Avanti: David Williams

The first entrepreneur to launch a satellite in Europe gives us the lowdown on preparing for lift-off


Turned down by 234 venture capitalists. Ridiculed by his peers. The first entrepreneur to launch a satellite in Europe gives us the lowdown on shaking up a market, raising £86m and preparing for lift-off
The horse is here to stay, but the automobile is only a novelty – a fad.” This was the sage advice that a president of the Michigan Savings Bank gave Henry Ford’s lawyer when he planned to invest in Ford stock. Luckily for him, he didn’t listen, and he sold his $5,000 investment for $12.5m. There’s a lesson here: if the people behind the commercialisation of the world’s most life-changing inventions had listened to those who thought they were crazy, we wouldn’t be left with many.

Just ask David Williams. As the first and only entrepreneur in Europe ever to deploy a satellite, he has endured more than his fair share of doubters. Nevertheless, he has raised £86m to build and launch Hylas, including £32m in bank debt secured on the brink of the credit crunch, and ‘lift-off’ has been set for March 2009.

The birth of Hylas

 

When you consider that Williams has no entrepreneurial track record, what he has achieved is all the more impressive. His trump card has been his substantial industry expertise, helped greatly by his natural talent for the art of persuasion. Williams was a banker for 10 years prior to launching Avanti in 2000, working in the telecoms industry financing mobile phone, cable and satellite businesses. This gave him a rare insight into how to enter a market that, at first glance, seemed guarded by insurmountable barriers, not least the required acquisition of a satellite licence. “I had seen that it was possible for a small company to get a satellite licence when I was working in the City, but only under some very specific circumstances,” he says.

So, when Sky bought BSB and its licence went back to the government, Williams and his business partner, astrophysicist David Bestwick, saw an opportunity to pick it up. This was unprecedented in Europe, where the satellite industry was “very small, cliquey and conservative”, consisting mainly of ex-government owned companies, and certainly not a space that entrepreneurs were playing in. For a start, the regulatory system demands that a licence can only be awarded if the applicant has sufficient funding in place to use it. “We had to create a business that was capable of sustaining a £100m investment,” says Williams.

To this end, he and Bestwick tried to build a business that would trade satellite bandwidth to generate the scale that would support the award of the licence. But it didn’t quite turn out that way. The company’s first piece of trading involved supplying satellite services to shops that wanted private TV stations. Noticing they were making a fairly small margin, Bestwick and Williams realised that if they also supplied the hardware and the content, they’d make more money. Avanti Screenmedia was born.

“I’d never intended to employ lots of advertising salespeople and TV producers, but there seemed to be a market there, so we went after it,” says Williams. “We used that business to give us scale, and ultimately that enabled us to persuade the government to give us a licence.” Following an AIM listing in 2004 and with the former BSB licence granted in 2005, Avanti raised £50m equity in 2005/6. Screenmedia was demerged in 2007, leaving Williams and Bestwick free to focus on Avanti Communications.

Shaking up a market

Proving there was a market for this business has been a huge challenge. However, Williams has remained resolute. “People told us that a small, start-up satellite operator couldn’t break into this quasi-monopoly and find a market for its goods and services,” says Williams, “but I was in the telecoms industry when BT was deregulated, and suddenly, all of these challenger brands emerged.”

Even with the licence rubber stamped, many believed they were in way over their heads. “They’ve only stopped saying that quite recently,” laughs Williams. Many were baffled by the scope of their ambition, which meant that raising the necessary funds was a very hard slog. “I got turned down by 234 venture capital  companies,” he adds. They all thought Avanti’s plans were too risky. Few believed in Hylas in the early days and Williams recalls being derided for the concept, all because, he says, the satellite industry is not good at employing new business models or technology. Avanti is doing both.

“Our business plan was very different from anything anyone had ever seen before,” explains Williams. “First, no one had ever invested in a fixed satellite services operator in the UK before, and second, it’s a big challenge to say: ‘We’re going to use technology that no one’s ever used before to take on this huge, well-established industry, where our competitors are multi-billion pound companies.’ It’s a real David and Goliath story, so it’s not surprising that many people told us that we were crazy, stupid, or both.” These days the cynics are in the minority, and the one VC who did take a punt in the early days recently made a five-fold return on the investment.

The model is business to business. Avanti will never sell directly to end users, and Hylas will use an emerging satellite technology called KA band, which has a number of potential uses in data services. For example, Williams believes there are huge opportunities within the military and intelligence services, due to the level of data security KA band provides. “Anyone who wants to distribute data in a highly secure, encrypted fashion finds that KA band satellites are possibly the best way of doing it, because you don’t go anywhere near the public internet,” he says.

It can also be used for broadband and corporate data networks, such as the distribution of real-time trading information from a supermarket till to head office, and for wholesale video transactions, which aggregate all the footage from various TV and production companies before programmes are broadcast.

The technology that has traditionally been used in satellite communications (KU band) is far less suited to data services, Williams says, and its capacity is running low. So, although many people doubted there was a market for satellite data services at first, it’s looking increasingly likely that, in line with the company’s predictions, the satellite industry is going to split down the middle. “Data stuff goes to KA; and video stuff stays with KU,” says Williams. “It’s always nice to be proved right.” And when Hylas launches in 2009, Avanti will be way ahead of the game.

Managing the risks

In the meantime, revenue is being created by providing data services on rented satellite capacity, which has enabled Avanti to iron out any kinks in its software and processes prior to launch. “We’ve de-bugged our system so that on the day we launch, all our staff know what to do – and how, when and why,” explains Williams. It’s also a useful exercise in sales and marketing. Companies that want services today can get them cheaply if they make a commitment to Hylas.

Williams is not worried about the prospect of the technology letting him down come launch day. “There’s really no danger of the technology not working,” he says. “It is tested extensively on the ground. If we get close to launch and the technology doesn’t work, then the manufacturer would have to give me all of my money back!”

The satellite is being manufactured in Portsmouth by EADS, the pan-European aerospace and defence company, and Avanti’s engineering staff were recruited by Bestwick, who, after 20 years in the satellite industry, has a deep network of contacts.

The main risk, he says, has been proving the commercial business model, especially when many people said there was no market for satellite broadband. “History has proved them to be wrong,” Williams says with a smile, adding that KA was the buzz of a big industry conference in Washington earlier this year. US company Wild Blue launched a KA band satellite in the States two years ago and already it has run out of capacity.

Avanti’s AIM status has also helped to change the minds of its ever-decreasing number of doubters. “Having the credibility and the transparency of a public quotation gives people confidence that you are a properly constituted business when they see you’ve gone through the necessary due diligence,” says Williams.

Ready for lift-off

Avanti is now pre-selling space on Hylas, and it currently has customers for about 9% of its capacity, which are a combination of broadband service providers, wholesale video providers and corporate data networks. There are only eight fixed satellite service operators in Europe, and Avanti will be the first to launch a KA band satellite here in 2009. Customers will pay on a monthly basis, per Megahertz, and the last transaction they reported was £1,400 per Megahertz, per month. Assuming all 3,000 Megahertz are sold for this price, Hylas has the potential to bring home £50m a year. Williams is now looking to export the same business model to regions including the Middle East, Asia and Africa, where there’s huge demand and similarly no competition in KA band, with the aim of having four satellites in orbit by 2012.

Avanti is also beginning a project to provide e-learning over satellite broadband to orphanages in the developing world, and is working on several government-funded schemes to use satellite technology in managing transportation flows and pollution. Williams talks of tentative plans to venture beyond Mars with satellites and communicate with future manned missions. “But that’s an idea for much further into the future!” he says, pre-empting shareholder jitters.

He’s also looking at more “efficient” funding options for the future, as he feels that current market conditions are restricting his share price. “In a bad capital market, people try to put their money in places where they know it’s safe and highly liquid,” he says, with investors pulling their money from small cap companies in search of blue-chip homes for their cash, hurting the smaller end of the market in the process.

Subsequently, raising more money as equity is not his preferred route. “I’m trying to find some partners that will enable me to raise finance more efficiently, and we’re very close to pulling that off, so I expect to be ordering some more satellites this year.” Rather than seeking equity partners, Williams is looking for customers who are prepared to make large commitments in return for favourable rates. “I can give them incredible prices,” he says, “because I’ve got lots of capacity to sell, potentially, and I can use their revenue commitments to raise efficient debt finance.”

Beating the cynics

After £86m of investment, the stakes are unnervingly high. “All of my family assets were tied up in this company for a long time, and David and I were running on empty for a few years,” Williams recalls. “We were never quite bankrupt, but we were a hair’s breadth away from it for a couple of years.” The fact that the company is still here is a testament to the founders’ determination.

While raising the funding and ensuring Hylas’ launch against the odds has been his proudest achievement so far, he concedes that dealing with the cynics has been draining and looks forward to the day when he will have proved his business model beyond any doubt. “Being told that you are wrong, or mad by a lot of people can get you down,” he says. “It’s very wearing to be told all the time that your business is stupid and it’s not going to work. You have to have a special kind of fortitude not to let that stop you.”

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