RESTON, Va. – John Higginbotham, founder and chairman of SpaceVest, may have had his head in the clouds for almost a decade, but that doesn’t mean his feet are not firmly planted on the ground.
“SpaceVest pioneered the development of institutional venture capital for the space industry,” Higginbotham said.
Most people probably think of shuttle missions and space stations when it comes to the space industry, but Higginbotham argues that the sector is much broader.
“[When people think of space,] they should really be thinking of telecommunication satellites,” he said. VCs have given ground-based telecommunications infrastructure serious attention, but SpaceVest was one of the early VC firms to look at the orbital services that are also necessary for the telecommunications industry.
“The issue for us was that people did not understand the marketplace at all,” said Paul Graziani, chief executive officer of SpaceVest portfolio company Analytical Graphics Inc. (AGI). His firm looked for VC funding for six years before it finally found SpaceVest.
“By that time, we had our presentation down, and three-quarters of the presentation was justifying the marketplace,” Graziani said. “The guys at SpaceVest said, Stop, stop tell us about your company’.”
AGI was the first company in which SpaceVest Fund LP, the firm’s $46 million debut fund, invested in. AGI actually received funding the day after the fund closed in June 1995. Graziani said he searched for other firms focused on the space industry, but he could not find any others. In fact, he still does not know of a firm with a focus like SpaceVest.
Although space is not the firm’s sole focus, SpaceVest invests heavily in space-related technologies. Higginbotham said that over half the firm’s investments could be classified in that area.
While most people also probably think the space industry is tied up in government contracts, SpaceVest is interested in the commercial side of the business.
Higginbotham said AGI is a good example of a SpaceVest portfolio company that supplies ground services to companies involved in the industry. AGI designs and manages satellite software systems – most notably the Satellite Tool Kit which graphically tracks the orbits of satellites.
To put the importance of this software in perspective, Space.com, another SpaceVest portfolio company, quotes a NASA report saying that on June 21, 2000 over 2,600 satellites were in orbit. In article dated September 1999, the Web site quotes another source saying “1,062 low- and medium-altitude commercial communications satellites are expected to be launched through 2006.”
Higginbotham claims the industry is also horizontal, and today space-related companies are involved in a wide range of applications, such as DirecTV Inc., geographic information services and broadband communications.
SpaceVest’s portfolio companies have produced numerous technology spin-offs and have created customers in consumer electronics, health care and transportation.
When Higginbotham started SpaceVest in 1991, the commercial side of the industry was relatively small, and it has grown significantly according to his numbers. In 1990, he said the space industry was a $41 billion global business, only $6 billion of which could be attributed to commercial sources.
His estimates expected the industry to have grown to $125 billion for 2000, and the commercial side would now account for $95 billion. Higginbotham said that those numbers indicate significant overall growth and a significant increase in commercial applications.
“When we started, no investment banks covered the sector,” Higginbotham said. “By our numbers, we now count 14 investment banks with analysts covering the area. This is an emerging market.”
Higginbotham said the commercial side of the industry operates like any other business, and the technology is driven by its applications.
SpaceVest portfolio company Astrovision International Inc. will create video coverage of the Earth from geostationary satellites. When its satellites are in place, the media company will provide full-motion video of any particular area.
Astrovision’s technology should be useful in several industries such as insurance, disaster relief and agriculture. Air traffic controllers may find it helpful in locating planes, and foresters and farmers may be able to use the technology for land-use analysis.
The global mapping may be particularly helpful for meteorologists, especially in extreme weather situations. Higginbotham said that today’s ground-based tornado detection systems give two to four minutes of warning, but he estimated that Astrovision’s technology could increase that warning time to 15 minutes to 20 minutes.
Higginbotham founded SpaceVest in Reston, Va., because of the proximity to the government agencies in Washington. He is also pleased with the growth of the VC community in the mid-Atlantic region. He thinks that northern Virginia is probably one of the top places for entrepreneurs.
SpaceVest follows the “classic VC style,” Higginbotham said. The firm typically invests in companies that are in the middle- to late-stages. He said the firm typically seeks companies with products or services that are in the market or are prepared to enter the market.
While the firm’s main focus is in the space industry, SpaceVest also invests in telecommunications infrastructure, information technology and emerging applications.
Space.com is a space-related portfolio company that would fall in the IT area. Higginbotham calls Space.com an integrated media company that operates the premier space Web site with broad applications in education, entertainment and research. He said the company operates a Web site, produces three publications and has a broadcasting agreement with NBC.
“SpaceVest is the preeminent fund investing in commercial space,” said Space.com CEO Lou Dobbs. “They bring tremendous expertise in space and knowledge of the space industry which is invaluable to us.”
SpaceVest typically invests $3 million to $5 million per company initially with follow-on investments that increase the total investment to $5 million to $10 million. When the firm gets involved with syndicates the portfolio company might net as much as $30 million in a round. Although, Higginbotham said he is very open to co-investors SpaceVest tends to be the lead investor.
“Since we started, we have actively encouraged other private equity investors to get involved to whatever degrees they felt comfortable,” Higginbotham said.
He said the portfolio companies have typically made their exits through trade sales, but he thinks the public markets are beginning to take notice.
The firm is currently investing SpaceVest II LP which closed at $138 million in 1999. The fund has invested in 16 portfolio companies, and Higginbotham said the fund is “nearing the end of its investing life.”
At press time, Fund II has had two exits among its portfolio companies. Cronos Integrated Management Inc., a producer of microelectrical mechanical systems, which is a technology that is used to increase the efficiency of optical switching, was acquired in April by JDS Uniphase Corp. $750 million. Higginbotham indicated that the investors made out very well on the acquisition based on the metrics of his average investment size. Another SpaceVest company, Woodwind Communications Inc. is in the process of being acquired by Vina Technologies Inc.
General partners at SpaceVest include Higginbotham, Frank DiBello, Roger Widing, Ransom Parker and Stephen Rochereau.
Higginbotham said that SpaceVest’s limited partners were mostly large institutions and often were financial institutions. Past LPs include the California Public Employees’ Retirement System, the District of Columbia Retirement Board, Barclays Capital, the Virginia Tech Foundation Inc., the State Teachers’ Retirement System of Ohio and Boeing Co.
Higginbotham indicated information on their next fund would be coming in early 2001.
Following are some of SpaceVest portfolio companies:
Analytical Graphics Inc. (Malvern, Pa.) supplies commercial off-the-shelf software solutions for the space industry eliminating the time, cost and risk associated with custom software development.
There were no co-investors.
ArcSecond Inc. (Sterling, Va.) provides laser-based, 3-D position determination and measurement systems.
Co-investors include CDP Sofinov.
AssureSat Inc. (El Segundo, Calif.) operates back-up services for the geostationary satellites of global telecommunications operators.
Co-investors include Securitas Capital and Ampersand Ventures LLC.
Astrovision International Inc. (North Potomac, Md.) is a global media company creating the first commercial geostationary Earth observation system to provide weather, national event and Earth-viewing content.
Co-investors include CDP Sofinov.
CodeStream Technologies Corp. (Richardson, Texas) provides commercial communications equipment based on code-division-multiple-access (CDMA) optical technologies.
Co-investors include Kline Hawkes California SBIC LP, Capital Communications CDPQ Inc. and Seattle-CTC Investment Partnership.
Cronos Integrated Microsystems Inc. (Research Triangle Park, N.C.) produces microelectrical mechanical systems (MEMS) for optical electronic and fluidic switching applications.
Co-investors include Intel Corp. and Knickerbocker Capital LLC.
Midas Vision Systems Inc. (Wrentham, Mass.) leverages patented algorithms for image analysis to address high density interconnect (HDI) electronic inspection applications on an in-line basis.
Co-investors include Hudson Venture Partners LP, Blue Rock Capital LP and Mid-Atlantic Venture Fund III LP.
Space.com (New York) is a space-related web site, featuring news, information, education, entertainment, science fiction and games.
Co-investors include Venrock Associates, Greylock IX LP, NBC-Holdings Inc., PaineWebber Capital Inc. and Blue Chip Capital Fund III LP.
Vbrick Systems Inc. (Wallingford, Conn.) provides communications equipment that allows the delivery of high-quality video over broadband digital networking infrastructure.
Co-investors include Adams Capital Management LP, Gateway Partners LP, Knickerbocker Capital LLC, Graystone Venture Fund LP and Claflin Capital VII LP.
Woodwind Communications Inc. (Germantown, Md.) sells integrated access devices (IADs) which enable voice and data over broadband.
Co-investors include Novak Biddle Venture Partners II LP, Sterling Venture Partners LP, Boulder Ventures III LP and Alta California Partners II LP.
SpaceVest is located at One Fountain Square, 11911 Freedom Drive, Ste. 500, Reston, Va. 20190. Tel: (703) 904-9800, Fax: (703) 904-0571. The firm’s web site is http://www.spacevest.com.