Why Space Angels Network?

A recent lively Discussion in our IASE Early Stage Finance Group centered on the viability of a space-focused venture fund. The comments reminded me of a similarly lively in-person discussion I had with someone in this community a few months ago about the viability of a space-focused angel investor group, namely Space Angels Network. He asked me some very pointed and astute questions, many of which I didn't have complete answers for at the time. However, that conversation led me to think much more deeply about our justification for creating and growing Space Angels Network. I never shared these thoughts fully with him, but I'll share them here with you (and he'll see the comments as well).

GENESIS OF SPACE ANGELS NETWORK

The basic premise behind Space Angels Network is simple. Angel investment plays a critical role in the Innovation Ecosystem of any industry or region, so the long-term success of the "space entrepreneur" community relies at least in part on the existence of an organized and active angel investor community. However, the current "mainstream" angel investor groups are primarily geographically created and tend to focus on the general expertise of the individual members, which nowadays centers on IT, real estate, retail, and perhaps healthcare. It would be rare to find a local angel investor group with a critical mass of members possessing sufficient aerospace expertise to conclude an investment in such a venture.

This means that space entrepreneurs--who, btw, are geographically dispersed around the U.S., if not the world--have a very difficult time finding those first few wealthy individuals willing to give them funding beyond a "friends and family" financing. Conversely, individual accredited investors interested in early-stage space deals--who, btw, are similarly geographically dispersed--have a very difficult time finding prospective deals. Hence the need for a Web platform that acts as a focal point for both entrepreneurs and investors: Space Angels Network was born.

THE CHALLENGE

So far, so good. The challenge from our colleague came as follows: "except for 'pure space" companies, space is not an industry but rather a place where companies do business." Agreed. Which leads to the question, "Does the 'pure space' industry need a sector-specific angel investor network?" After all, the non-"pure space" companies--which account for BY FAR the largest ROI/revenue/market potential--can always find angel investors via other existing "mainstream" angel groups. Fair enough.

MY RESPONSE

"Pure" Space

The "pure space" companies that make up the space industry definitely need a dedicated angel investor group. Innovation in propulsion systems, launch vehicle design, satellites, etc., must continue to thrive, and relying on government contracts can only take an industry so far. As global commercial needs for "pure space" technologies continue to grow, entrepreneurs looking to capitalize on innovation opportunities will need sources of early stage financing. The business risks associated with "pure space" ventures will preclude investment from "mainstream" angel groups and would justify the need for a space-focused group. Besides, this industry is already a multi-trillion dollar global market with plenty of exit opportunities for early investors.

"Aerospace"

Expanding the scope of such a group via "aerospace" to include perhaps "pure aviation" ventures would only increase the potential of the group and thereby its justification.

Non-"Pure" Space

Even non-"pure space" companies can benefit from a space-focused source of capital. Most entrepreneurs aren't that picky and would gladly accept funding from any investor willing to write a check. However, angels with aerospace experience may even add significant value to a non-"pure space" company. I keep using Slacker as an example, but I'm certain that a satellite radio startup could get funding from a mainstream angel group that likes media deals AS WELL AS from a space-focused angel group that likes satellite deals. Likewise, investors could probably find media deals through their local mainstream angel investor group AS WELL AS from a space-focused group. As long as the group is adding value to the members in the form of additional deal flow and superior service, the group will succeed.

"Angel Groups" versus "VC Funds"

I believe that the ultimate justification for a space-focused angel investor group lies specifically in the difference between an angel investor group and a venture capital fund. I think that there is valid concern over the justification for a space-focused venture fund, if anything because of the interests of the fund's LPs to generate a strong ROI and diversify their portfolios. I think that the challenge put forth above and discussed elsewhere in this community is perfectly valid for a venture fund, mostly because by definition it is managing money for other investors and therefore has a fiduciary duty to them.

However, angel investors do what they do primarily for very personal reasons. Yes, some of them are driven by ROI and diversification. However, most of them are not. Successful angel groups can help their members tap into those personal reasons for being an angel investor to begin with. A space-focused angel group helps its members tap into their passion for anything related to space (whether it be "pure space" or merely "space related"). Ditto for aviation or frankly any other sector. In fact, Investors' Circle has built a very successful angel investor network focused on for-profit socially responsible ventures.

If anything, a space-focused angel group adds MORE value than other "affinity-based" angel investor groups, because (a) it is by nature a group that is not geographically constrained which leads to members expanding their personal and professional networks and (b) it helps members collaborate intelligently on due diligence. Not to knock the models of other successful angel groups, but ... just because two investors live in the same city or attended the same university doesn't necessarily mean that they are in any better position to assess the risk of any particular investment. However, if two investors have relevant industry expertise to bring to bear, it can potentially make them that much better investors. A space-focused angel group would facilitate that kind of interaction in this specific sector.

CONCLUSION

[ This turned into less of a blog post and more of a personal "brain dump" for me. ;-) ]

I know that I run the risk of our colleague (and others) challenging the justification for Space Angels Network here publicly. However, I welcome all feedback (positive and critical), since that is the only way to build a successful venture. I have already vetted most of these thoughts with our team, our Advisors, and our Founding Members, so hopefully we're covering all of our bases. Of course, if you have any feedback, please feel free to post it here or contact me directly.

I also want to thank our colleague for issuing his well-conceived challenge, because it forced me to engage in this self-analysis as well as in strategic conversations with a slew of individuals involved with Space Angels Network. His critical nay-saying and hole-punching helped me to identify the short-comings in the plan and to shore up other weaknesses. As an entrepreneur, it is all too easy to drink your own Kool-Aid, so it is absolutely essential to find someone willing to play devil's advocate. Thank you, and I look forward to ongoing critiques!

I'm fully convinced that there is a need for Space Angels Network (and that it is a worthwhile use of our precious time!). The "only" challenge (ha!) is honing the model and executing on the strategy. I look forward to sharing with you our future accomplishments!