The X Prize Cup Executive Summit Connects Adventurers with Venture Capitalists

HOLLOMAN AIR FORCE BASE, N.M. ? On the eve of the X Prize Cup, executives from companies big and small and a mix of senior government officials gathered here to network and hash out the opportunities and challenges confronting the personal space flight industry and other such ?new space? ventures.

?We?re here to have a conversation. No screens. No PowerPoint slides. We?re here to talk as candidly as we can,? said Peter Diamandis, organizer of the invitation-only X Prize Foundation Executive Summit, which drew over 120 participants.

The day-long conversation, moderated by Diamandis and digital-technology-guru-turned-venture-space-investor Esther Dyson, delved into the challenges space entrepreneurs face working with the government and large corporations, raising investment capital, and sorting out insurance, regulatory and safety considerations.

The big aerospace companies were well represented at the summit, but only Northrop Grumman, sponsor of the $2 million Lunar Lander Challenger taking place this weekend, sent a top executive: Wes Bush, the aerospace and defense giant?s chief operating officer.

Northrop Grumman made waves in the venture space community this summer when it took a majority ownership stake in Scaled Composites, the Mojave, Calif.-based company that built the $10 million Ansari X Prize-winning SpaceShipOne and is currently designing a passenger-carrying suborbital craft for Virgin Galactic.

But Northrop Grumman officials have said it was Scaled?s expertise as builders of innovative aircraft, not its foothold in the personal space flight business, that prompted the acquisition.

Bush said that while Northrop Grumman and the other big prime contractors are interested in venture space opportunities, they are not about to go on a shopping spree for space start-ups.

?Most prime contractors are not interested in majority equity positions in your companies,? Bush said. ?But might we be interested in a minority equity position with a technology exchange in terms of a way of helping you succeed? You bet.?

While Bush?s comments drew guffaws from some participants, Mark Sirangelo, chairman and chief executive of Poway, Calif.-based SpaceDev, said established players and start-ups can work together to mutual benefit. SpaceDev, a space technology firm with orbital aspirations, has built a $30 million business out of a mix of commercial and government contracts.

There was no shortage of discussion at the summit about finding financing for entrepreneurial space ventures.

Christopher Stott, honorary representative to the space community for the Isle of Man ? a tax-free haven in the British Isles for a growing number of space companies ? said government agencies are the last place commercial companies ought to look for customers.

?Governments are lousy customers,? Stott said. ?They are incredibly risky. They pay late, if they pay at all. They cancel contracts on you. They have clauses about Congress changing its mind once a year. Politics intervenes and you investment disappears.??

Some of the start-ups in attendance, however, have used government contracts to further their commercial aims. Case in point: XCOR Aerospace. The Mojave company, a garage shop effort started several years ago by a computer chip designer with a taste for rockets but no formal training, has used small government contracts and grants to build a multi-million dollar propulsion business that is simultaneously developing a methane-fueled engine for NASA while building a fleet of pump-fed rocket-powered airplanes for the nascent Rocket Racing League.

Rich Pournelle, XCOR?s business development manager, said companies such as Northrop Grumman and Virgin Galactic have shown a willingness to invest in space start-ups when their a strategic end game in it for them.

?It seems to me that if there is going to be institutional investment, it?s going to come from companies that have some sort of strategic interest in the back end business that?s created along with this,? Pournelle said.

Burton Lee, managing director of the Space Angels Network, took advantage of the summit to announce the launch of an online platform designed to connect individual accredited investors with space entrepreneurs in need of as little as $50,000 and as much as $5 million to get their businesses off the ground.

But Lee cautioned that personal space flight is still too risky to reliably attract funding even from investors who have a personal interest in space.

?We can?t build an angel network around deals that are represented in this room today. Its just not possible,? Lee said ?We?re trying to build a broad angel investor network community in the only way we now how to do it, which is to broaden the definition of space to include lower risk types of ventures which are closer to what angel investors invest in today. That includes space and IT, space and life sciences, and perhaps upcoming areas such as [unmanned aerial vehicles], aircraft systems, and modernization of the FAA air traffic system, which is going to require a lot of innovation which the primes can?t handle.?

By concentrating initially on some of the lower-risk space-related plays, Lee said he hopes to build a network of angel investors who will eventually warm to some of the longer-shot endeavors represented at the summit.

?So what we are doing is trading some of the passion in human space flight for greater investor confidence in the short run,? Lee said. ?We hope it will pay off with greater passion and a broader investor community for personal space flight down the road,? Lee said.

Dyson said there is a new category of investor between the first-into-the-pool angel-types and the unblinking venture capitalist crowd: so-called archangels like Microsoft co-founder Paul Allen, who made killings in other fields and now want to jump into space for the sheer challenge and excitement of it.

?There?s a real new generation of people coming out of Microsoft and Google [that] instead of buying $100 million yachts like [Oracle Corporation founder] Larry Ellison, some of them are real candidates for investing in this kind of stuff. The earlier generation bough sports teams. Why not buy Rocket Racing League??

Anousheh Ansari, a telecom entrepreneur who flew to the international space station in September 2006 aboard a Russian Soyuz flight arranged by Space Adventures, had some cautionary advice for companies seeking investment from other successful entrepreneurs: be ready to give up control.

?Entrepreneurs generally make lousy VCs, especially when it comes down to making a significant investment, because if you are making a significant investment, you want to run it,? she said. ?We are very opinionated things, even if we don?t know anything about it, it doesn?t stop us.?

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