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Venturing into space
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February 16, 1999: 12:27 a.m. ET
SpaceVest's second fund makes its first investment, sees growth in future
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SAN FRANCISCO (The Red Herring) - Venture capital is making headway in space.
SpaceVest, a Reston, Va.-based venture capital firm that focuses on the space industry, just announced its new fund, SpaceVest II, with $66 million in capital.
Armed with new capital, SpaceVest quickly made the first investment of its new fund in MSI Software. This Fairfax, Virginia-based company develops health-care workforce scheduling software. Its software technology is derived from an architecture originally developed for spacecraft altitude monitoring and control systems.
Space-age strategy
The new fund's investment strategy will continue to focus on space-age technology, which the firm defines very broadly. "More deals and larger deals in the same sectors," says John Higginbotham, founder and chairman of SpaceVest. The company will focus on four sectors within its definition of the space industry: telecommunications, infrastructure, emerging applications (like remote sensing and global positioning systems) and support services.
According to Higginbotham, "We favor telecommunications on the infrastructure side," with about one-third of the investments from its previous fund going to this area. The other favored area is telecommunication services. Basically, SpaceVest is interested in anything satellite-related.
Limited partners or investors in SpaceVest II include State Teachers Retirement System of Ohio; Sofical, a subsidiary of Caisse de Dépôt et Placement du Québec; and PNC Bank, North America (PNC) . The firm plans to add a few more investors to the fund and increase its size by the end of March.
Status check
The Red Herring spoke with Higginbotham last summer about his firm, SpaceVest, and its investments. At the time, he said that SpaceVest's first two portfolio companies would be going public by the end of 1998. Neither Constellation Communications, which uses satellites for local and long-distance telecommunication services to rural regions, nor Analytical Graphics, which develops operational software for satellites, went public last year.
Analytical Graphics did file for an IPO, but chose to pull the offering. "Because of market volatility," says Higginbotham, "we elected to delay."
When asked about Constellation Communications, Higginbotham declares that he is "not at liberty to speak about the current situation." Exhibiting classic Capital Hill double-talk, he hinted that a positive announcement about the company would be made soon.
No returns yet
So far, according to Higginbotham, SpaceVest has not exited, whether by IPO or acquisition, from any of its 11 prior investments in its first fund. This doesn't bother Higginbotham, since he maintains that at least one exit is imminent.
He also doesn't feel that competition between venture capitalists is a problem in the space sector. Unlike the overfunded technology sectors of Silicon Valley, Higginbotham says, the space sector's problem "is less competition than an undersupply of capital."
It looks like there's room for a few more venture capital firms in space.
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