The failure of Iridium LLC may have cost investors and bankers nearly $5 billion, but space ventures that are breaking ground through the Internet, broadband applications or multimedia content delivery have captured the interest of financiers. John Higginbotham, chairman of venture capital firm SpaceVest in Reston, Va., told SPACE BUSINESS NEWS Editor Nick Mitsis what business developers within the space community need to present in order to obtain the necessary funding for their business ventures and, more importantly, what not to do if they want to succeed. Here is what he had to say:

Space Business News: What kind of attitude shift have you witnessed within the venture capitalist community during the past year?

John Higginbotham: The attitude shift is obvious from the fact that you have a number of groups that are now actively investing in various sectors within the space industry and the investment banking community is starting to mature in its research. For several years now, many investment bankers have had active space analyst groups and they have learned a lot.

SBN: What are some sectors that are now more attractive to the investment community?

Higginbotham: Clearly the Internet applications both in the infrastructure and content, and on the broadband satellite offerings in both space and ground segment are the hot markets right now. Likewise, we think there is a real future in remote sensing and GPS in the commercial world that really were not there five years ago.

SBN: In contrast, what are some industry sectors that presently are not favored by the investment community?

Higginbotham: Well the Big LEO world has clearly had its challenges. We are not, however, completely negative on this sector because we still believe that there are certain applications where LEO-based telecommunications offers the most economical solution. But a lot of the market is very negative toward LEO ventures. Likewise, there are certain government sectors and launch service providers that are challenging where there seems to be a lot of pressure on margins and there are many competitors. Most of the new launcher start-ups require almost prohibitive amounts of money to get up and running before you know whether you have a business or not. That makes it a challenging sector.

SBN: So those working in the RLV sector have a challenging time ahead?

Higginbotham: Given the amount of capital they need, it is a challenge to present an economic justification that can attract that amount of capital. I am not saying it cannot be done, but I am saying that it is not a trivial undertaking.

SBN: What are some key business points an RLV developer then needs to bring to the table to obtain the necessary capital to launch its business?

Higginbotham: There are a couple of things. They must have a functional vehicle and a believable business model in terms of revenue generation and margin generation. For example, they must have paying customers and not merely forecasted paying customers. In addition, the technology base that is being used must have a compelling track record and with the management team that is executing it. A lot of new technology development risk is going to be challenging. If fundamentally previously undemonstrated technology are required to make the business plan feasible, that is just adding risk on top of risk. This holds true especially in an environment where there are multiple alternatives that are much less risk with proven revenue models that are near-term markets.

SBN: How does the formation of strategic partnerships going on within the space community translate into a positive response from the investor community?

Higginbotham: Any type of significant undertaking that has the notion of becoming a national or global competitor needs to be able to accelerate its products or services offering. So partnerships are critical because they help in establishing vendor, distribution and marketing relationships. Such relationships are key in order to accelerate the development of the business. So strategic partnerships in many cases are essential for the viability of the undertaking.

SBN: What sectors benefit most from strategic partnerships?

Higginbotham: This is definitely the case for the broadcasting world whether it be for video or data. Obviously if one wants to become a new satellite operator a strong relationship with vendors is not only useful but required. On the remote sensing side, one clearly has to have strong vendor and distribution relationships. Many mainstream space industry ventures benefit greatly from partnerships.

SBN: Within a business plan, what are some key fundamentals needed beyond market understanding and an investment return timeline?

Higginbotham: Solid management. No business plan is going to be enhanced by bad management. It is all execution risk. More often than not where these companies get into trouble is flawed execution. And you can boil that right back to either lack of experience or lack of knowledge by the management team. For example, we can tell a solid business management plan if evidence shows a strong track record, experience and knowledge of the markets they are trying to serve. If I was going to start a telecommunications company that just happened to use satellites as its means of production, I really would not want to put that under a leadership of an aerospace manufacturer but rather under a telecommunications operator.

SBN: What advice do you have for the entrepreneur wanting to break into the space business?

Higginbotham: Do your homework. Really think through all the ways you can get killed and figure out why you want to put money in this and commit the next 10 years of your life to this business. It is much easier to get something started than to make it work and many entrepreneurs really go off half-cocked. Even though at the end of the day risk is taken and we invest, much risk we see contained in business plans could be either removed or mitigated with just a little more homework or a little more thinking behind how it is really going to work.

SBN: What are the top three warning signs you see that turn you away from investing in a company?

Higginbotham: Under-forecasting the capital requirement, overestimating both the market and ability to enter the market and underestimating the acceptance of the product or service. Just because something is built does not necessarily guarantee anyone will come.