Challenges Ahead for New Space Investors

NEW YORK — New startups hoping to make their mark on the space industry still face high entry barriers just to cover their initial costs, investors said Wednesday.

The high cost and risks associated with new commercial ventures, as well as the bureaucratic government hoops they have to jump through, provide substantial barriers for nascent companies aiming for space, experts said during the 2008 Space Business Forum here presented by the Space Foundation, a non-profit advocacy organization.

According to the foundation?s Space Report 2008, the space industry generated about $251 billion in revenue worldwide in 2007, an 11 percent increase from $225 billion in 2006. About 69 percent of that 2007 revenue was the result of commercial activity, according to the report.

?If anything, the market is a little bit hesitant,? said Thomas Watts, managing director for equity research for the investment firm Cowen & Company, LLC. While investors might be open to established private firms going public today, new companies may not be so lucky. ?Investors are open to it, but at the same time, I think there?s a wait and see attitude to new ventures,? he said.

High operations costs remain a major barrier, investors said. That is particularly true at the start when major investment in basic launch or spacecraft development infrastructure is required before returns can be seen.

?There?s some parts of the business, on the operations side, where you?re talking about significant investments of capital up front,? said Hugh Evans, a partner with Veritas Capital, an investment firm, adding that there will always be interest in affordable launch providers. ?Some of the trends we find attractive are obviously the declining costs of being able to launch satellites.?

Newt Gingrich, chairman of the Gingrich Group and a former speaker of the U.S. House of Representatives, said the bureaucratic red tape inherent in approving space assets for flight — particularly at NASA — is a major obstacle for newcomers to space industry.

?We need a fundamental, real change in how we?re approaching space,? Gingrich said. ?We need a change that allows Americans to participate, not just bureaucrats.?

Gingrich said the risk-adverse focus of NASA and space-oriented government offices has stymied progress in both commercial and government-sponsored exploration efforts.

?We have adopted an insane model of being so risk averse that we spend so much time and money on avoiding error that we avoid achievement,? Gingrich said, noting that if the country today tolerated risk as well as it did in the first 25 years of aviation, ?we would have a colony on Mars by now.?

Gingrich said tax-free cash prizes for major accomplishments, like a $1 billion purse for the ability to repeatedly launch and land a recoverable orbital spacecraft, could do wonders for spurring private innovation. If the prizes are set to be budgeted only in the year they are won, rather than set aside for years until a winner comes forward, then it might be more palatable for lawmakers, he added.

?I am passionately committed to prizes,? Gingrich said. ?The great power of prizes is simple; they allow anybody anywhere who?s competent to try and solve a problem.?

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