When Physics, Economics, and Reality Collide
The Challenge of Cheap Orbital Access


John M. Jurist, M.D.
Sam Dinkin, Ph.D
David Livingston, DBA

Contents - Section Four

Investor Concerns
The Authors

Investor Concerns

In addition to potential return on investment in the context of opportunity costs, what are some of the concerns of potential alt.space startup investors – particularly angel investors?
The fundamental concern is whether or not the existing team can accomplish its stated goals. In order to do so, the team must have a realistic definition of those goals. That means not adhering to the “build it and they will come” philosophy. Instead, the team must specifically define its target market or markets by depth and size in the business plan. If the existing team does not have the depth to do so, it must be willing to recognize that shortcoming and have a plan to recruit the talent required to do so.

The courtship of the potential investor is highly variable. Ideally, it should be conducted in a business-like manner. That means, first and foremost, having a convincing business plan. Risk factors that alert a potential investor to a lack of business acumen in the startup team include dismissal of other disciplinary contributions. Many alt.space startups project the attitude, rightly or wrongly, that they are great engineers and don’t need a finance person’s help. Yet, they may not understand what “present value” means. Even worse, denigration of other startups or potential competitors displays a destructive, unhealthy attitude to the potential investor.

The time to implement adequate financial and management data tracking systems is before expanding into a prolonged technical development process. During a period of expansion, implementing these systems is an additional headache. This also holds true for staff recruiting and expansion as well as capitalization. It is a red flag for the potential investor if the principals casually talk about staff expansion by orders of magnitude. For example, the statement “There are 4 of us, but we will hire 50 engineers and technicians the month after we raise the money and can fly within two years” does not pass the credibility test of the experienced investor. A team component must have a track record demonstrating the ability to raise capital or the offering should contain an escrow provision. The offering should obligate the team to providing at least quarterly properly annotated financial summaries to angel investors. If it does not, and if the potential investor senses even a hint that the principals are not familiar with, and do not intend to carefully adhere to, securities rules, he or she should pass on the offering. Other financial considerations that alert the potential investor to an unrealistic business attitude is a balance sheet with intellectual property dominating the asset list, a failure to convincingly demonstrate an expected ROI that is competitive with alternative investments, and no realistic budget allocation for regulatory compliance, licensing, etc.

Although many angel investors in startups are willing to overlook significant deficiencies if they expect that the management team can grow or mature into business-like behavior, any hint of the following will generally result in the potential investor forgoing the investment:

• The principals cannot understand why the “coolness factor” is not enough to get capital.
• The principals display a casual attitude about angel investors and shareholders and show no inclination to use the skills of those investors in the management of the business.
• The organization displays obsessive secrecy about plans, markets, progress to date, etc.
• The corporate web site uses the present tense to describe concepts without associated hardware as in “We offer cheap access to LEO,” when current reality is “We eventually hope to offer cheap access to LEO.” This is akin to vaporware in the software industry.
• The announced corporate goals expand more rapidly than milestone achievements. For example, the first announced goal of achieving LEO is renounced in favor of the goal of rescuing the Hubble telescope without ever having achieved LEO.
• The corporate team spends disproportionate energy on news releases and interviews about their goals rather than working quietly to make those goals happen. News coverage is seductive and can be a gigantic sink for creative energy best expended on the business. A corollary of this observation is that management energy spent on logo shirt design is energy not spent on the business.


The critical factors in making RLVs cheaper than $1,000 per pound is lobbying, negotiating, or exiting to lower range fees, lobbying to lower liability insurance standards, auctioning payload and liability insurance, and self-insuring the vehicle. Even the best engineering will not help if range fees and insurance consume $1,000 to $1,300 per pound. The flight program must be numerous enough to recoup R&D costs and short enough that interest costs on vehicles and R&D do not swamp profits. The ultimate reliability of the vehicle must be high to lower insurance costs and increase demand, but not so high as to unduly impact R&D and production costs and utilization levels. The lobbying involves nontechnical issues and the outcome is far from assured.

Finally, a successful private-sector suborbital industry based on solid business, planning, financial, accounting, marketing, and management operations can lead to the same type of success for orbital space access. Streamlining operations based on business know how should not be discounted because entrepreneurs doing this in the suborbital industry will be successful businessmen. When success can be demonstrated in the suborbital industry and starts evolving into low cost orbital space access, there will be verifiable track records and established management teams. These are the basics needed to attract capital and assure success.

Thus, it is not impossible to achieve launch costs of less than $1,000 per pound, but demonstration will require more than a snapshot of a mature industry. Until there is a major change to the rules of the game, inelastic demand will provide incentives to stay in the status quo. Getting to the required flight rate for profitability may take too long to be commercially feasible.

Any governmental policy maker, corporate CEO, or entrepreneur who believes that the current economic state of affairs in space transportation is amenable to profitable commercial enterprise (outside of very limited niche markets) is sorely mistaken [Ref. 9].

Nevertheless, we believe that an evolutionary process from commercial suborbital vehicles to commercial orbital vehicles with capability of carrying passengers is feasible given realistic planning and financial goals and careful definition of the market. Ultimately, this evolutionary process will convert us into a space-faring society.


1. T. Taylor, “Propulsion of Space Vehicles”, in R. Marshak Perspectives in Modern Physics. Wiley-Interscience, New York, 1966.
2. R. Baker Jr. and M. Makemson: An Introduction to Astrodynamics. Academic Press, New York, 1960.
3. Zaehringer and S. Whitfield: Rocket Science. Apogee Books, Burlington, Ontario, Canada, 2004.
4. Berman: The Physical Principles of Astronautics. John Wiley & Sons, Inc., New York, 1961.
5. G. Sutton: Rocket Propulsion Elements, 6th Edition. John Wiley & Sons, Inc., New York, 1992.
6. Space Exploration Technologies Corporation (SpaceX): Corporate Website. www.spacex.com. June 9, 2005.
7. D. Klumpar, Space Science and Engineering Laboratory, Montana State University, personal communication, May 11, 2005.
8. Orbital Sciences Corporation: Corporate Website. www.orbital.com. June 9, 2005.
9. G. Henry: The Decision Maker’s Guide to Robust, Reliable and Inexpensive Access to Space. Occasional Paper No. 37, Air War College, Maxwell AFB, AL, July, 2004.
10. Antonov: Website. members.lycos.uk/aerospace21/antonov/an-225. June 1, 2005.
11. M. Sarigul-Klijn and N. Sarigul-Klijn: A Study of Air Launch Methods for RLVs. American Institute of Aeronautics and Astronautics Paper 2001-4619, 2001.
12. General Distributing Company, 1375 4th Avenue North, Billings, MT 59101, telephone conversation with sales manager, January 13, 2005.
13. Airbus: Corporate Website. www.airbus.com. February 4, 2005.
14. T. Kuennen, H. Knorreck, M. Elson, and S. Buckley: Reducing the cost of launching small satellites: A perspective from the field. Paper SSC04-X-1, Proc. 18th Annual AIAA/USU Conference on Small Satellites, Logan, UT 2004.
15. L. Dobbs and H. Newquist: Space: The Next Business Frontier. Pocket Books, New York, 2001.
16. Futron Corporation: Design Reliability Comparison for SpaceX Falcon Vehicles. http://www.spacex.com/ FutronDesignReliability.pdf. November, 2004.
17. Doman, T. Duchen, M. Markus: Brokers vs. Insurers. McKinsey Quarterly, No. 3, 1999.
18. Jonathan’s Space Home Page: http://planet4589.org/space/lvdb/index.html. March 20, 2005.
19. P. Collins:
20. D. Ashford: Spaceflight Revolution. Imperial College Press, London, 2002.
21. J. Muncy: Interview on The Space Show, May 16, 2005.
22. Orbital Sciences Corporation: Pegasus User’s Guide Release 5.0. August, 2000.
23. Bloomberg: http://spinwatch.server101.com/modules.php?name=News&file=article&sid=341, December 31, 2004.
24. Truth and Politics: http://www.truthandpolitics.org/2004-outlays-summary.php, 2004.
25. Midwest Airlines: Corporate Website. www.midwestairlines.com.
26. http://science.compulenta.ru/188775/. June 24, 2005.
27. S. O’Keefe: Wired Website: www.wired.com/wired/archive/12.12/okeefe.html. December, 2004.
28. M. Griffin: http://www.spaceref.com/news/viewnews.html.?id=1034. June 21, 2005.
29. R. Cringley: What Carly Will Be Missing: High-Tech is Going Through Another Revolution, and Ms. Fiorina Couldn’t Keep Up. February 10, 2005. Text available at www.pbs.org/cringely/pulpit/pulpit20050210.html.
30. Spacefuture: Corporate Website. www.spacefuture.com.
31. P. Collins and K. Isozaki: The Japanese Rocket Society’s Space Tourism Research. International Symposium on Space Tourism, Bremen, Germany, March 20-22, 1997. Text available at www.spacefuture.com/archive.
32. M. Crichton: Aliens Cause Global Warming. Lecture at the California Institute of Technology, Pasadena, CA, January 17, 2003. Text available at www.crichton-official.com/speeches/index.html .


Any errors or omissions in this paper are the responsibility of the authors. However, we thank the following for their helpful discussions, comments, and criticisms:

Mr. Shubber Ali
Dr. Loren Acton
Mr. David Ashford
Mr. Pat Bahn
Mr. Jim Benson
Dr. Patrick Collins
Mr. Paul J. Contursi
Mr. Monte Davis
Dr. Brad Edwards
Dr. Jeff Foust
Mr. John Garvey
Mr. Kevin Greene
LTC Gary Henry, USAF
Nathan Horsley, Esq.
Ms. Joan Horvath
Dr. Dave Klumpar
Mr. Joe Latrell
Mr. Clark Lindsey
Mr. Thomas A. Olson
Mr. Charles Pooley
Dr. Jerry Pournelle
David Rankin, Esq.
Dr. Eligar Sedeh
Mr. Rand Simberg
Dr. Harvey Willenberg
Mr. Al Zaehringer

If we have inadvertently omitted somebody from this list who provided us with valuable feedback, we apologize.

The Authors

Dr. John Jurist is a biophysicist with a long-standing interest in human factors in space flight. In addition to occasional consulting, John is an investor in XCOR Aerospace, has supported other alt.space start-up activities with grants, and is currently funding certain rocket propulsion projects in the Space Science and Engineering Laboratory at Montana State University and certain avionics projects in the Robotics Laboratory at Santa Clara University. He also writes a periodic column on human factors in space flight (www.thespacereview.com).
He earned his undergraduate degree in physics at UCLA and graduate degrees in biophysics and nuclear medicine while at the UCLA School of Medicine. After postdoctoral training in the Department of Radiology at the University of Wisconsin, he held faculty positions in the Division of Orthopedic Surgery and in the Space Science and Engineering Center at that same institution. As a researcher, he led the team that first transmitted medical X-ray images over satellite links in a forerunner of modern telemedicine, studied the effects of weightlessness on bone metabolism, and studied methods of noninvasively evaluating bone strength in humans.

Among other professional associations, John is currently a Life Member of the Aerospace Medical Association (Space Medicine Branch) and a Fellow of the Clinical Medicine Section of the Gerontological Society. John was appointed by the Governor of Montana to the Board of Health and Environmental Sciences, founded and ran a research institute at a large medical center, was CEO of an ambulatory surgical center, and has held adjunct or part time professorships in physics, engineering, and medical sciences in the Montana State University System.

The opinions expressed in this paper do not necessarily reflect the opinions or policies of XCOR Aerospace, Montana State University, or Santa Clara University.

John currently resides in Billings, Montana and can be contacted at JMJSpace@aol.com .

Dr. Sam Dinkin is a regular columnist at The Space Review and the founder of SpaceShot, Inc. He is a space investor in early stage companies. Sam is also the sponsor of the Space Journalism Prize and is currently forming the Space Journalism Association.

Sam is also Chief Economist of Optimal Auctions, Inc. He designed and implemented auctions for over $90 billion in cost of goods sold including all of the electricity for New Jersey rate payers since 2002. Prior to that, he was an applied visionary at IBM Research. While there, he filed over 100 patents including a recently granted broad patent covering all externally adjustable medical implants.

Sam’s Ph.D. in economics from the University of Arizona was under thesis advisor Vernon Smith, 2002 Nobel Laureate in economics. His B.S. in economics is from Caltech.

Sam can be contacted at thespacereview@dinkin.com.

Dr. David Livingston is the founder and host of the nation’s only talk radio show focusing on increasing space commerce, developing space tourism, and facilitating our move to a space-faring culture. “The Space Show®” is broadcast twice weekly on radio, the internet, and on satellite.

David is currently an adjunct professor at the University of North Dakota Graduate School of Space Studies teaching “Ethics and Space Commerce.” He also served as an adjunct professor in the Graduate School of Business at Golden Gate University where he taught “Entrepreneurship and Small Business Management.” He earned his B.A. from the University of Arizona, an M.B.A. in International Business Management from Golden Gate University in San Francisco, and his doctorate in business administration (D.B.A.) at Golden Gate University. His doctoral dissertation was titled Outer Space Commerce: Its History and Prospects.

David has spoken at or had his papers presented at various international space conferences including Space and Robotics, the Mars Society conferences, the Lunar Development Conferences, IAA, the Cato Institute, the World Space Conference, and the National Space Society Conference. His lecture topics include business ethics, corporate responsibility for off-Earth business ventures and New Space Industries, venture capital financing for new space businesses, RLVs and space tourism, effective business, strategic, and assumption planning, and developing the solutions to the barriers to space enterprise. David has appeared as a guest on the Coast to Coast radio program discussing space commerce and tourism, Red FM in Cork, Ireland discussing space tourism and doing space news updates, and as a guest on other national talk shows, both on the radio and the internet. He is also an active member of several space advocacy organizations.

When not occupied or working with space matters, David is a business consultant, financial advisor, and strategic planner. For more than 25 years, he has worked in oil and gas exploration, real estate development and sales, finance, marketing, and direct advertising and sales. He currently specializes in solving business problems for entrepreneurial operations, startups, and businesses with 10 or fewer employees in addition to his writing, lecturing, and consulting on commercial space matters.

David can be contacted at drspace@thespaceshow.com .

<< Return to Section 3 / Go to Appendices >>