 1.4.1 From LPs to VC funds .................................................................................................... 26 1.4.2 From VC funds to entrepreneurs .................................................................................. 29 2 VENTURE CAPITAL IN THE NEWSPACE ECONOMY ........................................................................ 32 2.1 A comparison between historic and recent drivers of LEO investments .............................. 35 2.2 What investors are looking for when they invest ................................................................. 38 2.3 Space sector’s investments and outlook .............................................................................. 40 2.4 Venture Capitalists and Angel Investors across the world ................................................... 45 3 REGIONAL VENTURE CAPITAL ....................................................................................................... 52 3.1 United States ......................................................................................................................... 52 3.1.1 Example of US VC-backed companies ........................................................................... 58 3.2 Europe ................................................................................................................................... 68 3.2.1 United Kingdom ............................................................................................................ 71 3.2.2 Russia ............................................................................................................................ 73 3.3 China ..................................................................................................................................... 75 3.4 India ...................................................................................................................................... 77 4 AN AUSTRALIAN PERSPECTIVE WITH A FOCUS ON SOUTH AUSTRALIAN ENVIRONMENT ........... 80 4.1 Fleet Space Technologies ...................................................................................................... 84 4.2 Neumann Space .................................................................................................................... 85 4.3 Blackbird Ventures ................................................................................................................ 86 5 CONCLUSION ................................................................................................................................. 92 APPENDIX 1 ........................................................................................................................................... 94 BIBLIOGRAPHY ...................................................................................................................................... 96 6 Venture Capital in the NewSpace Economy Acknowledgements This report is the result of my three-month internship at Defence SA. Hoping that it will be useful both for the Department and for everyone who will read it, I would like to express my deepest appreciation to all those who provided me the opportunity to complete this report. A special gratitude I give to my supervisor, Mr. Nicola Sasanelli, whose contribution in stimulating suggestions and encouragement, helped me to coordinate the best outcomes for my project. Furthermore, I would also like to acknowledge with much appreciation my colleague, Ms Katrina Bisanju, for having shared with me knowledge and expertise, and for her friendship. Thanks to the whole Defence SA team for having maintained a joyful atmosphere during my entire internship. I would like to thank Ms Flavia Nardini, Dr Paddy Neumann and Mr Ian Whitchurch, and Mr Niki Scevak for their invaluable collaboration. A special mention goes also to Mr Michael Davis, for his help in providing useful material. Thanks to my roommates Sunny, Matias and Tijn, who have shared with me this incredible experience here in Adelaide. My sincerest and endless gratitude to Martino and Angela, who provide me with the same affection and support that parents give to their own son. An obligation goes to Matteo Paone and Giovanni Facchinetti, for their precious advice and help in organizing my travel from Italy. Last, but not least, my heartfelt thanks to my family. 7 Venture Capital in the NewSpace Economy Executive summary This report provides insight into venture capital investments in the space industry for commercial activities in the so called NewSpace economy. Venture capital investments are considered crucial for the growth opportunities of new companies. They provide invaluable support during the early stages of establishment where it is difficult to receive funding from other private institutions (such as banks) or even the government. Government grants alone are not usually sufficient for sustaining a business (they have to be matched by entrepreneurs’ or other private investors’ funding) and however they are delivered only for a short period of time. The principal obstacle to investment for start-ups is generally the elevated risk, which only venture capitalists (VCs) are able to bear. Venture capitalists that invest in space companies are mostly concentrated in the United States of America (US) (74 percent).1 In particular, California hosts 53 percent of US VCs. One of the major non- US hubs at a country level is the United Kingdom (UK), which hosts about one third of non-US VC firms. Among countries with an emerging space economy, China and India, which boast two of the most advanced space programs in the world, are also starting to open their doors to private investors. Venture investments can be performed in different periods of