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by John
M. Jurist, M.D.
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 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 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. References
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 If we have inadvertently omitted somebody from this list who provided us with valuable feedback, we apologize. 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). 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 . |