Getting your space business investment ready

Successfully gaining investment for your space business requires you to think about how to become investment ready long before you start pitching. Many factors determine whether investors will be interested in investing in your business and how much they are willing to invest – the vast majority are in your control. To ensure that your business can be as appealing to investment as possible, it is important to prepare in advance and start putting in place the right processes now. In this article we have identified what matters the most.

Financials

The financial performance of your business will make or break investment. Make sure that you can present your business in its best light.

• Reporting systems: The investment process will require you to provide current financial results, future budgets and forecasts. Ensure that your business can generate this information accurately and quickly. This will reassure investors that adequate financial controls and systems are in place.

• Identify weaknesses: Have your financial statements reviewed by external accounting experts. The review may point out weaknesses, giving you time to implement improvements and correct issues. Investment into space businesses is increasingly being awarded to profit generating enterprises – if your business is not generating profit already, have a realistic plan to show future viability.

Management

Management are integral to the profitability of your business and significant value resides in the individuals which manage it.

• Management team: Spend time and resources in developing a strong management team. Potential investors will be more likely to invest in your business if you are not critical to its management. Reducing the input required from you will also expand the range of potential investors and give you more time to explore your future options.

• Incentivisation: Your management team will play a vital role in the investment process, providing information requested and answering numerous questions from potential investors.  Ensuring that they are adequately incentivised so that they 'buy in' to your investment process will help it to run as smoothly as possible.

Operations

Review how your business operates and pre-empt and address issues for investors.

• Diversification: Over-reliance on key customers or suppliers increases risk. Identify alternatives and, where possible, hedge exposure across multiple counterparties. Key customer relationships need to be spread over several employees to avoid value being ascribed to individuals and not your business.

• Remove non-business assets and liabilities: Including in your business personal and non-business assets and costs (even if for legitimate tax-planning purposes) will complicate the sale process. Look to separate these out in advance where possible.

• Record keeping: Review your business's books and records to identify and address issues.  Ensure that key customer, supplier and employee contracts are in place and that there are no gaps in the documentation showing your ownership of the business.

• International: Space necessitates working across Earth-based borders. Think about how to evidence the strength of your international relationships and show diversification of partners.

Employees

Your staff and the way they work are a key part of the business and a factor to be considered during the investment process.

• Employment contracts: Ensure these are to hand with clear explanations of any benefits packages, notice periods, and expected ways of working.

• HR policies: How your staff work within the business is becoming increasingly relevant for investors. Be able to articulate the culture in your business and why this ethos adds to its value. The space sector is facing a skills shortage and recruiting if key staff leave may be difficult. Address your retention and continuity plans.

• Pensions: Have pension scheme details and actuarial valuation reports ready.

Intellectual property

For many of the space businesses we work with, their IP has significant value and is therefore an absolutely crucial element for potential investors and purchasers. To protect that value and maximise your attractiveness to investors your IP protection and rights need to be watertight. 

• Confidentiality: Ensure that any conversations you have with any third parties concerning your existing intellectual property are covered by a confidentiality agreement.

• Intellectual Property Audit: Identify existing and potential IP assets and identify coverage and gaps in protecting your IP assets.

• Registerable Intellectual Property:  Investigate potential applications for registration of any patents, registered designs and trademarks ensuring that up-to-date records are well-maintained.

• Employment Contracts: Ensure your employment contracts include appropriate confidentiality obligations and assignments of intellectual property rights and that this has been explained to employees to iron out any misunderstandings.

• Academic start-ups: Space start-ups often spin out of university working groups. Check that any IP created during the period prior to the business being incorporated is owned by the business.

ESG

Investors are increasingly likely to have to report on their own ESG targets, which means they will investigate your impact. A good example of this is Seraphim, one of the leading investors in the space sector, which has launched its own ESG Investment monitoring tool.

• Privacy and data protection: Surveillance and tracking is a key use of space data, from measuring footfall at shopping centres to tracking peak hours at service stations. Look to have any data protection and privacy issues ironed out before the investment process starts.

• Environmental impact: However unfairly, space can be seen as a polluting industry when equated only with rocket launches. Be transparent about your environmental impact and aim to demonstrate biodiversity net gain and a positive impact where possible.

• Sustainability: If your business involves launching, have debris mitigation plans in place and consider in-orbit servicing. Plan for sustainable de-orbit at end of life and be able to explain this.

Advice

You know your business better than anyone, and you will already know where the value in your business lies and how that will appeal to investors at a commercial level. Engaging experienced legal advisors who are embedded in the space sector at an early stage is key to maximising and protecting that value and securing successful investment.  Relevant experience and specialism is integral to robust investment preparations and their guidance during the investment process will add substantial value and peace of mind, in what is a complex process. 

Foot Anstey's specialist space lawyers are experienced in all aspects of investment (both helping space business become investment ready and the investment process itself) and can provide advice and support throughout your investment journey. We have the advantage of also acting for investors and funders across multiple sectors, so we know exactly what prospective investors are looking for. Becoming investment ready is an iterative process so do speak to us at any stage of your journey.