Space race heats up again

The space technology and exploration industry is a growing one, and is starting to attract more interest from private equity and venture capital funds as it begins to mature, and the companies that comprise it start to look that they will actually make some money. It was not always thus.

The industry enjoyed some of the largesse of the private equity industry back in 2000-01, when the technology boom resulted in some funds turning to space exploration as yet another area of cutting-edge research that might benefit from finance. So huge were some of the venture capital war chests at that time, it seemed as if any small business with a core piece of proprietary technology was worth consideration. As technology fell from grace, so the space industry fell with it. Space shuttle disasters – and near-disasters – did not help the industry, fuelling the general aura of negative investment sentiment that cloaked the sector as a whole.

However, all that seems about to change as space comes into its own. It has partly been helped by the interest shown in projects by Richard Branson, whose Virgin Galactic recently signed a memorandum of understanding with NASA to collaborate in a number of technical areas relating to human space transportation.

Such engagements are a recognition of the growing importance of private money in bringing new technology to bear on the space industry. Companies are being forced to demonstrate their ability to make a profit in order to attract private finance. Space is no longer a bottomless pit for American and European tax dollars to be poured into. It seems as if a new generation of entrepreneurs will be the ones who pick up the baton and help businesses to capitalise on new technology breakthroughs in this area.

Space tourism

Space tourism has been doing wonders for the sector in terms of positive publicity. Apart from Branson, PayPal billionaire Elon Musk has set up SpaceX, and Amazon's Jeff Bezos has founded Blue Origin. Burt Rutan of Scaled Composites is being backed by Microsoft's Paul Allen to build an eight seater space vessel.

"The technology to do sub-orbital space tourism on small rockets that fly straight up and down, without going around the Earth, is relatively straightforward," says Steve Bennett, CEO of Starchaser Industries, originally set up in 1998 to develop re-usable vehicles to get people and satellites into orbit more cheaply.

Starchaser's medium to long term goal is to make money from flying space tourists, and expects to be launching paying passengers by 2010. In Bennett's view, "very conservative estimates" suggest a turnover of over £21 million by 2015, with profits of over £4 million. "Space tourism is about to happen and in a big way," says Bennett. "From an investment point of view it's going to be as big, if not bigger, than the dot com boom of the 1990s."

The sky's the limit as far as Starchaser's ambitions go. It is currently in the process of purchasing 122 acres of interstate frontage land in New Mexico, just 50 miles from the $230 million space port that the New Mexico state government is building to enable tourism launches. It is also currently building offices and a retail and exhibition area on its development site near Las Cruces, called Rocket City.

Eventually, Starchaser is planning an IPO, but prior to that it is seeking investment from high net worth individuals to raise £3 million, that will cover the Rocket City development and support continued development of its spaceship. "We would be looking to do the IPO in 2010 with a view to doubling the value of our investors' holding at that time," says Bennett.

Bringing cheap and reliable launch technology to the market could conceivably make a lot of these entrepreneurs (and their backers) very wealthy men indeed. David Ashford, founder and CEO of Bristol Spaceplanes, has been working on the Ascender, an aerodynamic design that looks radically different from the rocket-shaped Starchaser vehicle. He thinks it will take $3-10 million in funding to make the Ascender fly. "The main obstacle to this new market is mind-set," Ashford says. "The large government space agencies and their major contractors are locked into a missile culture and are only just beginning to consider the prospect of low-cost spaceplanes. Space travel is about to be transformed. Space tourism for the wealthy has already started. This will provide the funding to develop lower-cost transport to orbit, using aeroplanes instead of the present missile-based vehicles. This will lead to airline-like travel to orbit and a one thousand times reduction in the cost of sending people to orbit."

Satellites in Surrey?

No article on this subject is complete without mentioning satellites, however. The global communications boom has led to an increased demand for cheaper launch facilities, as more companies and governments require their own ‘birds' in orbit. Companies specialising in this area, like Surrey Satellite Technology, a venture by the University of Surrey, are looking potentially very profitable indeed, and are consequently attracting venture capital interest.

John Forrest, deputy chairman of SSTL, says his company's success is down to its full order book. It specialises in smaller satellites, usually under 500 kilos, and has seen strong demand from the commercial and military sectors alike. Demand is increasing for cheap and efficient satellites, used for everything from studying crop patterns to detecting tsunamis. "We're considering an IPO for the simple reason that the company is growing so fast, it was deemed no longer appropriate to be owned by the university," he says.

SSTL is a good example of a space technology company making money now, hence the venture capital interest. It has launched seven small satellite missions since 2001 and has all the work it needs going forwards. As the ability to launch vehicles into space becomes cheaper, and increasingly within the remit of commercial entities, investors can expect more opportunities of this sort to emerge, but it will require them to keep in close contact with the individuals running these enterprises. Not everyone has Branson's profile!