The Space Reviewin association with SpaceNews

Masten Xombie flight
NewSpace companies have made progress in the last year, such as Masten Space Systems winning over $1 million in NASA prize money in the Lunar Lander Challenge, but expectations for companies are even higher. (credit: J. Foust)

The maturing NewSpace industry

Bookmark and Share

For years the entrepreneurial commercial space industry, or NewSpace, has existed on the periphery of the broader space community. While some NewSpace efforts, in particular space tourism ventures, have gotten their share of public attention, to many NewSpace has been a sideline at best to the more “serious” work done by major aerospace companies in the civil, commercial, and military space realms. That perception hasn’t been helped by a reputation among some in NewSpace to bash NASA, as well as internecine squabbling among companies.

“It is time to grow up,” said Greason.

That situation is changing, though, partially as NewSpace companies evolve and mature, but also the new attention given to commercial space by initiatives in NASA’s budget proposal, most notably a commercial crew development program. While many established aerospace companies will participate in those new initiatives, NewSpace companies will likely play a major role, heightening their profile—not to mention increasing scrutiny by those skeptical that fledgling companies should be trusted with key elements of NASA’s future. Is NewSpace ready to step up?

“It is time to grow up”

The evolution of the NewSpace industry was a key theme at the Space Access ’10 conference, held in Phoenix Thursday through Saturday. The annual conference has long been an opportunity for entrepreneurs, engineers, advocates, and others to gather and discuss the latest efforts to develop vehicles and other technologies to improve suborbital and orbital access to space. Over the years the conference’s content has evolved, reflecting the changes in the NewSpace industry: this year there were plenty of videos and other reports of flight tests by several companies actively developing suborbital vehicles. And NASA bashing, a staple of such conferences in years past, was not in evidence this year—in fact, several NASA officials were in attendance, talking about various commercial space initiatives.

While that can be taken as a sign that the industry is evolving and taking itself more seriously, there’s still more that needs to be done from the perspective of one company executive. “It is time to grow up,” said Jeff Greason, president of XCOR Aerospace. NewSpace, he said, needs to adopt the characteristics of more mature industries: “They are much more interested in growing the pie than they are in fighting over the scraps. They sell pieces to each other. They do not tear each others’ efforts down.”

Greason cited one case as proof that there’s room for improvement in the actions of the industry. “In a rational universe, what would happen is, if you have a program that has a vehicle and no engine, and you have other companies that are building vehicles and have engines, you would go and buy engines, because you would then have a vehicle and could make money,” he said. “For whatever reason that’s not happening. I would be glad to sell people engines, but they don’t want to buy them.”

The stumbling block, he said, appears to be the perception that by doing business with one another, companies are enabling their competitors. However, he noted, a company that sells a rocket engine makes money, and the company that buys it for their vehicle can now put that vehicle into service to make money. “So who cares?” he asked.

There will come a time, he said, when the industry will reach a tipping point and shift from vertical integration to horizontal integration. “That’s part of how we’ll know we’ve crossed an irrevocable threshold as an industry. We’re not there yet.”

“I’m not sure we’re ready to do all the things the United States government is depending on this industry to be able to do,” Greason said. “That’s just too bad.”

Adding an element of urgency to this process is the new emphasis on commercial efforts in NASA’s new plan as well as growing concerns about the stability of the US space industrial base, something Greason said he became familiar with while serving on the Augustine Committee last year. “The dinosaurs are dying off faster than we can evolve to fill their niches,” he said, referencing an old analogy that likens the old space industry to dinosaurs and NewSpace to mammals.

That is putting pressure on the industry to step up, something that he worries it might not be ready to handle. “I’m not sure we’re ready to do all the things the United States government is depending on this industry to be able to do,” he said. “That’s just too bad, because we’re going to have to do it anyway.”

Jeff Greason described prospects for NewSpace companies as both “terrifying and wonderful” during a talk at Space Access ’10 in Phoenix on Friday. (credit: J. Foust)

Evolving Armadillos, new plans for Rocketplane

An example of a NewSpace venture that has matured over the years is Armadillo Aerospace. Started about a decade ago by John Carmack as a group of hobbyists interested in suborbital spaceflight, Armadillo has become a full-fledged business working with a range of customers, from the Rocket Racing League to NASA. Most of the core team members, once all volunteers, are now full-time employees, and the company is generating a modest operating profit. “We’ve pretty much become the company we set out to be a number of years ago,” Carmack said.

One concern Carmack said he has it avoiding becoming just another small aerospace company, “always chasing around their friends and contacts” looking for work. While their work for their existing customers has been successful, he said it’s become “distracting” to the core interest in developing suborbital vehicles. “It is kind of getting in the way of building the things we want to build for the vehicles we want to build,” he said.

Carmack plans to address this by investing more money into the company, taking advantage of the money he made last year by selling his gaming company, id Software. “Armadillo really was operating at the limit of what I could personally provide,” he said. “It was the limit of what my wife would let me put into it.” He plans to “step up” the amount of his own money he’s putting into the company to allow it to do more interesting work, even if that means going into the red again.

Armadillo plans to resume in the near future a series of “boosted hop” test flights, where its Mod vehicle flies up to a specified altitude and then comes down. Armadillo did a series of those flights in recent months, but in one flight, when the vehicle flew to 1,200 meters (4,000 feet), the vehicle lost attitude control, tipped to one side, and plummeted to the ground. They now understand that problem and plan resuming boosted hops first at their home site, Caddo Mills airport in Texas, where they can go to 6,000 feet (1,800 meters). From there they’ll go to Spaceport Oklahoma for flights of up to at least 20,000 feet (6,000 meters); higher flights will require going to Spaceport America in New Mexico.

Carmack expressed optimism that Armadillo was close to having all the key technologies needed for a complete suborbital vehicle. “What we’ve got, what we’ve been flying, is pretty damn close to what we need for a reusable suborbital vehicle,” he said.

“Armadillo really was operating at the limit of what I could personally provide,” Carmack said. “It was the limit of what my wife would let me put into it.”

While Armadillo has been making steady progress, another company, Rocketplane Global, has been largely in stasis the last couple of years, unable to proceed with the development of its XP suborbital spaceplane because of a lack of funding. Chuck Lauer, vice president of business development at Rocketplane Global, blamed that on the financial crisis that made it virtually impossible to raise large sums of money, exacerbated by the distraction of trying to also develop an orbital system by a sister company, Rocketplane Kister, which had a funded agreement with NASA as part of the Commercial Orbital Transportation Services (COTS) program. “The whole COTS debacle damn near killed us,” he said.

With most of the company’s employees laid off, there has been no active development of the XP, but Lauer sounded optimistic that could soon change. He announced Saturday that Rocketplane Global had signed a letter of intent with the Jacksonville Aviation Authority (JAA) to fly out of Cecil Field, a former naval air station that received a spaceport license from the FAA earlier this year. Rocketplane, he said, was the first company to reach an agreement with the JAA to operate out of Cecil Field. The flights would be coupled to the development of a tourist attraction at the spaceport that would offer a more mass-market experience, including virtual reality spaceflights, at a cost similar to typical theme park admissions.

Lauer said it would be something like the Kennedy Space Center Visitors Complex, which features a “Shuttle Launch Experience” ride, but with one key difference. “The KSC Visitors Complex is backward looking. It’s a museum dressed up with some hands-on exhibits,” he said. “This is the opposite. This is forward looking. This is the future of American spaceflight.” Cecil Field was well-positioned for something like this, since it’s the first spaceport located near a major city, and thus can easily tap into the tourism already associated with it. “Coupling space tourism with conventional tourism is just a fundamentally sound idea,” Lauer said.

As for funding, Lauer said Rocketplane was “really close” to closing a new round of financing. While Rocketplane needs hundreds of millions of dollars to both develop the XP as well as the terrestrial tourist attraction, the latter is well understood by the finance community, opening up new doors for the company. Lauer said they’ve been working with an investment bank on this and expect to close some funding “within a few weeks”. That would allow them to resume development of the XP and be on track to begin commercial flights in 2013.

Waiting for the bandwagon

If Rocketplane is able to secure that funding, it would be an exception to the rule for NewSpace companies. Few have been able so far to get money from institutional investors like investment banks and venture capitalists. Instead, most have either had the benefit of a wealthy founder (Carmack and Armadillo, Jeff Bezos and Blue Origin, etc.) or have lined up individual “angel” investors. Could this change in the near future?

“We’ve been talking a really good game for a long time, and now they’re handing us the ball,” Fleming said. “Don’t drop it.”

If it does, it could happen quickly. Stephen Fleming, an individual investor who also runs the Enterprise Innovation Institute at Georgia Tech, noted that investment in the “cleantech” industry in the US went from virtually zero five years ago to nearly 20 percent of total venture capital investment now. “The private equity—venture capital, angel—market in this country is an extraordinarily nimble market,” he said, as investors “jump on the bandwagon” of hot new fields. “There is absolutely no reason why this cannot become a bandwagon. Just because they have not done it doesn’t mean that they will continue not doing it.”

As companies in the industry gain more experience and make progress, it becomes easier for them to get the attention of potential investors. “The industry is becoming—I woudn’t say more mature, but it’s at least a teenager now,” said Joseph Pistritto, an individual investor. “I think that’s really important because if you turn around and go to an investor, it’s your concrete experience and your actual relationships with customers and vendors that can make the difference.”

One near-term concern for the industry, though, is proposed financial reform legislation. The Senate version of the legislation, introduced by Sen. Chris Dodd (D-CT), proposes a number of changes that would make it harder for startups in any industry from raising funding from angel investors, such as increasing the net worth and income thresholds for accredited investors. In an op-ed published by The Huffington Post recently, commercial space advocate Rick Tumlinson called the legislation an “angel killer”.

The bill’s language “will make it illegal for about three-quarters of the angel investors in this country to continue making private equity investments” because of the change in thresholds for become an accredited investor, Fleming said. “That can be fixed,” he said. “We simply need to make sure people educate him [Sen. Dodd] on what the, I believe, unintended consequence are” to startups.

Fleming was pleased about the NASA’s new direction and its increase in reliance on commercial providers, but warned that the industry will have to deliver. “We’ve been talking a really good game for a long time, and now they’re handing us the ball,” he said. “Don’t drop it.”

That sentiment was echoed by Greason. “So it’s a hard road, it’s a long road, but we’re getting there, and the size of the opportunity that we’re faced with is terrifying and wonderful,” he said. However, he also said that might be the last chance for the commercial space industry in the US to demonstrate its capabilities. “If we blow it this time, I don’t know that we’re going to get another chance, because I’m not sure there’s going to be a United States space industry for us to work for.”