Investment in entrepreneurial innovation: why cooperate?
by Paul Eckert, Ph.D.
|The group’s basic approach is to organize periodic summits—events designed to educate entrepreneurs regarding how to meet investor standards, while simultaneously informing investors about space-related business opportunities.|
The Coalition effort has been expanding throughout 2007, when three Space Investment Summits took place. In April, the first Space Investment Summit (SIS) was held in New York City, organized by the Space Frontier Foundation and the Space Commerce Roundtable group of companies, with additional support from the National Space Society and Innovarium Ventures. In May, the National Space Society and Innovarium Ventures took the lead in organizing a second SIS in Dallas, Texas, produced as the “Space Venture Finance Symposium.” By December, a third SIS in San Jose, California, united the efforts of not only the groups responsible for the April and May events but also a considerably broader array of organizations, as well as a growing list of industry sponsors.
It has not been easy to forge this common effort. When considering the cooperative goals of the Coalition, two questions must be addressed: Why should companies from different nations and regions work together to encourage space entrepreneurship, when a shared effort might undermine competitive advantage? Why should major companies help fledgling startups, when new entrants to markets may pose a competitive challenge to established interests?
Considering the first question raises certain key points. Economic prosperity depends on national competitiveness in world markets, and so it might seem that competing nations and regions would be best served by separate and competing space investment initiatives. However, the global reality, if clearly understood, would dictate otherwise. It is important for companies around the world to recognize their need to cooperate on certain pre-competitive or facilitative activities, even as they develop teams of partners and subcontractors that will energetically compete with each other.
Recognition of the importance of entrepreneurship and seed and early stage investment is rapidly spreading across the globe, and is now increasingly recognized as also essential to the long-term health of the global aerospace innovation pipeline and ecosystem. The International Astronautical Federation’s establishment in 2007 of a new Entrepreneurship and Investment Technical Committee, which will host the first Entrepreneurship and Investment Symposium within the IAF’s International Astronautical Congress in Glasgow in late September 2008, is a clear indication of this trend. An exchange of ideas among public and private sector stakeholders across geographic boundaries clearly is beneficial in the search for best practices. It is also true that the financial markets, even at the seed and early-stage level, are to an increasing extent international in scope. This means that investors in one nation may wish to invest not only in local opportunities but also in markets elsewhere; this free flow of information, technology and capital accelerates economic growth. That is one reason why representatives of non-US companies have become Space Investment Summit sponsors.
|Recognition of the importance of entrepreneurship and seed and early stage investment is rapidly spreading across the globe, and is now increasingly recognized as also essential to the long-term health of the global aerospace innovation pipeline and ecosystem.|
Turning to the second question, regarding why established companies should assist new startups, a number of important considerations emerge. First, corporations often must limit their risk in new programs because of the conservative preferences of their shareholders; startups, by contrast, can assume higher risks by testing out new concepts and markets on behalf of existing firms. Consequently, such established companies can pursue directions that have been proven by startups to be viable, while avoiding involvement in less promising activities. Also, once startups have become successful, there are many ways that established companies can choose to get involved: teaming, customer/supplier relationships, and acquisition, to name only a few. By sponsoring investment summits, successful companies leverage their credibility to introduce investors to business opportunities, thereby assisting startups in testing new concepts. If investors subsequently decide to provide the seed and early stage capital required for startups to become viable, established companies have undertaken only the expense of an event sponsorship—a bargain, considering what these firms can learn about future business prospects.
Secondly, some established companies want to use sponsorship of space investment summits to emphasize publicly that they themselves can act entrepreneurially—that commercially-oriented innovation is not limited to startups. Even large companies can take bold steps in product and service development, assuming more risks than in their standard product lines but still limiting risks to manageable levels. In effect, by sponsoring entrepreneurially-oriented events, established firms can publicly showcase their commitment to innovation.
A third rationale for helping startups attract investment involves support for space agencies, which often represent contractors’ most important customers. By helping show that commercial space can produce promising new markets, so that space activity can be viewed by the general public as delivering the benefits of economic growth, investment summits can help reinforce advocacy for robust space agency funding. In addition, new products and services may directly help space agencies by lowering their costs, so that they can more effectively accomplish important aspects of their missions. Stronger space agencies may in turn be able to offer a more reliable flow of business to established contractors, in areas where the special competencies of these contractors render them uniquely capable of satisfying agency needs.
Taken together, these three arguments for support of startups’ pursuit of seed and early stage investment capital have helped the Space Investment Summit Coalition attract as financial sponsors some of the space industry’s largest and most respected companies, as well as smaller established firms and new startups: The Boeing Company (Charter Sponsor); European Aeronautic Defense and Space Company (EADS) Astrium; Honeywell; Lockheed Martin; United Space Alliance; Space Systems/Loral; Analytical Graphics, Inc. (AGI); Wyle; Optech; SpaceIsle; Ecliptic Enterprises; 62 Mile Club; and Odyssey Moon. Innovarium Ventures has also provided valuable leadership here. In a separate but related space industry development, recognition of the importance of encouraging entrepreneurial efforts has contributed to formation of a new Emerging Markets Working Group within the Space Enterprise Council, a diverse industry group within the US Chamber of Commerce.
|With continuing common effort, investors may increasingly take note of the only real benchmark of success: a growing array of genuinely solid and sustainable business opportunities, producing consistent and attractive returns on investment.|
As noted earlier, such cooperation is hardly limited to industry—many non-profit organizations have also joined the Coalition effort. Just as with international and industry cooperation, the teaming of such organizations is not something that has come easily nor can be taken for granted. Recognition has recently been growing that there are so few investors willing to pay attention—and so few entrepreneurs able to attract their interest—that a fragmented approach with multiple events might in the end accomplish little. With this in mind, many organizations have come together to support joint events, so that the maximum number of investors may be attracted and the highest quality of business plans may be presented. The price of cooperation is compromise—willingness to focus investment summits only on agreed-upon and relatively narrow issues of investor interest, setting aside organizational differences of philosophy and politics. It is a tribute to the Coalition members that they have been willing to achieve this goal because of their sincere commitment to the shared objective of serving society through innovation-driven economic growth. The list of Supporting Organizations in the Coalition is long and diverse, so that virtually every segment of the space community will find at least one group that represents its views: Space Commerce Roundtable, Space Frontier Foundation, National Space Society, X PRIZE Foundation, Space Foundation, California Space Authority, Alliance for Commercial Enterprises & Education in Space (ACES), Eisenhower Center for Space and Defense Studies, Venture Capital Private Equity Roundtable, Space Tourism Society, and Eighth Continent.
Having answered the fundamental question “Why cooperate?,” the Coalition represents an important international effort to identify and apply best practices in entrepreneurship, as well as seed and early stage investment. This pragmatic transcendence of national and regional rivalries, coupled with an unusual degree of collaboration between established and startup companies, is expected to be of value in ultimately expanding the number and scope of space-related markets. With continuing common effort, investors may increasingly take note of the only real benchmark of success: a growing array of genuinely solid and sustainable business opportunities, producing consistent and attractive returns on investment.
Acknowledgments. For support and contributions in preparing this article, the author would like to thank the members of the Space Investment Summit executive committee—especially Robert Werb, Co-Founder and Chairman of the Board, Space Frontier Foundation—as well as Dr. Burton Lee, Managing Partner of Innovarium Ventures.